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Abstract

The question “what is equality?”, applied to the distribution of resources across races, suggests the following answer: when there appears to be no need for a policy that focuses on improving the welfare of one race relative to another. There is another way to approach the same question: equality is when traditionally-recognized paths to advancement do not give preference to or disadvantage an individual because of his race. Notice the difference here is between end-state and process-based notions of equality, a distinction Nozick emphasized in his examination of justice in distribution. Nozick rejected end-state theories of justice in distribution. I side with Nozick’s approach and argue that the only morally justifiable and administratively feasible approach to determining equality in the distribution of resources across races is through a process-based definition. I explore the implications of this argument for Grutter v. Bollinger.

Introduction

A central tenet of contemporary First Amendment law is the metaphor of the marketplace of ideas—that the solution to bad speech is more, better, speech. This basic idea is well-established in both judicial and scholarly writing—but it is not without its critics. My contribution to this volume adds a new criticism of the marketplace-of-ideas metaphor. I argue that there are circumstances where ostensibly “good” speech may be indistinguishable by listeners from bad speech—indeed, that there are cases in which any incremental speech can actually make other good speech indistinguishable from bad speech. In such cases, seemingly “good” speech has the effect of “bad” speech. I call this process by which ostensibly good speech turns the effects of other speech bad “a noisy speech externality.”

This thesis has important implications. First, it offers a poignant critique of the marketplace-of-ideas aphorism introduced by Justice Holmes in his Abrams dissent. If the marketplace of ideas is subject to significant market failure, correctives may be justified. Market failures, after all, are a standard justification for regulatory intervention. But, second, my contribution goes a step farther, suggesting not only that there are circumstances in which good speech may fail as a corrective to bad speech but also that there are circumstances in which the addition of seemingly good speech may only yield more bad speech. In such cases, the only solution to bad speech may be less speech—encouraging more speech may actually be detrimental to our speech values. If that is the case, then correctives may be not only justified but needed to satisfy an important societal interest. And, third, this chapter presents solutions for content-neutral ways in which to implement such correctives.

The insight underlying this thesis builds on my prior work applying the insights of Claude Shannon’s information theory to social media. That piece applied Shannon’s work to social media to argue that, at least at a metaphorical level and potentially at a cognitive level, our capacity to communicate is governed by Shannon’s channel-capacity theorem. This theorem tells us that the capacity of a communications channel is limited by that channel’s signal-to-noise ratio. Critically, once that capacity is exceeded, any additional signal is indistinguishable from noise—and this has the effect of worsening the signal-to-noise ratio, further reducing the communications capacity. In other words, after a certain threshold, additional speech isn’t merely ineffective: It creates a negative externality that interferes with other speech.

Other scholars have made similar arguments, which can casually be framed as exploring the effects of “too much information” or “information overload.” But the negative-externality element of this argument goes a step further. A “too much information” argument suggests that listeners are overwhelmed by the quantity of speech to which they may be subject. This argument suggests that speakers can—deliberately or otherwise—exercise a veto over other speakers by saturating listeners’ information sources. For the listener, it is not merely a question of filtering out the good information from the bad (the signal from the noise): At the point of saturation, signal cannot be differentiated from noise and any filtering necessarily must occur upstream from the listener.

Filtering—reducing the overall amount of speech—has always been a key tool in fighting bad speech. All platforms must filter. Indeed, this is nothing new: Editorial processes have always been valuable to listeners. The question is how they do it, with a related question of the law surrounding that filtering. Under the current approach (facilitated through Section 230 of the Communications Decency Act and built upon First Amendment principles), platforms have substantial discretion over what speech they host. This chapter’s normative contribution is to argue that liability shield should be contingent upon platforms using “reasonable best-available technology” to filter speech—a standard that most platforms, this chapter also argues, likely already meet.

