24-2748-cv Granite State Insurance Co. v. Primary Arms, LLC
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August Term 2025
(Argued: September 17, 2025 Decided: December 10, 2025)
Docket No. 24-2748-cv
GRANITE STATE INSURANCE COMPANY, NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.,
Plaintiffs-Counter-Defendants-Appellees,
- against -
PRIMARY ARMS, LLC,
Defendant-Counter-Claimant-Appellant.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
Before: CHIN, NARDINI, AND KAHN, Circuit Judges. Appeal from a judgment of the United States District Court for the
Southern District of New York (Schofield, J.) in favor of two insurance
companies, holding that they had no duty under Texas law to defend or
indemnify a firearms retailer in three underlying lawsuits. The district court
held that the underlying suits do not trigger a duty to defend or indemnify under
the relevant insurance liability policies because they do not allege injury arising
from an "accident" as that term is defined by Texas law. We agree and,
accordingly, affirm the judgment of the district court.
AFFIRMED.
CHRISTOPHER J. ST. JEANOS (John Goerlich and James E. Fitzmaurice, on the brief), Willkie Farr & Gallagher LLP, New York, NY, and Washington, DC, for Plaintiffs-Counter-Defendants-Appellees.
ALEXANDER T. BROWN (Alana M. McMullin, on the brief), Lathrop GPM LLP, Kansas City, MO, for Defendant-Counter-Claimant-Appellant.
Laura A. Foggan, Crowell & Moring LLP, Washington, D.C., for Amicus Curiae Complex Insurance Claims Litigation Association in Support of Plaintiffs- Appellees and Affirmance.
2 CHIN, Circuit Judge:
In this case, two insurance companies dispute their duty to defend
and indemnify a Texas-based firearms retailer in lawsuits arising from the
retailer's alleged sales of "ghost gun" kits and parts for "ghost guns." Defendant-
Appellant Primary Arms, LLC ("Primary Arms") sells and ships firearms and
firearm components, including to residents of New York. Plaintiffs-Appellees
Granite State Insurance Company ("Granite State") and National Union Fire
Insurance Company of Pittsburgh, Pa. ("National Union" and together, the
"Insurers") issued liability policies to Primary Arms (the "Policies") covering
certain damages caused by "accidents."
In 2022, the State of New York (the "State"), the City of Buffalo
("Buffalo"), and the City of Rochester ("Rochester") filed separate lawsuits against
Primary Arms and other firearms retailers (the "Underlying Suits"), alleging that
the defendants' intentional marketing and sales of firearm parts led to increased
gun violence and, consequently, economic damages to the plaintiffs, which were
required to expend resources on law enforcement and community services due
to the influx of illegal firearms. The Insurers then filed this action, seeking a
declaration that they have no duty to defend or indemnify Primary Arms in the
3 Underlying Suits. The district court held that the Policies do not extend to the
Underlying Suits and entered judgment for the Insurers on all counts.
We hold that, because the Underlying Suits do not allege an
"accident" as required to trigger coverage under the Policies, the Insurers have no
duty to defend or indemnify Primary Arms in those cases. We therefore
AFFIRM the decision of the district court.
BACKGROUND
The parties agree that Texas law applies. 1 Under Texas law, we
determine the Insurers' duty to defend by considering only the allegations of the
Underlying Suits and the provisions of the Policies. See Monroe Guar. Ins. Co. v.
1 See Chau v. Lewis, 771 F.3d 118, 126 (2d Cir. 2014) ("[I]mplied consent . . . is sufficient to establish choice of law." (quoting Krumme v. WestPoint Stevens, Inc., 238 F.3d 133, 138 (2d Cir. 2000))). The choice of Texas law is also appropriate under New York's choice-of-law rules. See Thea v. Kleinhandler, 807 F.3d 492, 497 (2d Cir. 2015) (explaining that a federal court sitting in diversity must apply the choice-of-law rules of the state in which it sits). In insurance actions, New York courts tend to apply the "law of the state which . . . was . . . the principal location of the insured risk." Schwartz v. Liberty Mut. Ins. Co., 539 F.3d 135, 152 (2d Cir. 2008) (citation modified); see also Zurich Ins. Co. v. Shearson Lehman Hutton, Inc., 642 N.E.2d 1065, 1069 (N.Y. 1994). If the insured risk "is scattered throughout multiple states, [New York] courts . . . deem the risk to be located . . . in the state of the insured's domicile at the time the policy was issued." Certain Underwriters at Lloyd's v. Foster Wheeler Corp., 822 N.Y.S.2d 30, 36 (App. Div. 1st Dep't 2006) (citation modified), aff'd, 876 N.E.2d 500 (N.Y. 2007); see also Fireman's Fund Ins. Co. v. Great Am. Ins. Co. of N.Y., 822 F.3d 620, 642 (2d Cir. 2016). Here, as the Policies cover multiple states, the principal location of the insured risk is deemed to be Primary Arms' domicile of Texas, where the LLC is headquartered. 4 BITCO Gen. Ins. Co., 640 S.W.3d 195, 199 (Tex. 2022). 2 In "comparing the
allegations in the plaintiff's petition to the policy provisions," we disregard the
"truth or falsity of those allegations." Id.
