In December 2025, the United States Court of Appeals for the Second Circuit held that two insurers had no obligation to indemnify an insured firearms retailer in third-party lawsuits alleging intentional marketing and sale of ghost gun kits. The court found that the lawsuits did not allege harm caused by an “accident” as required by the insurance policies.

The defendant, a Texas-based firearms retailer, sold and shipped unfinished firearm frames and receivers, commonly known as ghost gun kits, into New York between 2016 and 2022. These products were marketed to evade background checks and serialisation requirements. Three separate lawsuits were filed by New York State, Buffalo, and Rochester against the defendant, alleging public nuisance and deliberate business practices that contributed to increased gun violence.

The claimant insurers had undertaken to indemnify the defendant in terms of a liability insurance policy for damages caused by “accidents”.  The defendant sought indemnification from the claimants for defence costs and any indemnity payments arising from the lawsuits.

The claimants rejected the defendant’s claim for indemnification, arguing that they had no obligation to indemnify the defendant because the lawsuits alleged intentional conduct, not harm caused by an “accident,” which is a prerequisite to trigger coverage under the policy.

Under Texas law, an insurer’s obligation to defend is determined by the “eight-corners rule,” comparing the allegations in the complaint to the insurance policy’s provisions. Coverage applies if the alleged harm arises from an “occurrence,” which is defined in the policy as an accident. The insurance policy did not define “accidents”.

The court applied the two-part accident determination test: an act is not an accident when the insured commits an intentional act, and the resulting injuries ordinarily follow from or could reasonably be anticipated from that act. Texas courts interpret an “accident” as a fortuitous, unexpected, and unintended event. Intentional acts that result in injuries that ordinarily follow from those acts do not constitute accidents, even if negligence is alleged.

The court found that the defendant intentionally marketed and sold ghost gun kits to individuals likely to pose a risk of harm, knowing these products would be converted into untraceable firearms. The resulting financial harm to the US state and cities was the natural and expected consequence of these deliberate actions. Therefore, the underlying lawsuits did not allege an accident and thus did not trigger coverage under the insurance policy.

The defendant argued that its conduct should be treated as negligent, citing references to negligence in the complaints. The defendant further contended that that allegations of illegal conduct were legal theories, not relevant facts, and that subjective intent should guide the accident analysis.

The court rejected these arguments, finding that negligence labels cannot override factual allegations of deliberate marketing and sales practices. The complaints alleged intentional acts with predictable consequences, not fortuitous events.

Where a policy does not define a term, courts in the United States and South Africa will apply its ordinary and commonly understood meaning in the context. Clear definitions in policy language help avoid disputes and ensure that both parties understand the scope of coverage.

Granite State Insurance Co. v. Primary Arms, LLC, No. 24-2748 (2d Cir. 2025)