The discussion in this chapter proceeds in four parts. It begins in Part I by introducing technical concepts from the field of information theory—most notably the ideas of channel capacity and the role of the signal-to-noise ratio in defining a channel’s capacity. Part II then introduces the traditional “marketplace of ideas” understanding of the First Amendment and builds on lessons from information theory to argue that this “marketplace” may in some cases be subject to negative externalities—noisy speech externalities—and that such externalities may justify some forms of corrective regulation. It also considers other arguments that have a similar feeling (“too much information,” “information overload,” and “listeners’ rights”), and explains how the negative-externalities consequence of exceeding a channel’s carrying capacity presents an even greater concern than is advanced by those ideas. Parts III and IV then explore the First Amendment and regulatory responses to these concerns, arguing that the negative-externalities concern might justify limited regulatory response. In particular, Part IV argues that platforms can reasonably be expected to implement “reasonable best available technologies” to address noisy speech externalities.

STATEMENT OF INTEREST OF AMICI CURIAE

This brief is filed on behalf of the Texas Association of Broadcasters, Texas Press Association, Texas Tribune, Freedom of Information Foundation of Texas, The American Booksellers for Free Expression, Association of American Publishers, Inc., The Authors Guild, The Cato Institute, The Center for Investigative Reporting, First Amendment Foundation, Inc., Fox Television Stations, LLC, Freedom of the Press Foundation, Freedom to Read Foundation, The Institute for Policy Innovation, International Center for Law & Economics, The Media Coalition Foundation, The Media Institute, The Media Law Resource Center, Motion Picture Association, Inc., National Coalition Against Censorship, National Press Photographers Association, News/Media Alliance, Penguin Random House LLC, The Reporters Committee for Freedom of the Press, and Tully Center for Free Speech (collectively, “Amici”).[1] As organizations that defend and advocate for First Amendment rights, Amici respectfully submit this brief in support of Plaintiff-Appellee to raise critical free speech issues implicated by this case. Amici share concerns over the bad-faith prosecution employed by the District Attorney and will highlight (1) why federal courts should be available to expeditiously halt unjustified prosecutions and vindicate fundamental First Amendment rights and (2) how allowing the prosecution to proceed could chill a diverse range of speech.

Texas Association of Broadcasters is a non-profit association that represents more than 1,300 television and radio stations in Texas with a tradition of community-oriented, free, over-the-air broadcasting. The Texas Association of Broadcasters was founded in 1953 and performs numerous services on behalf of its members, including advocating legislation relating to and affecting radio and television broadcasters and defending open government, as well as publishing guidebooks on various legal issues, including access to public information.

Texas Press Association (“TPA”) is a non-profit industry association representing nearly 400 daily and weekly newspapers in Texas, each of which upholds a strong tradition of journalistic integrity and community service. TPA, founded more than 130 years ago, performs numerous services on behalf of its members, including advocating legislation relating to free speech and press and taking legal action to protect the First Amendment and open government.

The Texas Tribune is an all-digital, member-supported nonprofit and nonpartisan news organization that covers state government in Texas. Founded in 2009, the Tribune provides its stories for free to the public and for other news organizations to republish, also for free.

Freedom of Information Foundation of Texas is a nonprofit organization that works to encourage a greater appreciation, knowledge and understanding of the First Amendment and helps to ensure that the public’s business is conducted in public. Since its formation in 1978, the Foundation has helped citizens access government meetings and documents. The non-partisan Foundation acts as a statewide information clearinghouse and offers guidance and assistance on FOI-related issues through a network of attorneys and through public seminars and conferences.

The American Booksellers for Free Expression (“ABFE”) is the free speech initiative of the American Booksellers Association (“ABA”). ABA was founded in 1900 and is a national not-for-profit trade organization that works to help independently owned bookstores grow and succeed. ABA represents 2,178 bookstore companies operating in 2,593 locations. ABA’s core members are key participants in their communities’ local economy and culture. To assist them, ABA provides education, information dissemination, business products, and services; creates relevant programs; and engages in public policy, industry, and local first advocacy.

