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In today’s highly litigious environment, finding and securing the proper insurance is a vital component of any shooting, hunting and outdoor trade retailer’s business decisions. While there are many sources of insurance, two firms have emerged in the forefront to provide specialized services for firearms retailers.
By Robert M. Hausman
from Petersen's Shot Business • August 2000

n a recent membership services survey, the National Shooting Sports Foundation (NSSF) was surprised at the high percentage of retailers who expressed dissatisfaction in the product liability and fire and theft insurance that was available to them. In fact, 82 percent of retailers said they were not satisfied with their product liability insurance coverage and rates.

In response to that overwhelming dissatisfaction, the NSSF explored the possibility of offering an industry-sponsored retail insurance program-an insurance program by the industry for the industry. Because of that study, the NSSF Board of Governors has unanimously approved the NSSF-sponsored Retail Insurance Program. It is underwritten by one of the world’s leading "A+" rated underwriters and offered through Pavenstedt & Pauli, a highly respected insurance broker based in Lexington, Kentucky.

The NSSF has no interest in selling members any service they don’t need. The goal is the opposite-to help members save on important business services they do need. NSSF realizes most manufacturers carry liability insurance for the products they manufacture and extend that coverage to retailers. There are reasons, however, many retailers feel the need to carry their own liability insurance.

Unfortunately, having insurance does not mean you cannot be sued. And even if you win the case, you can still be responsible for substantial legal expenses. There are also circumstances when a manufacturer’s policy may not cover you. Two examples are:
    Example 1: The manufacturer ships a firearm to the retailer and encloses detailed printed instructions and warnings. A store employee sells the gun without including the original box and instructions. The buyer is later injured because he does something that the warnings normally enclosed with the firearm could have prevented if the buyer had been informed of them. The retailer could be found negligent.
    Example 2: The retailer receives information from a manufacturer regarding a recall. He does not pass the information along to the purchaser (or the purchaser claims he never received it) and a shooter is injured because of the defect. The retailer could be found at fault.

The NSSF-sponsored insurance plan, developed in cooperation with Pavenstedt & Pauli, features: a "no claims bonus"—up to a 10 percent discount on renewal if you have no claims; low minimums; and NSSF oversight—since Pavenstedt & Pauli is an NSSF partner, they share NSSF’s strong commitment to your business’ success.

The NSSF believes this new package can save you thousands of dollars and can collectively save retailers an estimated one million dollars that can be invested back in your businesses and in our industry. Pavenstedt & Pauli (U.S.A.), Inc., the plan administrators, has been active in the firearms industry for over ten years, insuring such industry leaders as Sturm, Ruger & Co., Inc.

Program Terms

Specifically, the NSSF-sponsored insurance program’s general liability (including products) limits of insurance are $2 million for products-completed operations aggregate limit; $1 million general aggregate limit (other than products-completed operations); and a $1 million limit for personal and advertising injury, as well as a $1 million per occurrence limit. No sub-limits are placed on fire, legal liability and medical payments in the liability policy. While there are no deductibles in the liability policy, there are optional deductibles in the fire and theft portion from $500 to $2,500.

Optional coverages available include:

Off Premises insurance—If inventory is taken to a gun show or other event, coverage is extended to insure the property while off premises. Inventory is not otherwise insured once it leaves the insured premises.

Business Interruption—This cover-age reimburses the insured for profits that would have been earned if an insured loss had not occurred, including reimbursements for necessary continuing expenses.

Extra Expense—This covers expenses incurred to continue normal operations when a covered loss occurs, including additional expenses while operating in temporary quarters due to damages from a covered peril.

Transit Coverage—This provides coverage for property while in transit, either while being delivered to the insured or while en route from the insured to a customer, or, if the insured has more than one location, while being transported between locations.

Professional Liability—Coverage for an actual or alleged error, misstatement, misleading statement, act or omission, or neglect or breach of duty by any of the insureds arising out of the firearms instruction and/or training classes conducted by the insured.

J. Chiarello & Co., Inc.

Over 1,600 retailers, wholesalers, gun-smiths, ammunition manufacturers and ranges look to Joseph Chiarello & Co., Inc. to provide commercial insurance. The firm has provided insurance to the firearms industry for over 20 years and offers a commercial package combining property coverages with premises and products liability. If property coverages are not desired, Chiarello can also offer a monoline Commercial General Liability policy. The liability coverages are written with minimum limits of $1 million per occurrence, but higher limits are also available

Chiarello can also insure sporting ammunition manufacturers and reloaders, gunsmiths including repair and assembly of firearms, indoor/outdoor ranges, trap, skeet and sporting clays fields and sporting goods stores with hunting, target and other shooting supplies who may have policies excluding products liability or "municipal lawsuits."