I. The Underlying Lawsuits
The facts alleged in the Underlying Suits may be summarized as
follows. We take as our primary framework the State complaint against Primary
Arms, which the Buffalo and Rochester complaints largely mirror. 3
A. Primary Arms' Sales of Firearms and Firearm Parts
Primary Arms sells and ships firearms and firearm parts, including
unfinished firearm frames and receivers, to locations across the United States,
including New York. Between July 25, 2016 and August 9, 2022, Primary Arms
sent at least 25,428 packages into New York, with a "significant portion"
consisting of unfinished firearm frames and receivers. App'x at 57-58.
2 In some cases, a court may look beyond the pleadings and insurance policy if "the insured and a third party suing the insured colluded to make false representations of fact to secure a defense and create coverage where it would not otherwise exist." Monroe Guar. Ins. Co., 640 S.W.3d at 199. This exception does not apply here. 3 Unlike the State complaint, the two city complaints do not include negligence per se or negligent entrustment claims. Compare Second Am. Compl. at 116-19, New York v. Arm or Ally, LLC, No. 1:22-cv-06124 (S.D.N.Y. Mar. 13, 2023), Dkt. No. 157, with Compl. at 179-89, City of Buffalo v. Smith & Wesson Brands, Inc., No. 1:23-cv-00066 (W.D.N.Y. Jan. 23, 2023), Dkt. No. 1-1 Ex. B, and Compl. at 183-93, City of Rochester v. Smith & Wesson Brands, Inc., No. 6:23-cv-06061 (W.D.N.Y. Jan. 24, 2023), Dkt. No. 1-3 Ex. B. 5 Primary Arms' "extensive marketing efforts tout[] [its] products as a
way around background checks and other public safety laws." Id. at 52. For
instance, federal law requires firearm manufacturers to stamp every firearm with
a serial number and to keep records of which serial number corresponds to
which weapon, so that law enforcement officers can quickly trace guns recovered
at crime scenes. Federal law also requires that firearm purchasers undergo a
background check, which ensures that guns do not fall into "the hands of
dangerous persons." Id. at 47. Primary Arms, however, designs and produces its
products to skirt "the definition of a 'firearm' simply by leaving a few key holes
undrilled or plastic unfiled." Id. at 39. Primary Arms then sells its firearm parts
without the serialization or background checks required for finished firearms
and without ensuring that buyers possess a firearms license. Consequently, with
Primary Arms' help, individuals can "easily convert[]" the unfinished weapons
kits they purchase from Primary Arms into untraceable firearms called "ghost
guns." Id. at 38-39. Primary Arms even "provid[es] jigs and equipment to help
customers convert the[] [products] into ghost guns, as well as instructions,
guides, and technical support." Id. at 52. "[O]nce completed, there is no
6 meaningful difference between [Primary Arms'] products and a frame or receiver
one could buy at a gun store." Id. at 39.
This "built-in evasion of federal and state laws" makes Primary
Arms' products "naturally attractive to (and naturally marketed to) persons who
would not be able to purchase guns legally." Id. at 41. As part of this business
model, Primary Arms purposefully "fail[s] to exercise any controls on its sales."
Id. at 56-57; see also id. at 144-45. Indeed, since at least June 2016, Primary Arms
has embarked on a marketing program geared toward selling its ghost gun kits
to "individuals who [are] likely to create an unreasonable risk of harm to others,
such as those with criminal convictions, subject to restraining orders, with
disqualifying mental health histories, or who lack[] proper licensing and
training." Id. at 77. Through this deliberate marketing and sales strategy,
Primary Arms knowingly "participate[s] in and facilitate[s] the secondary market
where persons who have injurious intent obtain their firearms." Id. at 94; see also
id. at 118-19.