The Association of American Publishers, Inc. (“AAP”), a not-for-profit organization, represents the leading book, journal, and education publishers in the United States on matters of law and policy, advocating for outcomes that incentivize the publication of creative expression, professional content, and learning solutions. AAP’s members range from major commercial book and journal publishers to small, non-profit, university, and scholarly presses, as well as leading publishers of educational materials and digital learning platforms. AAP’s members publish a substantial portion of the general, educational, and religious books produced in the United States, including critically acclaimed, award-winning literature for adults, young adults, and children. AAP represents an industry whose very existence depends on the free exercise of rights guaranteed by the First Amendment. AAP’s board companies are listed at https://publishers.org/who-we-are/our-board.[2] Its full member roster is listed at https://publishers.org/who-we-are/our-members.

The Authors Guild was founded in 1912, and is a national non-profit association of more than 13,000 professional, published writers of all genres. The Guild counts historians, biographers, academicians, journalists, poets, translators, and other writers of non-fiction and fiction as members. The Guild works to promote the rights and professional interest of authors in various areas, including copyright, fighting censorship, and taxation. Many Guild members earn their livelihoods through their writing. Their work covers important issues in history, biography, science, politics, medicine, business, and other areas; they are frequent contributors to the most influential and well-respected publications in every field. One of the Authors Guild’s primary areas of advocacy is to protect the free expression rights of authors.

The Cato Institute was established in 1977 as a nonpartisan public policy research foundation dedicated to advancing the principles of individual liberty, free markets, and limited government. Cato’s Robert A. Levy Center for Constitutional Studies was established in 1989 to promote the principles of limited constitutional government that are the foundation of liberty. Toward those ends, Cato publishes books and studies, conducts conferences, and issues the annual Cato Supreme Court Review.

The Center for Investigative Reporting (d/b/a Reveal), founded in 1977, is the nation’s oldest nonprofit investigative newsroom. Reveal produces investigative journalism for its website https://www.revealnews.org, the Reveal national public radio show that airs on 600+ radio stations, and various documentary projects. Reveal often works in collaboration with other newsrooms across the country.

First Amendment Foundation, Inc., is a 501(c)(3) tax-exempt, non-profit organization created to ensure government openness and transparency by providing education and training, monitoring open records and meetings laws, and assisting citizens and journalists in obtaining access to government information and proceedings. Amicus has a strong interest in this proceeding because it, and the citizens and journalists it supports, all routinely exercise their First Amendment rights by promoting and engaging in speech on matters of public concern that must be free from the chilling fear of prosecution.

Fox Television Stations, LLC, a wholly owned subsidiary of Fox Corporation, owns and operates 29 full-power broadcast television stations in the U.S., including stations located in 14 of the top 15 largest markets, and duopolies in the three largest markets (New York, Los Angeles, and Chicago). In addition to distributing sports, entertainment, and syndicated content, our television stations collectively produce approximately 1,200 hours of local news every week.

Freedom of the Press Foundation is a non-profit organization dedicated to helping support and defend public-interest journalism. Freedom of the Press Foundation advocates for transparency and accountability in an effort to preserve the rights guaranteed to the press under the First Amendment and strengthen the public’s right to know. As part of that mission, the organization has served as amicus curiae in cases addressing First Amendment issues raised by emerging technologies and government surveillance in the federal courts.

Freedom to Read Foundation is an organization established by members of the American Library Association to promote and defend First Amendment rights, foster libraries as institutions that fulfill the promise of the First Amendment, support the rights of libraries to include in their collections and make available to the public any work they may legally acquire, establish legal precedent for the freedom to read of all citizens, protect the public against efforts to suppress or censor speech, and support the right of libraries to collect and individuals to access information that reflects the diverse voices of a community so that every individual can see themselves reflected in the library’s materials and resources.