They can also provide coverage for barrel, accessory (scope, holsters, slings) and other part manufacturing.

Chiarello’s first big industry account was O.F. Mossberg & Sons. Since 1980, the firm has assembled an elite national team of claim adjusters, defense attorneys and defense experts (for whom firearms industry liability is their primary focus) to help policyholders successfully and efficiently control claims. The firm also provides insurance to some 50 firearms manufacturers and importers.

Chiarello’s Sporting Firearms Dealer Insurance Program combines property coverage with premises/products liability and other essential coverages. Among the coverages available in the program are: coverage for firearms instructors, hunting/fishing license surety bonds, property (including burglary, theft and fidelity), and commercial general liability including products and completed operations. The program has been underwritten completely since 1987 by companies of the American International Group (AIG) and rated A++XV (Superior) by American Best & Co.

For those retailers operating shooting ranges, "Training classes would be covered under a general liability policy as long as such courses are part of the store’s normal course of business," says Bob Chiarello, principal of Joseph Chiarello & Co.

Coverage for independent instructors can be provided as a separate firearm instructor’s policy. This includes general as well as professional liability.

The firearms instructor’s insurance policy covers only the liability incurred by the instructor, as a separate entity from the retail store. The instructor can name others on the policy, such as the range or classroom owner, as additional insured. The policy contemplates that effective instruction requires live-fire exercises using firearms and ammunition, and that the instructor may provide the gun and ammo to the student. The incidental sales of ammunition is contemplated in the policy’s rating structure. "The things not covered include dishonest, illegal acts by the instructor," Chiarello says.

Insured instructors must be qualified in the field in which they intend to instruct by a recognized certification authority. These may be the National Rifle Association, a state or municipal firearm safety licensing authority, or others to be determined acceptable to the insurance company.

"Thus, retailers should make sure the instructors they hire are fully-qualified to give firearms and self-defense instruction," Chiarello continues. Sales personnel working behind the counter should receive as much education about the guns they are selling, as possible. This training, for sales personnel, can be had from many larger firearms manufacturers. Otherwise, if your personnel are called into a courtroom to testify in a suit, they will not be able to provide knowledgeable answers to opposing counsel.

"Every retailer worth his salt will pro-vide customers who buy guns some basic safety instruction in loading, handling, carrying, and storing the firearm, besides pointing out the instruction manual. Though general liability coverage is broad, with few exclusions, if there is a continuing series of lawsuits or claims filed against a particular retailer alleging a failure to warn customers of the need to employ safe gunhandling practices, the insurance company may consider cancellation of their coverage. You and your employees must be able to project a degree of professionalism if your sales policies or training methods are ever called into question," Chiarello advises.

Read Your Policy

The lack of knowledge about the intricacies of the firearms industry from general insurance agents and companies is the reason firearms industry specialist firms, like Joseph Chiarello & Co., Inc., and Pavenstedt & Pauli are in business. Those retailers maintaining insurance with general firms should read their policies carefully and question their agents as to the insurance company’s ability to defend them in a legal situation arising out of the use of a firearm. If your agent cannot answer your questions adequately, both Pavenstedt & Pauli and Joseph Chiarello & Co., Inc. can work with your agent to ensure you have the proper insurance coverage.

Some general insurance companies are moving away from providing firearms insurance to gun retailers altogether, as they feel the firearms industry is "politically incorrect." If this occurs, either of these two specialized gun industry insurance brokers can provide you with a good policy.

Business Practice Tips

Both Bob Chiarello and Jim Falkenstine, a representative of the Pavenstedt & Pauli agency, participated in a detailed firearm retailers’ insurance seminar during the 2000 SHOT Show. For those retailers who did not attend, some of the tips they provided are presented here.

When selling a new firearm, make sure you give your customers all the instructional materials the manufacturer intended to be given to the buyer. This practice helps negate "failure to warn" claims (about the proper operational use of the firearm). An easy way to ensure this is done is to develop a preprinted checklist that your employees go over and mark as they handle a firearm transfer. The checklist would include a demonstration to the customer of how to use the gun lock packed with the firearm if one is present.