Primary Arms' intentional marketing and sales scheme allegedly
helped launch a surge of gun violence in New York. The "influx of ghost guns
into New York" has threatened public health and safety by "(i) increasing the
7 number of firearms likely to be used in the commission of a crime, (ii)
diminishing or unwinding the effect of on-point legal protections, including
those relating to intimate partner violence, (iii) increasing the number of murders
and suicides, and (iv) creating a new primary and secondary market for illicit
guns in New York." Id. at 59. Consequently, the State, Buffalo, and Rochester
have been forced to monetarily respond to the crisis by expanding community
services, financing additional public hospital resources, and redirecting law
enforcement priorities.
B. The Policies
The operative Policies cover the time period at issue in the
Underlying Suits. Under the Policies, the Insurers must defend and indemnify
Primary Arms in certain actions seeking damages because of bodily injury or
property damage. The Policies only extend, however, to cases in which the
alleged injury is caused by an "occurrence." Id. at 24; see also id. at 30. The
Policies define "occurrence" as "an accident, including continuous or repeated
exposure to substantially the same general harmful conditions." Id. at 26; see also
id. at 34.
8 C. The Claims Against Primary Arms
In 2022, the State, Buffalo, and Rochester sued Primary Arms and
other gun companies in the Underlying Suits for damages resulting from the
above-described allegations. See New York v. Arm or Ally, LLC, No. 1:22-cv-06124
(S.D.N.Y.); City of Buffalo v. Smith & Wesson Brands, Inc., No. 1:23-cv-00066
(W.D.N.Y.); City of Rochester v. Smith & Wesson Brands, Inc., No. 6:23-cv-06061
(W.D.N.Y.). The State lawsuit includes claims under N.Y. Executive Law § 63(12)
for repeated or persistent illegal and fraudulent conduct; under N.Y. General
Business Law § 898-c for public nuisance; under N.Y. General Business Law § 349
for deceptive acts and practices; under N.Y. General Business Law § 350 for false
advertising; for negligence per se; and for negligent entrustment. Meanwhile,
Buffalo and Rochester brought claims under N.Y. General Business Law § 898-a-e
for public nuisance; for common law public nuisance; and under N.Y. General
Business Law §§ 349-50 for deceptive business practices.
II. The Proceedings Below
After the State, Buffalo, and Rochester filed the Underlying Suits,
Primary Arms demanded that Granite State defend it by paying its legal costs
and indemnify it by paying any potential settlements or judgments against it
9 resulting from the lawsuits. Although Primary Arms did not tender notice of the
lawsuits to or seek coverage from National Union, both Insurers sent Primary
Arms letters denying coverage.
On August 29, 2023, the Insurers filed this action against Primary
Arms, seeking a declaratory judgment that the Policies do not obligate them to
defend or indemnify Primary Arms in the Underlying Suits. On December 13,
2023, the Insurers moved for partial summary judgment on the issue of their
duty to defend. On January 19, 2024, Primary Arms cross-moved for partial
summary judgment on the same issue.
The district court granted the Insurers' motion for partial summary
judgment and denied Primary Arms' cross-motion on August 30, 2024, reasoning
that the Underlying Suits did not allege an "accident" as required to trigger the
duty to defend under the Policies. The parties then filed a joint letter agreeing
that the district court's ruling on the duty to defend also disposed of the Insurers'
remaining claims on the duty to indemnify. Accordingly, on September 16, 2024,
the district court entered an order ruling that the Policies did not obligate the
Insurers to indemnify Primary Arms for the same reasons that the Policies did
10 not obligate them to defend Primary Arms. Final judgment was entered in favor
of the Insurers on all counts and dismissing Primary Arms' counterclaim.
This appeal followed.
DISCUSSION
The principal issue presented is whether the Underlying Suits allege
harm caused by an "accident" as that term is used in the Policies. 4 We conclude
they do not.
We begin with a discussion of Texas law and the meaning of the
word "accident." We then turn to the Insurers' duty to defend Primary Arms and
explain why the allegations of the Underlying Suits do not allege an accident or,
therefore, an occurrence, as required to invoke that duty. Finally, we note that
the Insurers have no duty to indemnify Primary Arms for the same reasons, as
the parties agreed below.
4 The Insurers further contend that the Underlying Suits independently fail to satisfy a second criterion necessary to trigger coverage under the Policies, namely, that the Underlying Suits must seek "damages because of 'bodily injury.'" Appellees' Br. at 40-48. Because we find that the Underlying Suits do not allege an "accident," we need not decide this question here. 11 III. Standard of Review
We review a district court's grant of summary judgment de novo.
