Why is Lloyd’s of London Insuring American Guns?

Over the years, Lloyd’s of London has insured everything from celebrity body parts to Richard Branson’s Virgin Galactic spaceship. Less well known, however, is that in the United States, Lloyd’s underwriters have taken on policies associated with a more common, yet arguably more dangerous risk: guns.

As gun violence continues to exact a steep price in the United States, leaving 26 dead in one shooting in Sutherland Spring, Texas, last month, the insurance industry’s role is drawing criticism from gun control advocates who claim that some policies may be providing what critics call “murder insurance.”

The National Rifle Association drew scrutiny from insurance regulators in October over its marketing of Carry Guard insurance, a product launched earlier this year and underwritten by Westchester, part of the Chubb insurance company, to cover the civil and criminal defense costs in the event a gun owner shoots someone in self-defense. While Carry Guard has earned some notoriety, less attention has been focused on how Lloyd’s underwrites several different types of NRA-endorsed firearms policies, ranging from personal liability to insurance for gun shows.

Lloyd’s can underwrite insurance that many insurance companies cannot because of the way it is set up: It operates as a marketplace in which underwriters come together as syndicates to pool risk. That brings together specialists in unusual areas, allowing it to insure things like the nose of a winemaker with a unique sense of smell.

That structure enables the Lloyd’s market to underwrite policies that other insurers may be hesitant to take on, like for firearms, according to experts.

“If there is an unusual or unpopular risk that needs to be met, someone somewhere in Lloyd’s is often willing to assess it and put a price on it. This applies to a wide range of insurance needs arising around the world,” said Andrew Duguid, the author of On the Brink: How a Crisis Transformed Lloyd’s of London.

And in the United States, those insurance needs include guns.

The National Rifle Association promotes a variety of insurance products for gun owners and gun show promoters through Lloyd’s, including products that cover costs stemming from criminal and civil defense suits against the policyholder. According to the NRA’s website, the self-defense policy includes coverage for defense costs and damages in a civil suit and reimbursement for criminal defense costs upon acquittal.

The policies advertised on the website remain up to date, said Dean Davison, the senior vice president and director of communications for Lockton Companies, which administers the NRA-endorsed insurance.

The NRA declined to comment; contacted by Foreign Policy, a Lloyd’s spokesman in London did not respond to requests for comment, while a spokeswoman in New York declined to comment on the policies.

It’s unclear how long the insurance policies have been offered, but it appears to be at least several years. In 2013, Insurance Journal noted that the NRA “offers an insurance program administered by Lockton and insured by Lloyd’s of London.”

The same year, Bankrate, Inc.’s personal finance website reported that Lloyd’s of London underwrote two options for NRA self-defense coverage, including one for $100,000 in combined liability coverage for civil defense costs plus criminal defense reimbursement if acquitted, at the price of $165 a year; the second offered combined coverage of $250,000, at the price of $254 annually.

The self-defense policy is currently advertised on the NRA’s website, and the association also promotes a similar insurance policy specifically designed for retired law enforcement officers.

The NRA-endorsed policies are unusual, because insurance policies people buy as individuals don’t normally cover defense costs stemming from criminal prosecution. The concern is that such coverage would present a “moral hazard,” meaning it disincentivizes risk avoidance, said Peter Kochenburger, a professor at the University of Connecticut School of Law.

Kochenburger, executive director of the university’s Insurance LLM Program and deputy director of the Insurance Law Center, said that he’s often skeptical of the moral hazard argument. But in this case, protecting clients from the costs of criminal prosecution if they used their guns in an act of self-defense does pose a “legitimate concern.”

Critics contend that such policies could result in more gun violence, for the same reason some believe “stand your ground” laws can make people more likely to pull the trigger: It potentially lessens the consequences of shooting a gun.

A 2013 study published in the Journal of Human Resources found that “stand your ground” laws — which have been passed in 24 states and, under certain circumstances, allow people to resort to violent self-defense — failed to reduce burglaries, robberies, or aggravated assaults. They also “lead to a statistically significant 8 percent net increase in the number of reported murders and nonnegligent manslaughters,” the study authors concluded.

When these laws are in place, people may be more likely to use a weapon, said Mark Hoekstra, an economist at Texas A&M University and one of the study’s authors.

