Gun Litigation Alfred T. Childers, Stamford BACKGROUND: Lawsuits against gun manufacturers are not new. For more than 15 years, victims and their relatives have attempted to hold manufacturers responsible for injuries caused by the criminal use of handguns. What is new is the filing of lawsuits by about 30 cities against the gun industry for recovery of the cost of police, medical and other municipal services provided as a result of gun violence. Two recent cases in this area have raised issues which seem to have national significance, and ultimately may have to be resolved by the U.S. Supreme Court. IMPACT: Hamilton, et al. v. Beretta U.S.A. Corp., et al., 2000 U.S. App. LEXIS 20903, a New York case, was decided on August 16, 2000 by the U.S. Court of Appeals for the Second Circuit, and represents the first federal appellate consideration of a jury verdict against gun manufacturers for injuries caused by a properly functioning gun. All other gun cases in New York have been stayed pending a decision on the appeal of the Hamilton case by the state's highest court. City of Cincinnati v. Beretta U.S.A. Corp., et al., 2000 Ohio App. LEXIS 3601, decided on August 11, 2000 by the Court of Appeals of Ohio, First Appellate District, Hamilton County, represents one of the first state appellate level decisions in the municipality v. gun industry arena. In similar cases across the country, trial judges in Chicago, Miami, and Bridgeport (CT) have dismissed the lawsuits. But in cases pending in Detroit, Atlanta, Boston, New Orleans, and Cleveland, trial judges have allowed such lawsuits to go foward. Appeals to appellate level courts have been made, or likely will be made, in all of these cases. CRITICAL ISSUES: The Hamilton case began in 1995 in the United States District Court for the Eastern District of New York. The trial judge dismissed the plaintiff's product liability and fraud claims but allowed the case to proceed on a negligent marketing theory. In 1999, seven plaintiffs went to trial against 25 defendant gun manufacturers. The plaintiffs asserted that the defendants negligently flooded the markets with hand guns in the southern states with weak gun control laws. The plaintiffs offered evidence to show that the defendants' actions contributed to the development of a huge illegal market for guns in the metropolitan New York area. After a four week trial, the jury returned a special verdict, finding that 15 of the 25 defendants had failed to use reasonable care in the distribution of their guns. The jury awarded Stephen Fox (permanently disabled after surviving a shooting) $3.95M and his mother $50,000. This award against three gun manufacturers was reduced to $500,000 to reflect the cumulative market share of these remaining defendants. On appeal to the Second Circuit, the defendants asserted that they did not owe a duty to the plaintiffs and therefore, as a matter of law, could not be held liable. The defendants cited McCarthy and Forni v. Ferguson , No.132994 / 94 (N.Y. Sup. Ct. Aug. 2, 1995) for the proposition that, under New York law, courts do not impose a legal duty on manufacturers to control the distribution of potentially dangerous products. The court rejected this argument finding that the facts in Hamilton differed significantly from the facts in the Ferguson case. The defendants argued that the recognition of a duty in this case would violate the rule in New York that a defendant has no duty to protect a plaintiff from tortious or criminal conduct by a third party. The exception would be where a special relationship exists between defendant and plaintiff, or between defendant and a third person ( examples of special relationships recognized by the law include: parent and child; master and servant; and common carrier and passengers.) The Second Circuit observed that what constitutes a special relationship under the law is the result of a complex balancing of factors, including the reasonable expectations of the parties, and society in general, and public policy affecting the expansion or limitation on new channels of liability. The Court referred the following questions to the New York Court of Appeals: "whether there is a duty owing by these defendant gun manufacturers to plaintiffs who are gun victims and if there is such duty, whether liability may be apportioned on the basis of the negligent manufacturer's market share." In the City of Cincinnati case, a three judge panel of the Ohio Court of Appeals affirmed a trial court's dismissal of the city's suit. The following are particularly significant points addressed in the appellate court's decision: The city's strict products liability claim fails because the city as a corporate entity suffered no harm to itself. The city alleged that it suffered actual injury including expenses for police, emergency health, corrections, prosecutions and other services. The court ruled that these costs are economic. Economic loss is not "harm" as defined in Ohio's Products Liability Act. In order to state a product liability claim for defective design, the plaintiff must allege a defect in a specific product. The court ruled that the city in its complaint failed to identify a single defective condition in a particular model of gun. The city cannot pursue a market share theory of liability because such a theory is precluded by the Ohio Products Liability Act. The city failed to state a failure to warn claim. The court said that "a manufacturer has no duty to warn of an obvious danger. Knives are sharp, bowling balls are heavy, bullets cause puncture wounds in flesh. The law has long recognized that obvious dangers are an excluded class." To establish a negligence claim, a plaintiff must demonstrate the existence of a duty, a breach of that duty, and an injury proximately caused by the breach. The court ruled that the gun manufacturers have no duty to prevent a third person from causing harm to another in the absence of a special relationship between the parties. The city claimed that it had been injured by a public nuisance arising from the defendants' design, marketing and distribution of guns. The court rejected this argument, stating that the Ohio Supreme Court (see Franks v. Lopez, a 1994 decision) has refused to extend the law of public nuisance to the design and construction of products. A claim for absolute nuisance is based upon either intentional conduct or abnormally dangerous conditions, so strict liability is imposed. In this case the city alleged that the defendants intentionally and recklessly marketed, distributed and sold guns that they knew would be possessed and used illegally. The court found that an activity that is authorized by the law cannot be a public nuisance or an absolute nuisance. This is especially true in the case of guns because their marketing and sale are subject to both state and city regulations. The doctrine of remoteness bars recovery in tort for indirect harm suffered as a result of injuries directly sustained by another person. The court found that the city's claim was clearly contingent on the acts of a third party and thus is indirect. In conclusion, writing for the majority, Judge Ralph Winkler said that "The city has failed to state any claims against the defendants that would allow it to recover for its municipal expenses. Were we to decide otherwise, we would open a Pandora's box. For example, the city could sue the manufacturers of matches for arson, or automobile manufacturers for traffic accidents or breweries for drunk driving." JURISDICTION(S): All states, but particularly those with large urban areas. MARKETING/UNDERWRITING CONSIDERATIONS: The annual sales of all gun manufacturers total roughly $1.4B. Gun manufacturers therefore are not able to absorb many large verdicts. There is very little doubt that gun manufacturers, distributors and trade associations will look to their insurance carriers for indemnification and defense costs. Gun litigation could raise a host of new insurance coverage issues, for example, whether a negligent marketing claim is a products or operations claim. Moreover, the adoption of a negligent marketing theory, or the expansion of the market share theory and/or a nuisance cause of action to include products would represent a profound expansion of the grounds under which plaintiffs could recover in all products related claims. Legal Disclaimer: This information was compiled by the General Reinsurance Corporation Claims Department and is intended to provide background information to our underwriting staff (as well as to our clients' underwriters). The information may need to be revised and updated from time to time. You should consult with your own legal counsel before relying on it.