Kowalchuck v. Metro. Transp. Auth., 94 F.4th 210, 214 (2d Cir. 2024). The same
standard applies when the parties have filed cross-motions for summary
judgment and the district court has granted one motion but denied the other.
Roberts v. Genting New York LLC, 68 F.4th 81, 88 (2d Cir. 2023). We "view[] the
evidence in the light most favorable to the nonmoving party to determine
whether genuine issues of material fact preclude judgment as a matter of law"
and "draw all reasonable inferences in [the nonmoving party's] favor." Murphy v.
Hughson, 82 F.4th 177, 180, 183 (2d Cir. 2023). In the case of cross-motions, we
evaluate each party's motion "on its own merits" and draw "all reasonable
inferences" against the party whose motion we are considering. Roberts, 68 F.4th
at 88 (quoting Morales v. Quintel Ent., Inc., 249 F.3d 115, 121 (2d Cir. 2001)).
IV. Applicable Law
A. Texas' "Eight-Corners Rule"
"Under [Texas'] eight-corners rule," we determine an "insurer's duty
to defend . . . by comparing the allegations in the plaintiff's petition to the policy
provisions, without regard to the truth or falsity of those allegations and without
12 reference to facts otherwise known or ultimately proven." Monroe Guar. Ins. Co.,
640 S.W.3d at 199. The duty to defend arises when "[a] plaintiff's factual
allegations . . . potentially support a covered claim." Gore Design Completions, Ltd.
v. Hartford Fire Ins. Co., 538 F.3d 365, 368 (5th Cir. 2008) (quoting GuideOne Elite
Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 307 (Tex. 2006)); see also
Gonzalez v. Mid-Continent Cas. Co., 969 F.3d 554, 559 (5th Cir. 2020) ("[T]he duty to
defend arises when 'the plaintiff alleges facts that would give rise to any claim
against the insured that is covered by the policy.'" (quoting Don's Bldg. Supply,
Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 31 (Tex. 2007))).
The Fifth Circuit, interpreting Texas law, has repeatedly
underscored that the factual allegations in a complaint -- rather than legal
theories, conclusory labels, or conclusory statements -- control the duty-to-
defend analysis. See, e.g., Gore Design Completions, Ltd., 538 F.3d at 369 ("It is the
factual allegations, not the legal theories, that control."); Coleman v. Sch. Bd. of
Richland Par., 418 F.3d 511, 523 (5th Cir. 2005) ("[S]tatements of conclusions in the
complaint that are unsupported by factual allegations will not trigger a duty to
defend." (quoting Jensen v. Snellings, 841 F.2d 600, 612 (5th Cir. 1988))); XL
Specialty Ins. Co. v. Bollinger Shipyards, Inc., 800 F.3d 178, 182 (5th Cir. 2015) ("The
13 court considers the facts alleged in the underlying complaint rather than
conclusory labels applied to claims."). Put simply, "[i]f the underlying pleading
alleges facts that may fall within the scope of coverage, the insurer has a duty to
defend; if, on the other hand, the pleading only alleges facts excluded by the
policy, there is no duty to defend." State Farm Lloyds v. Richards, 966 F.3d 389, 393
(5th Cir. 2020) (quoting Ooida Risk Retention Grp., Inc. v. Williams, 579 F.3d 469,
472 (5th Cir. 2009)).
We liberally construe the factual allegations in favor of coverage.
GuideOne Elite Ins. Co., 197 S.W.3d at 308; see also Gore Design Completions, Ltd.,
538 F.3d at 368-69 ("[D]oubts are resolved in the insured's favor . . . . When in
doubt, defend."). Courts may not, however, "read facts into the pleadings" or
"imagine factual scenarios which might trigger coverage." Uretek (USA), Inc. v.
Cont'l Cas. Co., 701 F. App'x 343, 345 (5th Cir. 2017) (unpublished) (quoting St.
Paul Ins. Co. v. Tex. Dep't of Transp., 999 S.W.2d 881, 885 (Tex. App. 1999)).
B. Meaning of "Accident" Under Texas Law
Under the Policies, the Insurers need only defend Primary Arms
against lawsuits claiming damages "caused by an 'occurrence.'" App'x at 24.; see
also id. at 30. [A219.] The Policies define "occurrence" as "an accident." Id. at 26;
14 see also id. at 34. Because the Policies do not define the term "accident," "we must
interpret it in accordance with its 'generally accepted or commonly understood
meaning.'" Nat'l Union Fire Ins. Co. of Pittsburgh v. Puget Plastics Corp., 532 F.3d
398, 402 (5th Cir. 2008) (quoting Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242
S.W.3d 1, 8 (Tex. 2007)).
