Firearm Shop Meets Skeptical 2nd Cir. in AIG ‘Ghost Gun’ Dispute

A federal appeals panel appeared skeptical that units of American International Group Inc. should be obligated to pay for a firearm retailer’s defense costs in litigation alleging the seller fueled violence by marketing and selling “ghost guns.”

Texas-based Primary Arms LLC made its case to the US Court of Appeals for the Second Circuit during oral arguments Wednesday to undo a lower court ruling letting its liability insurers off the hook.

But the Second Circuit panel grilled Primary Arms about the nature of the underlying allegations brought by New York Attorney General Letitia James (D) and the cities of Buffalo and Rochester alleging firearm companies contributed to gun violence.

“How do the underlying complaints allege an accident?” Judge Denny Chin asked, highlighting allegations regarding the intentional marketing of unfinished firearms to unlicensed individuals, the shipment of the products into New York, and the intentional design of the products to fall outside the definition of a firearm that must be registered.

The case is one of several pending coverage disputes over the underlying ghost gun litigation. The Second Circuit’s eventual ruling could also shape how courts approach insurance coverage for all sorts of public nuisance claims, including litigation over the opioid epidemic, social media addiction, and climate change.

The question is whether there is even a single allegation in the complaint that would be covered, Alexander Brown of Lathrop GPM LLP told the court, arguing for Primary Arms. A claim for negligent entrustment in the New York attorney general’s complaint, for example, shows coverage should be triggered, Brown said. He also noted the lack of allegations that Primary Arms intended an increase in suicides or gun violence.

AIG, on the other hand, urged the Second Circuit to affirm the August 2024 ruling by the US District Court for the Southern District of New York, arguing that the underlying complaints neither alleged a covered “occurrence” nor sought damages because of bodily injury.

The case isn’t about insurance coverage for the normal business of selling firearms that the policies intended to cover, but rather the intentional marketing and sale of products designed to get around firearm restrictions, said Willkie Farr & Gallagher partner Christopher St. Jeanos, arguing for AIG.

If there is any uncertainty, the appeals panel should certify the issues to the Texas Supreme Court, particularly because the case is a “matter of significant importance” to coverage for many types of public nuisance claims, Brown said.

Judges William J. Nardini and Maria Araújo Kahn also sat on the panel.

The case is Granite State Ins. Co. v. Primary Arms LLC, 2d Cir., No. 24-2748, oral arguments 9/17/25.