The Institute for Policy Innovation (“IPI”) is a 501(c)(3) nonprofit public policy research institute founded in 1987 to propose solutions to public policy problems based on the principles of individual liberty, constitutional governance, free markets and limited government. First Amendment speech issues fall within the scope of the public policy issues IPI includes in its issue portfolio.

International Center for Law & Economics (“ICLE”) is a nonprofit academic research organization that promotes governance rooted in the rule of law and the development of economically grounded policies that promote consumer welfare. ICLE scholars have studied and written extensively on the law and economics of the First Amendment and free expression.

The Media Coalition Foundation, Inc. monitors potential threats to free expression, and engages in litigation and education to protect free speech rights, as guaranteed by the First Amendment.

The Media Institute is a nonprofit foundation specializing in communications policy issues. The Institute exists to foster three goals: freedom of speech, a competitive media and communications industry, and excellence in journalism. The Media Institute is one of the country’s leading organizations focusing on the First Amendment and speech-related issues.

The Media Law Resource Center (“MLRC”) is a non-profit association which supports media lawyers and media companies in legal matters. It counts as members some 125 media companies, including the largest print, broadcast and digital entities in the United States, as well as over 200 law firms which work in the media law space. The MLRC puts on conferences on media law issues, distributes daily, monthly and quarterly publications, presents webinars on timely legal and journalistic topics, and gets involved in policy initiatives, generally in support of First Amendment rights and free expression.

Motion Picture Association, Inc. (“MPA”) is a not-for-profit trade association founded in 1922. The MPA serves as the voice and advocate of the film and television industry, advancing the business and art of storytelling, protecting the creative and artistic freedoms of storytellers, and supporting the creative ecosystem that brings entertainment and inspiration to audiences worldwide.

National Coalition Against Censorship (“NCAC”) is an alliance of 59 national non-profit literary, artistic, religious, educational, professional, labor, and civil liberties groups that are united in their commitment to freedom of expression. NCAC works to protect the First Amendment rights of artists, authors, students, readers, and the general public. Since its founding, it has had a special interest in supporting artistic expression that is threatened with suppression because of its sexual content. The views presented in this brief are those of NCAC and do not necessarily represent the views of each of its participating organizations.

National Press Photographers Association (“NPPA”) is a 501(c)(6) not-for-profit organization dedicated to the advancement of visual journalism in its creation, editing, and distribution. NPPA’s members include video and still photographers, editors, students, and representatives of businesses that serve the visual journalism community. Since its founding in 1946, the NPPA has been the Voice of Visual Journalists, vigorously promoting the constitutional and intellectual property rights of journalists as well as freedom of the press in all its forms, especially as it relates to visual journalism.

The News/Media Alliance represents news and media publishers, including nearly 2,000 diverse news and magazine publishers in the United States—from the largest news publishers and international outlets to hyperlocal news sources, from digital-only and digital-first to print news. Alliance members account for nearly 90% of the daily newspaper’s circulation in the United States. Since 2022, the Alliance is also the industry association for magazine media. It represents the interests of close to 100 magazine media companies with more than 500 individual magazine brands, on topics that include news, culture, sports, lifestyle and virtually every other interest, avocation or pastime enjoyed by Americans. The Alliance diligently advocates for news organizations and magazine publishers on issues that affect them today.

Penguin Random House LLC publishes adult and children’s fiction and nonfiction in print and digital trade book form in the U.S. The Penguin Random House global family of companies employ more than 10,000 people across almost 250 editorially and creatively independent imprints and publishing houses that collectively publish more than 15,000 new titles annually. Its publishing lists include more than 60 Nobel Prize laureates and hundreds of the world’s most widely read authors, among whom are many investigative journalists covering domestic politics, the justice system, business and international affairs.

The Reporters Committee for Freedom of the Press is an unincorporated nonprofit association. The Reporters Committee was founded by leading journalists and media lawyers in 1970 when the nation’s news media faced an unprecedented wave of government subpoenas forcing reporters to name confidential sources. Today, its attorneys provide pro bono legal representation, amicus curiae support, and other legal resources to protect First Amendment freedoms and the newsgathering rights of journalists.