"Consistent with ordinary usage, the Supreme Court of Texas has
defined the term 'accident' as a 'fortuitous, unexpected, and unintended event.'"
Frederking v. Cincinnati Ins. Co., 929 F.3d 195, 197 (5th Cir. 2019) (quoting Lamar
Homes, Inc., 242 S.W.3d at 8). As articulated in Discover Property & Casualty
Insurance Co. v. Blue Bell Creameries USA, Inc. ("Blue Bell"), a two-part test guides
the accident inquiry under Texas law: An act "is not an accident when [1] [an
individual] commits an intentional act that [2] results in injuries that ordinarily
follow from or could be reasonably anticipated from the intentional act." 73 F.4th
322, 329 (5th Cir. 2023) (citation modified).
Under the first prong of the two-part test, "an intentional act and the
intent to cause injury are two distinct concepts." Am. States Ins. Co. v. Bailey, 133
F.3d 363, 372 n.11 (5th Cir. 1998), abrogated on other grounds by, Liberty Mut. Fire
Ins. Co. v. Copart of Conn., Inc., 75 F.4th 522, 535 (5th Cir. 2023). "[T]he 'intentional
15 acts' requirement is concerned with the voluntariness of an action or omission,
not the actor's intended outcome." Blue Bell, 73 F.4th at 329. Indeed, whether the
insured subjectively "expects or intends the injury is of no consequence." Id. at
331 (alterations adopted) (quoting Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d
819, 827-28 (Tex. 1997)).
Under the second prong of the test, if "either . . . the insured
intended the injury . . . or . . . the resulting damage was the natural and expected
result of the insured's actions," a claim does not allege an accident. Lamar Homes,
Inc., 242 S.W.3d at 9. This standard also applies even when "the insured was
negligent." Id. Thus, an accident has transpired if an intentional act "is
performed negligently" and "the effect is not what would have been intended or
expected had the action been performed non-negligently." Harken Expl. Co. v.
Sphere Drake Ins. PLC, 261 F.3d 466, 472 (5th Cir. 2001) (emphasis added).
Framed differently, intentional acts do not constitute an accident -- or, thus, an
"occurrence" -- if "(1) the resulting damage was 'highly probable' because it was
'the natural and expected result of the insured's actions,' (2) 'the insured intended
the injury,' or (3) the insured's acts constitute an intentional tort, in which case,
16 the insured is presumed to have intended the injury." Nat'l Union Fire Ins. Co. of
Pittsburgh, 532 F.3d at 402 (quoting Lamar Homes, Inc., 242 S.W.3d at 8-9).
V. The Insurers' Duty to Defend
A. The Underlying Suits Do Not Allege Harm Arising from an "Accident"
We conclude that the Policies do not cover the Underlying Suits
because the complaints do not allege an "accident" under Texas law or, thus, an
"occurrence" under the Policies. We analyze the allegations of the Underlying
Suits according to the two-step test distilled in Blue Bell.
1. The Underlying Suits Allege that Primary Arms Intentionally Sold Firearm Parts to Individuals Whom the Law Forbade from Owning Firearms and to Individuals Who Otherwise Posed a Risk of Harm to Others.
As alleged in the Underlying Suits, Primary Arms concocted a
business model to "exploit[] demand for unfinished frames and receivers . . . for
[its] own financial benefit." App'x at 45. It carried out this plan by intentionally
marketing and selling its products to New York consumers who "would not be
able to purchase guns legally, or who want a gun that cannot be traced back to
them." Id. at 41. Primary Arms thus "intended to sell and knowingly sold
unfinished frames and/or receivers to individuals who were likely to create an
unreasonable risk of harm to others, such as those with criminal convictions,
17 subject to restraining orders, with disqualifying mental health histories, or who
lacked proper licensing and training." Id. at 77.
When Primary Arms advertised its products to these buyers as
"easily convertible" into finished firearms, id. at 38, it sent its products into New
York "knowing, intending, or being willfully blind to the fact that these products
would be converted into working, unserialized firearms," id. at 70. Therefore,
Primary Arms intended not only to sell its products but to sell them specifically
to people "who could not buy a firearm through legitimate channels," id. at 69,
and who "cannot and should not have a deadly weapon," id. at 41, but who
nevertheless were motivated to possess a gun. Primary Arms therefore
committed the requisite “intentional act” under the first prong of the test from
Blue Bell. 73 F.4th at 329.