“I think the same thing could potentially extend to these insurance contracts,” he said. “Perhaps they don’t affect your decision-making in that stressful, split-second time frame, but it is possible that you would be more likely to put yourself in a situation where you face a decision like that than you would if you didn’t have this type of insurance.”

Kochenburger also said he was surprised that the NRA-endorsed self-defense insurance policy asked for so little information from applicants. In contrast, the application for the NRA-endorsed Armscare coverage, which protects guns and their accessories from loss, theft, and damage, asks for more information than the liability policy, he noted.

Yet the self-defense policy potentially puts the insurer at greater risk than a theft or damage policy, “not $10,000 for firearms, but potentially a million dollars,” he said. 

Self-defense isn’t the only type of gun insurance offered through Lloyd’s; gun show promoters are covered by another NRA-endorsed policy.

Lloyds’s connection to American gun shows briefly came to attention several years ago. In 2008, an 8-year-old boy accidentally shot and killed himself with an Uzi machine pistol during a gun show held at the Westfield Sportsman’s Club of Massachusetts.

When the boy’s family filed a $4 million wrongful-death suit that included the club as a defendant, Lloyd’s filed a federal suit in 2010. It argued that the policy it underwrote for the club did not cover claims associated with “criminal activity” — and club officials had pleaded no contest to charges of involuntary manslaughter. The Lloyd’s underwriters also said the club’s policy was exempt from liability related to gun shows.

According to court records, the case was dismissed after the plaintiff, listed as Certain Underwriters at Lloyd’s, London, failed to serve the defendants within 120 days of filing the complaint.

While details of the club’s insurance policy are not public — lawyers and individuals affiliated with the case contacted by FP either did not respond or declined to comment — underwriters at Lloyd’s do provide insurance that specifically covers gun show promoters.

“Every venue requires us to have [insurance],” said John, a gun show promoter, who asked that his last name not be used.

The owner of Appalachian Promotions in Carlisle, Pennsylvania, John puts on gun shows in Pennsylvania and Maryland. He says his gun show promoter insurance is underwritten through Lloyd’s, and he has used the same insurance for the past 15 to 18 years.

“They are the NRA’s choice,” he said.

Yet the key reason he chose a policy through Lloyd’s is the lack of other choices. “There’s usually nowhere else to get it for gun shows,” he said.

Complete information on the number of firms offering insurance to gun show promoters is hard to find, but according to John and Crossroads of the West, a traveling show that attracts thousands of visitors across the United States, such insurance can be hard to come by.

John of Appalachian Promotions said that he suspects other gun show promoters rely on Lloyd’s as well. One reason for this may be the high insurance costs associated with gun shows. On its website, Crossroads of the West notes that very few insurance companies are willing to cover gun shows and each of the venues it uses for its shows requires a $2 million liability policy. For John, the dearth of options and the NRA’s stamp of approval pointed to the policy underwritten by Lloyd’s.

Insurance that covers gun shows is a valuable service for those involved in promoting the events, but critics say it also underscores Lloyd’s role in enabling a market that is a large source for gun-related crimes.

The so-called “gun show loophole” exempts gun shows from the 1993 Brady Handgun Violence Prevention Act, which mandates federal background checks on firearm purchasers in the United States. That loophole also allows straw purchases, where someone can buy a gun on behalf of someone who doesn’t want to be identified.

In what may be the most notorious example of this loophole, three of the four guns used during the 1999 Columbine massacre were bought at a gun show by a friend of Eric Harris and Dylan Klebold, who killed 13 people.

Gun shows have “been a huge source of firearms purchases for traffickers and people who can’t buy them legally from gun stores,” said Michael Bouchard, a former assistant director for field operations at the Bureau of Alcohol, Tobacco, Firearms, and Explosives.

Insurers are a vital link in the chain of events that can lead to gun violence, says Thomas McDermott, a New York lawyer and gun control advocate who became involved in litigation against gun manufacturers after falling victim to the Long Island Rail Road shooting of 1993.

“That gun show does not open its door without insurance,” he said. By underwriting insurance for gun promoters, Lloyd’s is “aiding and abetting the black market in handguns.”