Supreme Court weighs how much New York regulators can discourage business with NRA

• The National Rifle Association contends that insurers dropped their business with the gun advocacy group because of coercion from New York regulators.
• The head of the New York Department of Financial Services, which has broad power over banks and insurers, cautioned businesses about potential reputational risks for dealing with the NRA.

WASHINGTON – The National Rifle Association is once again battling New York state regulators − this time at the Supreme Court − over the visceral reaction to mass shootings, which threatened to choke off insurance and lending to the gun advocacy group.

The case isn’t about the Second Amendment right to bear arms. It’s about the First Amendment right to free speech. The eventual judgment is likely to redefine how far government officials can go in voicing opinions about the businesses they regulate.

The Justice Department weighed in because − depending how the high court rules − the justices could complicate the enforcement of state and federal laws and regulations.

U.S. Solicitor General Elizabeth Prelogar didn’t take sides in the case. But she argued even if state officials went too far in discouraging insurers and banks from doing business with the NRA, the case should be decided narrowly to avoid disrupting other regulators.

A group of current and former prosecutors filed an argument in the case warning the Supreme Court that its decision could open the door to lawsuits over everything from high-profile charges in the Capitol attack on Jan. 6, 2021, to preventing distribution of unapproved medications for COVID-19.

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The court could "open the floodgates to First Amendment litigation, providing the targets of enforcement actions a new avenue to attack routine, and lawful, exercises of prosecutorial or regulatory discretion at all levels," according to county prosecutors from Virginia, California, Michigan, Oregon and New York.

NRA promoted insurance programs that critics called 'Murder Insurance'

The NRA contends New York’s powerful Department of Financial Services coerced insurers to stop doing business with the group because officials didn’t like advocacy for guns.

The NRA, which is headquartered in New York, began setting up insurance programs for members in 2000 for policies covering life, health property and casualty. In April 2017, the NRA began marketing policies called “Carry Guard” to cover expenses from using a legal firearm in self-defense. "Carry Guard" policies were administered by Lockton and underwritten by insurers Chubb and Lloyd’s of London.

But a critic of the NRA alerted the Manhattan District Attorney’s office to the policies and prosecutors sent the matter to the Department of Financial Services, which began investigating in October 2017. Chubb and Lockton suspended the Carry Guard program the next month.

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By February 2018, in the aftermath of a horrific school shooting in Parkland, Florida, the superintendent of the Department of Financial Services, Maria Vullo, began meeting with insurance executives who did business with NRA. What was said is disputed, but Lloyd’s of London decided to stop underwriting firearm-related policies that month.

“In short, she made it no secret that her purpose was to penalize an advocacy group because she opposed its political views,” the NRA argued.

The NRA sued Vullo, claiming she “abused her regulatory muscle to punish the organization for its First Amendment–protected speech and to suppress its future speech.”

How did the case reach the Supreme Court?

The NRA sued Vullo and others by arguing her actions punished the organization for its political views. Under Supreme Court precedents, government officials can express their opinions under the First Amendment, but they cannot “attempt to coerce.”

A U.S. District Court judge dismissed most of the NRA's claims, but allowed the group to continue fighting Vullo over allegations she violated the First Amendment by coercing insurers to stop doing business with the NRA.

The 2nd U.S. Circuit Court of Appeals ruled out even those claims, finding the NRA failed to plausibly allege unconstitutional coercion.

The Supreme Court agreed to hear arguments about whether the First Amendment "permits a government official to threaten regulated entities with adverse regulatory action if they do business with an advocacy organization."

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Vullo, who was then superintendent of financial services, argues the NRA’s insurance programs were illegal, so forcing insurers to drop the coverage was a no-brainer.

The department determined the NRA’s insurance products were “unlawfully marketed” because the group lacked the necessary license.

The department also bars insurance for intentional acts and criminal defense costs. Commentators described Carry Guard as “murder insurance” and criticized Lockton and Chubb for their involvement.

New York’s Department of Financial Services is powerful because it can grant or deny licenses, launch investigations, impose millions of dollars in fines and refer matters for criminal prosecution. For example, the department imposed a $150 million penalty on Deutsche Bank for failing to consider the “reputational risk” of offering financial services to child trafficker Jeffrey Epstein.

In May 2018, two of the insurance companies admitted to unlawfully providing insurance in New York and agreed to pay $7 million from Lockton and $1.3 million from Chubb. In December 2018, Lloyd’s acknowledged violating state law and agreed to pay a $5 million fine.