2. The Resulting Financial Harm to the State, Buffalo, and Rochester Was the Natural and Expected Result of Primary Arms' Intentional Acts.
As alleged in the Underlying Suits, Primary Arms' conduct spawned
an "influx of ghost guns into New York . . . [that] (i) increas[ed] the number of
firearms likely to be used in the commission of a crime, (ii) diminish[ed] or
unw[ound] the effect of on-point legal protections, including those relating to
intimate partner violence, (iii) increas[ed] the number of murders and suicides, 18 and (iv) creat[ed] a new primary and secondary market for illicit guns in New
York." Id. at 59. These consequences could have been reasonably anticipated, in
light of the allegation that Primary Arms "intended to sell and knowingly sold
unfinished frames and/or receivers to customers intending to use them in the
commission of a crime." Id. at 77-78. Thus, the damage was a "highly probable"
result of Primary Arms' marketing, selling, and shipping strategy. See Nat'l
Union Fire Ins. Co. of Pittsburgh, 532 F.3d at 402 (quoting Lamar Homes, Inc., 242
S.W.3d at 9).
The ensuing financial burdens on the State, Buffalo, and Rochester
were not "fortuitous" or "unexpected." Lamar Homes, Inc., 242 S.W.3d at 8. One
would naturally expect that a state or local government responding to increased
gun-related incidents would need to spend more -- on deploying police officers
to the scenes of gun violence, on law enforcement investigations seeking to solve
ghost-gun-related crimes, on expanding community support services for those
affected by gun violence, and on hospital resources required to treat gun-related
injuries. Therefore, the financial injuries to the State, Buffalo, and Rochester
"ordinarily follow[ed] from" Primary Arms' intentional acts of marketing and
19 selling ghost gun kits to individuals legally prohibited from owning firearms.
See Blue Bell, 73 F.4th at 329 (quoting Bailey, 133 F.3d at 372).
Because Primary Arms "[1] commit[ted] . . . intentional act[s] that [2]
result[ed] in injuries that ordinarily follow from or could be reasonably
anticipated from the intentional act[s]," the asserted injuries do not arise from an
"accident." See id. (quoting Bailey, 133 F.3d at 372). Accordingly, we hold that the
Underlying Suits do not allege an occurrence as defined by the Policies.
B. Primary Arms' Arguments Fail
1. The State Complaint's Conclusory References to Negligence and Negligence-Based Legal Theories
Primary Arms argues that its actions should be categorized as
merely negligent, rather than intentional, based on Texas law's distinction
between the Maupin line of cases (concerning intentional acts) and the Orkin line
of cases (concerning negligent acts). 5 For support, it primarily points to a
5 The two lines of cases take their names from Argonaut Southwest Insurance Co. v. Maupin, 500 S.W.2d 633 (Tex. 1973), and Massachusetts Bonding & Insurance Co. v. Orkin Exterminating Co., 416 S.W.2d 396 (Tex. 1967). The Maupin category includes "damage that is the natural result of voluntary and intentional acts" -- and therefore does not involve an occurrence. Federated Mut. Ins. Co. v. Grapevine Excavation, Inc., 197 F.3d 720, 723 (5th Cir. 1999). The Orkin category includes "negligent acts of the insured causing damage which is undesigned and unexpected" -- and therefore involves an occurrence. Id. at 725 (citation modified). 20 sentence from the State complaint alleging that, "given the nature of [the firearms
manufacturers'] business practices and products, together with the known nature
of the gun industry market and the statistical relationship between a gun
manufacturer's conduct and gun crime outcomes, [the firearms manufacturers]
are knowingly, negligently, and/or recklessly causing harm to New York's public
health and safety." App'x at 157 (emphasis added).
This argument fails because we must ignore conclusory legal labels
when analyzing the duty to defend. See Gore Design Completions, Ltd., 538 F.3d at
369; Coleman, 418 F.3d at 523; XL Specialty Ins. Co., 800 F.3d at 182. "[A]rtful
pleading suggesting that [an insured party's] acts were negligent or reckless
cannot overcome the basic facts underlying the[] claims." Bailey, 133 F.3d at 372.