It is also a good idea to have each customer sign an acknowledgement that they were presented with all instructional materials along with the firearm. The checklist should also include a buyer’s age verification document. A copy of each filled out checklist should be kept along with a copy of the 4473 form for future reference.

Many firearms retailers already feel overburdened with the federal (and sometimes state and local) paperwork they have to fill out and maintain for each sale, but the extra effort you make can pay for itself if a lawsuit is filed against your store.

"After an accident, the truth doesn’t always come out. The truth may be massaged by an attorney who is trying to collect money for someone. Sometimes people forget what really happened. Retailers should be able to show they are absolutely sure that the way they handled the sale in question was right and that no one can question it. If you appear thoroughly professional in everything you do, the jury will weigh that against what the other guy did," Chiarello says.

When selling a used gun, the customer should be given verbal safety warnings along with the telephone number of the manufacturer so the buyer can request an instructional manual. Author’s note: If the manufacturer is no longer in business, you should advise the customer of this and use your discretion in determining the buyer’s level of firearm expertise in deciding whether to sell the gun to this individual.

Dealers selling used guns are considered to be selling the firearm with an implied warranty that it is fitted for its intended purpose. Under this legal theory, firearms dealers are automatically considered "experts" since within the practice of their trade they are thought to have acquired more knowledge about firearms than the average person. Thus, if you are not sure if a used firearm is functional and safe, you should have it checked by a competent gunsmith before you offer it for sale.

If you sell gun locks, make sure you sell models with quality features. Don’t sell a gun lock if its advertising claims the product is "child-proof." Chiarello advises, "‘Child-resistant’ would be a better term. Nothing is child-proof, foolproof or idiot-proof. The warnings on the gun lock are as important as its quality. Advise your customers that no gun lock is totally resistant to being disabled."

As always, sell quality. Make sure you maintain a clean and orderly shop and do not have merchandise on the floor that people can trip over. If you do gunsmithing, make sure all the machines’ safety guards are in place and there is no excessive oil or grease accumulations which can pose a fire hazard.

Since theft is the most serious of the property exposures for retailers, all Chiarello-insured dealers are required to have central station alarm systems as these allow police to respond quickly to a break-in. For stores with large plate glass windows or doors, it is highly recommended that crash guards are installed around the building’s perimeter to prevent crash and run burglars using a pickup truck.

Some retailers who have kept their handguns in glass showcases at night and have had a couple of smash and grab losses, are now required by Chiarello to lock their handguns in a safe at night. Some showcase manufacturers have developed protective covers which prevent theft and may be a good choice for some retailers.

While retailers who maintain their own on-premises gunsmithing operations would be covered under their general liability policies, those who send jobs to an off-premises gunsmith should make sure the gunsmith has commercial liability insurance. If you give all your repair work to one gunsmith, it is recommended you ask to be named as an additional insured on the gunsmith’s policy. The same applies for retailers buying ammunition from a commercial reloader.

Retailers are generally not required to have manufacturer certificates of insurance for every item sold. By dealing with distributors who do have such certificates, however, retailers can feel confident that manufacturers will defend them (through their insurance companies) if an action is brought against them for a product failure in which the retailer played no part.

Chiarello says retailers should look closely at manufacturers who are selling dealer-direct, as sometimes they may not have liability insurance.

All retailers, no matter how small their operations, should be incorporated. Otherwise, their past business actions can come back to haunt them. The determination of whether an insurance policy will cover you is the date that the accident happened. To illustrate this concept, Chiarello cites the case of a gunsmith doing business as a sole proprietor who decided to retire and notified the insurance company he would not renew. The gunsmith was advised to retain his insurance for a couple of years although he was not in business any more.

Luckily for the gunsmith, he renewed. A short time later, a gun he had worked on two years previously blew up and the owner filed a suit. Since the ‘smith had elected to continue his insurance policy, he was considered insured and the insurance company defended the action against him. Had the gunsmith not renewed the policy, he would have had to finance his defense out of his own pocket.

So, Chiarello advises, "Insurance is financial responsibility. All shooting, hunting and outdoor sports retailers should make sure they are covered by the proper insurance. We can’t afford to have any uninsured or undefended lawsuits that could result in the creation of bad law because someone did not have the financial resources to mount a defense that was appropriate to the claim."

Editor’s note: Coverage described in the above article may not be available in all states. The product descriptions are not a complete description of all terms, exclusions and conditions in the policy. Policy terms may be changed by insurers, and the preceding descriptions are not intended to be relied upon by potential clients. Issuance of coverage is subject to underwriting.