A federal appeals court has handed two major insurers a win in a closely watched coverage dispute, ruling they have no obligation to defend or pay claims for a firearms retailer sued over its sales of untraceable gun kits.
The Second Circuit's decision, issued December 10, turns on a question carriers face daily: when do intentional business practices cross the line from covered accidents to uncovered conduct?
Granite State Insurance Company and National Union Fire Insurance Company of Pittsburgh had issued liability policies to Primary Arms, a Texas-based retailer that sells firearms and firearm components. The policies covered damages from bodily injury or property damage, but only when caused by an "occurrence," defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."
The trouble started in 2022 when New York State, along with the cities of Buffalo and Rochester, filed separate lawsuits against Primary Arms and other gun retailers. The complaints painted a deliberate picture: Primary Arms allegedly designed and marketed products to skirt federal firearm regulations, selling unfinished frames and receivers without the serial numbers or background checks required for complete guns.
According to the suits, the company sent more than 25,000 packages into New York over six years, many containing parts that buyers could easily finish into working, untraceable firearms. The complaints said Primary Arms provided jigs, instructions, and customer support to help with the conversion, marketing the products as a workaround to gun control laws.
The lawsuits claimed this strategy attracted exactly who you would expect: people legally barred from buying guns or seeking weapons that could not be traced. The result, the plaintiffs said, was a surge in gun violence that forced them to spend more on police, hospitals, and community services.
When Primary Arms asked its insurers to defend the cases and cover any potential settlements or judgments, both carriers declined. They filed their own lawsuit seeking a declaration that the policies did not apply.
The dispute hinged on Texas law, which both sides agreed governed the policies. Under what Texas courts call the "eight-corners rule," judges look only at the complaint allegations and the policy language, ignoring whether the claims are actually true.
The question was whether the underlying lawsuits alleged an accident. Texas law defines that term the way most people would: a fortuitous, unexpected, and unintended event.
The Second Circuit applied a two-part test. First, did the retailer commit intentional acts? Second, did those acts result in injuries that would ordinarily follow or could reasonably be anticipated?
The court found both answers were yes. Primary Arms intentionally marketed and sold products to customers it knew or should have known were prohibited from owning guns or posed risks to public safety, the court said. And the financial damage to the governments was exactly what you would expect when gun violence increases and municipalities have to respond.
Primary Arms tried several arguments. It pointed to language in one complaint describing its conduct as "knowingly, negligently, and/or recklessly" causing harm, suggesting the claims sounded in negligence. The court was not persuaded. Artful pleading cannot overcome the basic facts, the judges said, and the facts alleged deliberate choices made for profit.
The retailer also pushed for a special rule for products liability cases, arguing that courts should ask whether a seller subjectively intended the harm, not whether the harm was foreseeable. The Second Circuit saw no support for that approach in Texas law. The court noted that a recent Fifth Circuit decision involving contaminated ice cream applied the standard test without carving out any exception for products.
Primary Arms also objected to the lower court's discussion of alleged law violations, calling them legal theories rather than facts. The appeals court disagreed, saying the complaints were full of factual allegations about deliberate efforts to evade gun regulations, and those facts went to the heart of whether the conduct was intentional with foreseeable results.
The court affirmed that the insurers have no duty to indemnify for the same reasons. Normally, indemnity decisions wait until the underlying case concludes and actual facts come out. But the parties had agreed that the defense ruling would resolve the indemnity question too, and Primary Arms did not challenge that on appeal.
The decision offers a clear signal for carriers evaluating coverage when policyholders face claims over intentional business practices. Even in products cases, where the insured deliberately sold goods, coverage does not automatically follow. If the complaint alleges the insured knowingly marketed to prohibited buyers or structured its business to evade regulations, and foreseeable harm resulted, that is not an accident under Texas law. The ruling also underscores the importance of the eight-corners rule in Texas and similar jurisdictions. Carriers must assess coverage based solely on what the complaint says and what the policy requires, without looking at outside facts or waiting to see how the case plays out.
For insurers writing general liability coverage, the case is a reminder that "occurrence" and "accident" still mean something. Intentional acts that produce expected results fall outside standard policy language, even when the insured did not specifically intend to harm any particular person.