Here, the State, Buffalo, and Rochester have not accused Primary Arms of
negligently performing an intentional act where "the result would have been
different had the deliberate act been performed correctly." Lamar Homes, Inc., 242
S.W.3d at 8. Instead, the Underlying Suits allege that Primary Arms performed
intentional acts as intended in pursuit of profit, by knowingly and willfully
choosing to market, sell, and ship firearm parts to individuals in New York
legally prohibited from owning guns. See, e.g., App'x at 41, 45, 68-69, 93-94, 118-
21 19. The Underlying Suits contain no factual allegations of negligence and
therefore do not allege an accident.
The same analysis applies to the State complaint's inclusion of the
negligence per se and negligent entrustment counts. The allegations
corresponding to those claims accuse Primary Arms of "intend[ing] to sell and
knowingly s[elling]" its products to individuals "who were likely to create an
unreasonable risk of harm to others." App'x at 77. The counts allege that, as
Primary Arms well knew, these individuals included people who desired to use
Primary Arms' products for criminal purposes and who were ineligible to
purchase guns legally. The complaint stresses that "[Primary Arms'] intent is
demonstrated by the way [it] has emphasized the untraceability of [its] products
in [its] marketing." Id. at 77-78. According to the factual allegations supporting
these claims, therefore, Primary Arms "did exactly what [it] intended to do"
when it sold and shipped its products to individuals likely to pose an
unreasonable risk of harm to others. See Cowan, 945 S.W.2d at 827.
Moreover, "whether the insured was negligent or not," a complaint
does not allege an accident if the "damage was the natural and expected result of
the insured's actions." Lamar Homes, Inc., 242 S.W.3d at 9. As explained above,
22 no unexpected result materialized here. Primary Arms intentionally "ma[de] no
effort to determine whether [its] consumers were engaged in firearms trafficking
or were ineligible to legally own a firearm," App'x at 142, and purposefully
"failed to exercise any controls on its sales," id. at 56-57. Primary Arms
deliberately implemented practices that naturally and expectedly led to
increased gun violence and to the State, Buffalo, and Rochester's resulting
financial injuries. Accordingly, the factual allegations supporting the state and
city plaintiffs' claims for relief do not illustrate negligent conduct resulting in a
"fortuitous, unexpected, and unintended event." Lamar Homes, Inc., 242 S.W.3d at
8.
2. "Products-Completed Operations" Coverage Theory
Primary Arms next contends that we should carve out a special
"accident" analysis for "products-completed operations hazard coverage," or -- in
essence -- certain products liability cases. 6 Appellant's Br. at 13. We reject this
proposal, for which we see no basis in Texas law.
6 Per the Policies, such coverage includes "bodily injury" and "property damage" that "occur[s] away from premises you own or rent and arising out of 'your product' or 'your work'" (with certain exceptions). App'x at 26; see also id. at 34. 23 According to Primary Arms, courts reviewing "products-completed
operations" cases should discard the usual accident standard established in Blue
Bell -- namely, that if an injury "ordinarily follows from or could be reasonably
anticipated from the intentional act, then the act is not an accident, and thus not
an occurrence." 73 F.4th at 331 (citation modified). Instead, Primary Arms
suggests that the analysis for such cases should focus on "whether the seller
necessarily expected or intended the alleged injuries or damages" subjectively.
Appellants' Br. at 11. Primary Arms claims that this new theory makes sense
because products-completed operations coverage "is specifically designed to
protect policyholders from lawsuits alleging that the products it voluntarily or
intentionally sold and marketed caused injury to others," and therefore coverage
should be especially robust. Id. at 22.
Neither the Texas Supreme Court's cases nor the Fifth Circuit's
holdings, however, justify creating a different standard for "accidents" in
products-completed operations cases. Blue Bell itself involved a product; in the
underlying action, shareholders sued Blue Bell's directors and officers for
financial loss stemming from a Listeria outbreak caused by Blue Bell's product:
ice cream. See 73 F.4th at 326. The shareholders claimed that the directors and
24 officers had breached their fiduciary duties when they knew that Blue Bell's
manufacturing plants had repeatedly tested positive for Listeria contamination
and yet continued to "manufacture and distribute ice cream products in
conscious disregard of the known risks." Id. In the ensuing insurance coverage
dispute, the directors and officers sought defense coverage from their insurance
companies, which -- as here -- argued that the shareholder suit did not arise from
an "accident" or "occurrence." Id. at 326-27. The Blue Bell court applied the
standard accident analysis and held that the alleged injuries were not caused by
an "occurrence," confirming that no divergent definition of "accident" applies in
cases involving products. See id. at 329-30.