The Tully Center for Free Speech began in Fall, 2006, at Syracuse University’s S.I. Newhouse School of Public Communications, one of the nation’s premier schools of mass communications.

INTRODUCTION

This case is about a good law employed in bad faith to punish constitutionally protected speech. Netflix has faced two misguided prosecutions and five indictments under Tex. Penal Code §§ 43.262[3] and 43.25 for its distribution of Cuties, an award-winning film[4] that addresses important societal issues such as the influence of social media and cultural heritage. As shown by extensive delays, a lack of probable cause, dubious motives, and selective use of evidence, the District Attorney prosecuted Netflix in bad faith and deprived it of an immediate remedy in state court. Thus, this is the rare case where it is appropriate for federal courts to fulfill their duty to protect

constitutional rights, including those under the First Amendment, and put an end to an unjustified state prosecution.

Cuties is a French film that tells the story of an 11-year-old Senegalese immigrant, Amy, torn between her family’s conservative culture and the more progressive French society. It explores the challenges of childhood and the pressures of the rapidly rising influence of social media. Amy’s experience, which is shared by girls and boys throughout the world, serves as a reminder of the struggles of adolescence, especially in modern times, and has sparked many productive conversations among adults and children alike.

Amici acknowledge the critical importance of enforcing child pornography statutes. But rather than foster the goal of protecting minors from harm, the continued criminal prosecution of Netflix would result not only in censorship of significant issues of public concern about children and uncomfortable truths that are discussed in the film, but also broader chilling effects on protected speech. Without the ability to seek redress for baseless prosecutions in federal court, critical constitutional rights would be curbed, and a vast array of speech would be chilled for fear of being similarly prosecuted. This Court should thus affirm the District Court’s well-reasoned decision vindicating Netflix’s First Amendment rights and, by extension, those of others who wish to speak on controversial topics of public interest.

[1] Pursuant to Fed. R. App. P. 29(a)(4), Amici certify that counsel for Amici authored this brief in whole; that no counsel for a party authored this brief in any respect; and that no person or entity, other than amicus and its counsel, contributed monetarily to this brief’s preparation or submission.

[2] All internet citations in this brief were last visited June 7, 2023.

[3] Soon after being charged under § 43.262, the statute was held unconstitutional. See Ex parte Lowry, 639 S.W.3d 151, 169 (Tex. App.—Houston [1st Dist.] 2021, pet. granted).

[4] Cuties received the “Directing Award” at the Sundance Film Festival in January 2020 and the “Best First Film” and “Best Female Newcomer” awards at the César Film Festival in France, among others. ROA.1537.

Since taking the reins of the Federal Trade Commission (FTC) almost two years ago, Chair Lina Khan has sketched an agenda that appears inevitably set for rebuke before the U.S. Supreme Court. And that eventual day of reckoning has drawn closer with the high court’s opinion in Axon Enterprise v. FTC earlier this month, which will allow litigants to bring constitutional challenges to the agency’s authority years earlier than would previously have been allowed.

Read the full piece here.

Imagine that Florida’s financial regulators told banks and insurance companies that they should consider the risk that working with Planned Parenthood might pose to them. Or that Texas’s regulators said that banks and insurance companies should consider whether serving organizations that support undocumented migrants might damage their reputations. Alarming, right?

Read the full piece here.

Summary of the Argument

The Court should grant the Petition because the court below erred in finding that the lack of explicit binding language or threats from the New York Department of Financial Services in its guidance letters meant that no reasonable regulated firm would consider itself bound by those letters. The reality of banking and insurance regulation is that firms frequently feel that they risk sanction if they do not comply with nominally non-binding guidance. The Court should grant the Petition and review this recurring issue of significant importance.