The NRA agreed to pay $2.5 million and to refrain from offering insurance in New York for five years.

“Carry Guard violated New York law in numerous respects,” Vullo’s brief said. “It provided coverage for intentional acts and criminal defense costs.”

Vullo argues that accepting NRA’s arguments would encourage lawsuits for damages against government regulators and could block legitimate enforcement actions.

“Accepting the NRA's arguments would set an exceptionally dangerous precedent,” Vullo’s lawyers wrote. “This Court should reject that alarming request.”

NY regulators say 'social backlash' against NRA demanded change after Florida school shooting

While NRA’s insurance policies were getting off the ground, a Florida teenager opened fire at Marjory Stoneman Douglas High School on Feb. 14, 2018, killing 17 people. Criticism rained down on the NRA, including from then-New York Gov. Andrew Cuomo and Vullo, who began meeting with insurance executives.

Following these meetings, Lloyd’s agreed to stop underwriting firearm-related policies and to scale back its business with the NRA.

On Feb. 25, Lockton’s chairman placed a “distraught phone call to the NRA,” and “confided that Lockton would need to ‘drop’ the NRA” for “fear of ‘losing (our) license’ to do business in New York,” even though he wished to continue their business relationship of nearly 20 years, according to the NRA’s filing. The next day Lockton posted on social media it would discontinue services for NRA-endorsed insurance programs.

On April 19, 2018, Vullo sent “guidance letters” to New York banks and insurers “in the wake of several recent horrific shootings,” listing Columbine High School, Sandy Hook Elementary School and a Las Vegas music festival. Vullo said the “social backlash” against the NRA and other gun-rights groups “is demanding change now.”

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“The Department encourages regulated institutions to review any relationships they have with the NRA or similar gun promotion organizations, and to take prompt actions to managing these risks and promote public health and safety,” the letter said.

Prelogar, speaking for the Biden administration, said the first four paragraphs of the New York letter were fair comment under the First Amendment, simply meant to convince companies not to do business with the NRA rather than coerce them.

But she acknowledged the final paragraph might have gone too far in targeting the NRA because of its viewpoint by encouraging businesses to consider “reputational risks” from dealing with “the NRA or similar gun promotion organizations.” Companies that fail to consider “reputational risks” to their businesses face the threat of multimillion-dollar fines from regulators.

Because of disputes over what Vullo told Lloyd’s at the time, Prelogar said courts would have to gather more evidence before deciding whether she went too far with them.

"The government has wide latitude to speak for itself, including by forcefully criticizing viewpoints with which it disagrees and encouraging citizens to disassociate from groups expressing those viewpoints," Prelogar wrote in her filing. "But the government may not punish or suppress such viewpoints; nor may it coerce others into inflicting the punishment or suppression for it."

Prosecutors warn lawsuits could 'increase astronomically,' depending on Supreme Court's ruling

A half-dozen current and former prosecutors warned the NRA’s position could weaken enforcement and overwhelm the courts with lawsuits that could “increase astronomically.”

For example, more than 1,000 people have been charged in the Jan. 6 riot at the Capitol. Many defendants asked to dismiss their charges on First Amendment grounds by arguing their actions were the result of believing the 2020 election was stolen.

Depending how the Supreme Court rules in the NRA case, those defendants could start filing lawsuits against prosecutors.

Civil lawsuits could discourage prosecution of “quality-of-life crimes,” such as “public camping, offering or soliciting sex, public urination, blocking a sidewalk” under the argument communities are over-policed, prosecutors said.

“Such a rule would chill prosecutorial and regulatory actions from high-profile cases to even day-to-day enforcement matters,” prosecutors wrote in their filing.

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On the regulatory front, if the Environmental Protection Agency took action against a climate-change activist who vandalized federal land, the protester could sue by arguing the agency was trying to silence political comment, prosecutors said in their filing. Someone who sold mis-branded medication to treat COVID-19 could sue by arguing regulators were trying to silence an anti-vaccination message.

“The threat of weaponized First Amendment litigation under Petitioner’s proposed approach is just as real in the regulatory context,” prosecutors wrote in their filing.

Federal courts had about 600,000 civil cases and 32,000 appeals pending last year, according to the U.S. Courts system. Prosecutors warned that if only 1% of the 10 million criminal cases filed in state courts spawned civil lawsuits, they would add 100,000 cases to an already crowded docket.

“Further, when accounting for the inevitable parallel civil litigation arising out of state criminal and regulatory cases, these numbers would increase astronomically,” prosecutors wrote.