Primary Arms also cites to the products liability case Zurich
American Insurance Company v. Nokia, Inc., 268 S.W.3d 487 (Tex. 2008), for support.
That reliance is misplaced, as Nokia spent almost no time on the accident analysis
and focused instead on whether injury to human cells caused by cellphone
radiation constituted "bodily injury" as required by the policies. See id. at 491-93.
In holding that the insurers had a duty to defend, the Nokia court also seemingly
concluded that the injuries had resulted from an accident, but it did not
meaningfully discuss that question and drew no distinction between products-
25 completed operations coverage and other types of liability coverage. See id. at
491 ("The policies covered . . . 'bodily injury' caused by an occurrence during the
policy period."). In fact, Nokia nowhere uses the phrase "products-completed
operations."
Primary Arms points to one of two paragraphs in which the Nokia
court did appear to discuss the occurrence analysis (albeit in a section about
whether the damages had happened "because of" bodily injury), noting that
coverage applied because "[t]he pleadings allege both intentional conduct ([the
insured] knew of [the radiation's] harmful effects and nonetheless intentionally
sold its products to consumers) and negligence ([the insured] should have
known of [the radiation's] harmful effects)." Id. at 495. This reasoning merely
affirms that courts determining an insurer's duty to defend must review all the
factual allegations in the complaint; in Nokia, because factual allegations of both
intentional conduct and negligence existed, the underlying complaints had
alleged an occurrence triggering the insurers' duty to defend. Id. Thus, Nokia did
not establish a new standard for products cases, and we decline Primary Arms'
invitation to create a novel "products-completed operations coverage" rule under
Texas law here.
26 3. Allegations of Illegal Conduct
Primary Arms further takes issue with the district court's discussion
of allegations that Primary Arms broke the law in carrying out its marketing and
sales scheme. Primary Arms argues that these allegations constitute legal
theories, rather than factual allegations that a court may properly consider when
undertaking a duty-to-defend analysis. We are, again, unpersuaded.
While it is true, of course, that the district court discussed the legal
theories underlying the claims against Primary Arms and other gun companies,
the district court focused on the factual allegations of illegal conduct to
determine whether the Underlying Suits alleged intentional acts (such as
purposefully avoiding mechanisms designed to reduce gun violence) with
expected consequences (such as increased gun violence and attendant financial
burdens on state and city governments). The district court concluded that the
Underlying Suits indeed alleged that Primary Arms engaged in deliberate
actions to "flout gun control laws and regulations that have been repeatedly
demonstrated to lower gun violence," App'x at 221, and to "enable the
anonymous acquisition of uncontrolled firearms with the predictable outcome of
increasing gun violence," id. at 222. These assertions go to the heart of the two-
27 step Blue Bell analysis. See 73 F.4th at 331. The district court therefore properly
considered the complaints' factual allegations in determining the Insurers' duty
to defend.
Primary Arms also asserts that some of the claims of the Underlying
Suits may fail if Primary Arms' products do not end up qualifying as "firearms"
under federal law. Assuming without deciding that to be true, under Texas law,
we "compar[e] the allegations in the plaintiff's petition to the policy provisions,
without regard to the truth or falsity of those allegations and without reference to facts
otherwise known or ultimately proven." Monroe Guar. Ins. Co., 640 S.W.3d at 199
(emphasis added). Thus, whether or not all the legal theories in the complaints
ultimately survive, and whether or not all the factual allegations ultimately
prove to be true, have no bearing on the duty-to-defend determination.
VI. The Insurers' Duty to Indemnify
For the same reasons, the Insurers have no duty to indemnify
Primary Arms. "Unlike the duty to defend, an insurer's duty to indemnify is
based on the 'actual facts' brought out in the underlying action," rather than the
allegations of the complaint. VRV Dev. L.P. v. Mid-Continent Cas. Co., 630 F.3d
451, 459 (5th Cir. 2011) (quoting Ooida, 579 F.3d at 472). Thus, the duty to
28 indemnify is typically resolved after the underlying action has concluded. Id.
But the parties agreed below that the district court's ruling on the duty to defend
was dispositive of the Insurers' duty to indemnify, and Primary Arms does not
argue otherwise on appeal. Thus, under the principle of party presentation and
the absence of "extraordinary circumstances" that might justify remand on the
Insurers' duty to indemnify, we also hold that the Insurers have no duty to
indemnify. United States v. Sineneng-Smith, 590 U.S. 371, 379 (2020).
CONCLUSION
For the foregoing reasons, the judgment of the district court is