The Argument

In its opinion upholding the dismissal of Petitioner’s suit, the Second Circuit opined that because Superintendent Vullo’s statements were “written in an even-handed, nonthreatening tone” and “employed words intended to persuade rather than intimidate,” they did not “intimat[e] that some form of punishment or adverse regulatory action [would] follow the failure to accede to the … request.” The Second Circuit relied on this conclusion to hold that Petitioner’s complaint failed even to “plausibly alleg[e] unconstitutional threats or coercion.”

But the Second Circuit did not appreciate that the unique relationship between financial regulators and their regulated firms tends to make those firms feel bound, on penalty of sanction, by even the most prosaic sounding guidance. Regulated firms have historically faced formal and informal penalties for failure to conform to guidance that was nominally non-binding.

This Court should grant the Petition and reverse.

 

Rep. Carter and the Members of NCOIL,

Thank you for inviting me. My name is R.J. Lehmann, and I am the editor-in-chief and a senior fellow with the International Center for Law & Economics. ICLE is a think tank based in Portland, Oregon, dedicated to promoting the law & economics approach to legal analysis, and to issues of public policy more generally.

Some of you may know me from my prior work at the R Street Institute, which I co-founded in 2012. Among the hats I wore at R Street was running the institute’s insurance policy project, and I was the author of the first nine editions of R Street’s annual report card evaluating insurance regulation in the 50 states.

It was actually early in our days at R Street that I first encountered the topic before us today. After the tragic shootings at Sandy Hook Elementary in December 2012, there was a pressing call for new and creative thinking about ways to address the scourge of firearms violence. Being a research center that was, at that point, devoted almost exclusively to insurance issues, we explored whether mandatory insurance could be part of the solution to promote firearms safety, just as mandatory auto insurance has served to promote driving safety and mandatory workers compensation insurance has served to promote workplace safety. So, while I’m about to tell you why I think these mandates are a bad idea, I want to note at the top that I do understand the intuition.

What we concluded, after batting around various iterations of what a mandate might look like, is that it was fundamentally unworkable. That insurance could not possibly respond in the overwhelming number of cases that were of public concern and that in the limited set where it could respond – which is, basically, true accidents that befall third parties – coverage already exists, either through a homeowners policy or a renters policy.

The two central problems that limit the applicability of any firearms-insurance mandate are that intentional acts are uninsurable and that it is the nature of liability insurance that only harms to third parties are covered.

Taking those one at a time, the claim that intentional acts are uninsurable begs two other obvious questions, each of which, unfortunately, can take us down some rather unproductive detours. What does it mean for an act to be intentional and what does it mean for an event to be insurable?

On intentionality, there’s a whole rabbit hole one can head down on free will and determinism and whether all actions are intentional or whether no actions are intentional. This is not a philosophy class, so I’d like to rescue us from that particular rabbit hole.

The question of insurability returns me to a theme I found myself echoing a lot in another recent public policy discussion—which is whether business interruption for pandemics is insurable. What I said then and will say here is that insurability is a spectrum. Things may be more or less insurable, meaning, in a nutshell, that the willingness of capital to participate in risk-transfer solutions for any particular class of event will vary.

The framing that I think is most helpful for these purposes is to say the sorts of events that are most insurable are those that are fortuitious—which is to say, they happen by chance, rather than by design—and where there is a broad alignment between the goals of the insurer and the insured. When I step into my car, I would like to avoid getting into an accident. My insurer would also like me to avoid getting into an accident. If I do nonetheless get into an accident, it’s a fortuitous event. That event is insurable. If, rather than an accident, I willfully try to run someone down on the road, then we’re not aligned. That’s not insurable and claims for vehicular homicide are excluded—even though, in some places and some cases, the insurer may still be required by a judge or jury to pay a claim.

Applying that logic to the example of firearms incidents offers some context for just how many potential claims are excluded the realm of insurability simply from the fact that insurers are not willing to extend coverage to intentional acts. According to the Centers of Disease Control and Prevention, more than 70% of firearms injuries are the result of assaults, while less than 20% are unintentional. Among firearms-related deaths, the National Safety Council finds that 54% are suicides, 43% are homicides, and only about 1% are accidental.

