Firearm Liability Coverage

[coverageguy]

Hopefully I'm not coming off as being too critical for hammering so many liability issues--to be clear, I do like what's going on here and the idea of more user-friendly personal lines policies. I didn't see any dialogue on the firearm liability exclusion and I think it's probably worth discussing.

On firearm liability, the current exclusion reads as follows: We don’t cover damage caused by assault weapons (as defined by the Federal Assault Weapons Ban of 1994). Harm caused by other licensed firearms is covered, as long as they were stored securely and used responsibly.

Firstly, there are a number of exclusions that open with essentially, "We don't cover damage..." and I think "damage" should be replaced in these instances with "bodily injury or property damage" as defined in the coverage document for the sake of clarity on the consumer side. On excluding coverage for claims involving assault weapons as defined by the AWB, this seems really tricky. This legislation was notorious for being full of loopholes, so utilizing the AWB definition for firearms brings those loopholes into the policy. For one, it doesn't define what an assault weapon is so much as it defines certain specific guns as being assault weapons--the legislation includes a list of specific weapons, but the list is limited to weapons that were manufactured in 1994 and earlier, so coverage for weapons introduced after the ban expired would be covered, right? They certainly wouldn't be on the list of weapons in the 1994 AWB, but is covering those under the policy the intent? Now I don't think including a schedule of continuously changing firearms on the policy is logical or practical, but it's worth discussing.

Finally, the exclusion carries a caveat covering "other licensed firearms" as long as they were "stored securely and used responsibly" based on recommendations from the California Office of the Attorney General's website. Unlike the 1994 AWB, this website isn't static--as is, your definition of secure storage and responsible use will change every time an edit is made to the site. Maybe it'll create an issue, maybe it won't, but it'll be a lot for the adjuster to have to weigh when making a coverage decision. ISO's exception to the intentional bodily injury or property damage exclusion allows coverage for the use of "reasonable force" to protect persons or property, maybe something to that effect would be sufficient in this policy? Otherwise, do you expect an adjuster to determine if the policyholder was keeping their firearm and ammunition stored separately using California-approved lock boxes and trigger locks as part of their coverage decision? Should an Illinois or New Jersey policyholder be held to that same standard? Are all policyholders expected to ensure they're complying with the latest California OAG recommendations to continue coverage? If so, is a compliance review something you'd expect them to do at renewal? Or continuously?

If the goal is to know a risk and limit exposure, why not use something like, "We will not provide coverage for bodily injury or property damage caused by any firearm not scheduled on the policy, but this exclusion will not apply to the use of reasonable force of a scheduled firearm to protect persons or property." Firearms are usually a topic of discussion for producers writing property coverage, if there are certain firearms that fall outside of Lemonade's property or liability risk appetite, this gives Underwriting the opportunity to keep them out of the portfolio.

[daschreiber]

Thanks for your constructive and thoughtful suggestions. You're right AWB has challenges - but are you aware of a better definition, or more clear cut one?

[coverageguy]

Lawmakers and the firearm industry have struggled with defining assault weapons for almost 25 years now since the AWB passed, and there’s still not a hard and fast definition that’d fit the clear and laid back tone of 2.0.

Ohio is working on new assault weapon legislation that generally defines them as, "an automatic firearm that has not been rendered permanently inoperable, a semi-automatic firearm capable of accepting a detachable magazine with the capacity to accept ten or more cartridges, and a semi-automatic firearm with a fixed magazine with the capacity to accept ten or more cartridges." This is a much broader net than 1994’s AWB, but may be along the lines of what you’re looking for if firearm liability is generally outside of Lemonade’s risk appetite. Unfortunately, it’s a clunky definition overall.

When folks attempt to define assault weapons narrowly, it usually starts with “military style semi-automatic rifles”—but that term is subjective and hotly debated. Then the definition usually speaks to a folding/collapsing stock, and a pistol grip—but both of these things can be modified by owners/manufacturers. Finally, the definition usually speaks to the gun being magazine-fed, and sometimes will mention other factors, like bayonet mounts.

The biggest question really is, how much firearm liability is Lemonade looking to shoulder? If it’s minimal, you could exclude firearm liability in the main policy form, then develop an endorsement to add coverage back for specific firearms owned by the policyholder at policy inception thus giving Underwriting the option of passing on the business if it doesn’t fit Lemonade’s internally-defined coverage criteria.

[daschreiber]

Many thanks. Really helpful and something we will noodle on and consult more broadly on!

[Redcloak63]

There are several problems with this section as written. The first, as pointed out earlier, is that the 1994 AWB, affected a list of particular firearms. To the best of my knowledge, none of these models are in production anymore. More important, the law expired in 2004. It seems a little silly to be referencing a long dead law.

Current state bans, such as California's, are ill defined and politically motivated. (And because they're so badly written, designers usually have work-arounds in place before the laws even go into effect!) It isn't just to impose the legal standards of one State upon the residents of another.

Perhaps a better approach would be to state that coverage won't apply to firearms that are illegal in the policy holder's State of residence. Though, isn't it already the case that illegal items cannot be insured?

[coverageguy]

I suspect the intent was for the policy to take a more conservative stance on firearms, but that’s just a hunch.

[Redcloak63]

The section on firearms currently reads...

"Assault weapons (as defined by the Federal Assault Weapons Ban of 1994) are not covered. Other licensed firearms are covered, as long as they are stored securely and used responsibly."

(Included is a link to the CA Attorney General's office regarding safe storage as defined by CA law.)

The '94 AWB didn't actually ban possession of anything. The guns affected were grandfathered in for those who owned them. And there was no registration retirement. In effect, this section is denying coverage for a tiny number of lawfully owned, 30+ year old guns. That only makes sense if the motivation is political.

As to "licenced" guns, most States don't license or register guns. Should this be read as only covering guns in those States that do issue licenses? Or are all guns considered "licensed" in States that don't issue licenses?

The whole section seems politically motivated. If the intent is to not cover illegal firearms, then wouldn't it be better to state that no illegal property of any sort is covered? We wouldn't expect illegal narcotics to be covered, but why single out firearms?