We therefore start with proposition that only about one-fifth of firearms injuries, and only about 1 in 100 firearms deaths, are even potentially insurable. That universe of potentially insurable claims shrinks even further—although the data on this is harder to find—when you consider that it is the nature of liability policies that they only cover injuries to third parties. If a contractor slips and falls on your property, that might be covered under your homeowners insurance policy. If you slip and fall, it will not be. If your dog bites your neighbor, it might be covered. If your dog bites you, it will not be covered.

So, similarly, if there’s a firearms accident in your home and a third party is injured, that might be covered. Indeed, even if the accident is outside your home—say, you’re the vice president of the United States and you accidentally shoot your hunting partner in the face—your homeowners policy very well might cover that.

But the insured in a homeowners policy is the household, not an individual. If one member of your household accidentally shoots another member of your household—even in the very tragic incidents we hear about involving children—that’s not going to be an insured claim.

Another factor that likely shrinks the universe of claims even further is the language of the HO-3 policy itself. The policy has always excluded injuries or property damage that the insured “expected or intended.” But in 2000, the Insurance Services Office actually broadened that exclusion quite a bit, and the standard policy now states that coverage is excluded for an action that is “of a different kind, quality or degree than initially expected or intended” or “is sustained by a different person, entity, real or personal property, than initially expected or intended.” That’s a pretty broad exclusion and courts have tended to read it as covering even negligently careless actions that result in unintentional injuries.

Nonetheless, despite these manifest limitations on what an insurance mandate could possibly cover, we have watched such proposals perennially introduced in various states in the decade since Sandy Hook, with New York and Connecticut being two of the most frequent states where legislation was considered. Until this past year, when the City of San Jose and the State of New Jersey both adopted differing versions of a mandate, they never went anywhere.

But interestingly, in 2018, we saw regulatory action that, rather than mandate liability insurance for gun owners, actually would appear to forbid it, and this contradiction is important and underappreciated in the current discussion.

For a recap, back in 2018, New York State Financial Services Superintendent Maria T. Vullo brought complaints against the broker Lockton, the underwriter Chubb, and the National Rifle Association over their respective roles in administering the Carry Guard insurance program for NRA members. Some of the charges concerned alleged violations of the declinations requirements to place policies in the surplus-lines market and that the NRA was marketing policies as an unlicensed producer. Those violations aren’t of much interest here. But the core charge was that, because Carry Guard would pay legal defense costs for insureds who face civil or criminal charges related to the use of firearms (that is, where the insured pleads innocent, claims self-defense, or asserts that they are not liable in a civil proceeding) the coverage itself was fundamentally contrary to public policy establishing that criminal acts cannot be insured.

Now, as many insurance lawyers in this room could testify, it’s not always quite as simple as that. It is not unusual at all for an insurer in, say, the directors and officers, or errors and omissions, or environmental-liability lines to find themselves on the hook for the defense costs of an insured accused of a criminal act. And where they are adjudicated guilty, the insurer may try to claw back those costs. But until that point, there are fiduciary duties an insurer owes to its policyholders, and refusing to pay defense costs on a liability policy is usually a quick ticket to a bad faith lawsuit.

But more fundamentally, paying defense costs is a if not the fundamental purpose of liability insurance. So, if the Carry Guard program was contrary to public policy, that’s another way to say that liability insurance for firearms is illegal. And the primary reason I think that has to be considered in this discussion is that one of the states that filed follow-on actions in the Carry Guard case was New Jersey. Which suggests the absurd scenario that New Jersey is now requiring a form of insurance that is illegal to sell in New Jersey.

I am not a constitutional lawyer—or any kind of lawyer for that matter—so I’m going to refrain from saying too much about how these mandates would be treated under the rubric the Supreme Court promulgated in last year’s Bruen decision, although I reserve for myself the right to chime in with my amateur opinion if the subject comes up in the Q&A, which I imagine it will. I would recommend a paper by Adam Schniderman of the University of Michigan Law School that I believe is the first to look at the question, and he makes what I think is a compelling case that neither the New Jersey statute nor the San Jose ordinance would survive under Bruen analysis.

But more generally, I think it’s clear that what these proposals seek is a kind of end-run around the Second Amendment; i.e., that you can outsource to the insurance industry, through its underwriting and rate-setting processes, vetting of firearms owners that existing Second Amendment jurisprudence would appear to deny to state and local governments.

There are various problems with this, but one that I think is most important is that it’s grounded on a theory of what insurers would do to manage firearms risk that appears to be fundamentally untrue. In other words, as mentioned, we already have coverage for firearms accidents in homeowners policies. But insurers don’t charge different rates to different homeowners based on their risk of firearms accidents. Based on my understanding, there aren’t even any insurers who ask whether a policy applicant owns a firearm, so it doesn’t even appear in the underwriting side of the equation.

Now, maybe this is because liability is a relatively small part of the risk underwritten in a homeowners policy, and as mentioned, firearms incidents are an even smaller proportion of liability claims. But it should be noted that, even the NRA’s Carry Guard policy—which was a standalone policy for firearms liability—didn’t charge variable rates. It charged a flat fee.

Bespoke, targeted risk-based underwriting is such a ubiquitous part of our modern insurance markets that we sometimes take for granted just how new and novel it is. In auto insurance, it really only dates back to George Joseph’s Mercury General in the 1960s. There have always been underwriting criteria, such as Benjamin Franklin’s Philadelphia Contributionship refusing to insure homes with trees because they were likely to spread fire. But the assumption that, for any given risk, insurers will automatically have and know how to use the relevant data sets to segregate high risk from low risk, is naïve. The use of this data is actually a historical aberration.

Even if insurers do find that data, the variables that provide actuarially credible projections may not be the ones that you assume or hope for. For instance, it may be that the thing that best predicts whether you’re going to have a firearms accident is your income. That sort of correlation is always problematic and controversial, but it should be particularly concerning if what it implicates is a constitutionally protected right.

I look forward to your questions.

 

The Federal Trade Commission (FTC) announced in a notice of proposed rulemaking (NPRM) last month that it intends to ban most noncompete agreements. Is that a good idea? As a matter of policy, the question is debatable. So far as the NPRM is concerned, however, that debate is largely hypothetical. It is unlikely that any rule the FTC issues will ever take effect.

Read the full piece here.

ICLE Editor-in-Chief R.J. Lehmann joined The Reload podcast to discuss New Jersey’s new gun-carry insurance mandate and San Jose, California’s gun ownership insurance requirement. He said the requirements, which are the first of their kind, won’t accomplish the goal lawmakers have claimed. Namely, insurance companies can’t provide coverage for criminal acts. That basically leaves damage caused by accidental shootings as the only real option for coverage.

And even accidental coverage is more limited than most people realize. For instance, homeowners’ insurance–which San Jose now claims qualifies under its mandate–will cover accidental shootings, but only for damages done to third parties. That means any harm caused to the homeowner or family members living in the home wouldn’t be covered.

Lehmann said New Jersey’s requirement is even more problematic because it appears to be trying to require insurance against deliberate, and potentially criminal, acts. He said that’s not something any company offers nor is it a policy lawmakers could realistically force companies to offer. It also goes directly against the state’s complaints about “concealed carry insurance,” which are often not actual insurance policies but lawyer co-ops or group retainer plans.

Beyond the practical problems with the mandates, Lehmann said they also face an uphill battle in the courts. He explains why founding-era surety laws are a bad analogue for these modern requirements and why they are unlikely to survive the Bruen test in the long run.

Video of the appearance is embedded below.