Long heralded as one of the most powerful and deepest-pocketed interest groups in the country, the National Rifle Association is now saying it could be forced out of business.
In court filings and public statements, the NRA says that a campaign by Governor Andrew Cuomo of New York and the state’s Department of Financial Services has cost it “tens of millions of dollars” and left it scrambling to find basic banking services and essential corporate liability coverage. Cuomo’s reaction has been gleeful. He has called on other states to follow his lead in putting firms on notice of the risks of working with the NRA, and says he’ll send “thoughts and prayers” if the gun group does actually suffer the downfall it says it fears.
Since last fall, the two sides have been clashing over the lawfulness of Carry Guard, an NRA insurance product that can cover legal costs arising from self-defense shootings, which New York bans since it could insure the commission of a crime. But that’s not what this latest round is about. Indeed, in the lawsuit the group brought against New York’s financial services regulators, the NRA does not dispute that Carry Guard broke New York law, or that it illegally marketed various other insurance products to its members.
Instead, the gun group alleges that the state selectively enforced those laws because it disagrees with the NRA’s political positions, and is intimidating other firms out of doing business with the NRA and other pro-gun groups for the same reason. Cuomo and DFS counter that nothing they did tramples on the NRA’s rights to promote its views, noting in their own filings that the group appears to be doing just fine at voicing its continued opposition to gun safety laws.
Which side is on firmer legal ground is a question that lawyers and judges will hash out in the coming weeks. The NRA says it wants a jury trial. Cuomo is moving to have the NRA’s complaint tossed as soon as next month.
Meanwhile, public interest in the fight has been driven less by curiosity over the particulars of state insurance law and regulatory powers and more by the the NRA’s eye-catching claims about the “economic damages” it has “and is continuing to sustain” and the “irrecoverable loss and irreparable harm” it will suffer should the court not rule in its favor.
As skeptics have noted, the NRA has motive to inflate the extent of its financial and operational injuries in the context of a lawsuit it is trying to win. But here are the known facts and some informed observations about the NRA’s current economic health.
Is NRA running out of money?
Absent a leak, we won’t know the NRA’s current balance sheet until its 2018 tax forms become public, and under standard procedures that won’t happen until 2020.
But a safe response is: Almost certainly not. The gun group did accrue debt and run a deficit in 2016, the last year for which its tax forms are available. But it also finished that year with a reported $36 million in net assets.
Additionally, the group has boasted about the success of membership drives. This May, NRA President Oliver North claimed the group had recruited its six millionth member, up from five million in 2013. According to tax filings, the NRA gets more money from dues than any other single source. In 2013, a peak for NRA donations, the group received $175 million from its card-carrying supporters.
So how much has New York State’s actions hurt the NRA’s bottom line?
The NRA’s suit doesn’t lay out a precise figure, and it’s impossible to know right now. In its case against Cuomo, the NRA mentions those “tens of millions of dollars” in damages, but also indicates that the squishy figure extends beyond hard costs.
After New York clamped down on Carry Guard, the two insurance companies that brokered and underwrote the program — Lockton and Chubb — each entered into consent agreements with the state and ceased working with the NRA. The multinational insurance market Lloyd’s of London has also banned any firms who work with it from underwriting NRA-affiliated policies. Their decisions cut off revenue from Carry Guard and other insurance products until the gun group can find new brokers and underwriters.
Here’s what that could mean in dollar terms: According to a legal filing by Lockton, the broker paid the NRA $600,000 per month between October 2017 and March 2018 in compensation for insurance sales. If that was the typical monthly take, it amounts to $7.2 million per year in lost revenues for the gun group.
That’s a lot of money — but still a fraction of the NRA’s gross revenue. According to more than a decades’ worth of tax filings, the group takes in between approximately $160 to $415 million in a given year. So insurance income contributes between 1.7 percent and 4.5 percent of total revenue.
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Other losses the NRA says it has absorbed are more indirect and difficult to quantify, like reputational harm or potentially increased business costs.
According to its court documents, the NRA was looking for new bankers when Cuomo and the DFS put firms on notice to the possible downsides of entering into contracts with the NRA. The group says some banks that had expressed “enthusiastic” interest then abruptly pulled out. On top of that, an unidentified corporate insurer that used to provide the NRA liability protection said it would be unwilling to renew the group’s policies “at any price.” The NRA says it will cost it money to replace those vendors, but that’s not the same as lost revenues.
If the NRA is missing out on only a sliver of annual revenue, why did it claim that it might be “unable to exist”?
The bigger issue here is not income, but insurance coverage and deposit banking services for the NRA itself. In its suit against Cuomo, the NRA says that when New York told insurers to consider the gun group a reputational risk and then sanctioned Chubb and Lockton, the state sent a clear message to the rest of the industry: firms that service the NRA will suffer consequences.
The NRA says it has not been able to renew umbrella liability coverage that expired this spring, and blames its ostracization on New York’s efforts. Umbrella insurance plans provide supplemental coverage above and beyond typical insurance, in case of major liability claims or legal judgements.
If something catastrophic were to happen at an NRA event or an NRA property and the gun group was deemed responsible, or a judge found that NRATV, its video-streaming outlet, had libeled or slandered someone, the gun group could be on the hook for enormous damages; without umbrella coverage, the organization could have to pay out a judgement from its budget, and possibly shutter part of its operations to buffer that blow.
Lockton, the insurance broker behind the NRA’s Carry Guard program, argued in a court filing that the organization’s “inflammatory marketing” made it an inevitable pariah.
The NRA suggested in its complaint that if it can’t secure a new liability policy, it may decide programs like NRATV present too much risk, and shut them down. That’s a huge if, says one expert.
“It seems quite a stretch that the NRA can’t get insurance coverage because insurers are intimidated and scared,” said Peter Kochenburger, a professor of insurance law at the University of Connecticut. “One reason is there’s a very large insurance market both inside and outside of the United States. There are plenty of other insurers.”
The NRA’s other headache is its difficulty in securing the new banking relationship it was seeking when it hit the wave of public disapproval following the Parkland, Florida, school shooting. Through at least the end of 2016, Wells Fargo provided banking services to the group, in addition to millions in loans. When asked if the bank still provides services to the NRA, a spokesperson for the Wells Fargo said it is “not our practice to comment specifically on the nature or terms of customer relationships.” The group, notably, says several banks interested in its business backed off after DFS’s risk advisory. It doesn’t say they all did.
Nonetheless, with fewer firms bidding for its account, the NRA may be in a less favorable negotiating position with those still willing to associate with the group, though the bottom-line impact of its weakened position is not yet clear.
Can other states do what do what New York did?
That’s what the NRA may be worried about.
Compared to the full-throated calls by activists urging corporations to drop discount deals for NRA members, the actual text of the Department of Financial Services’ guidance to firms about the hazards introduced by affiliating with the NRA was pretty mild. But the difference is that the latter was issued by a body with enforcement powers. The NRA really doesn’t want to let that become precedent.
Some states have already begun to follow New York’s lead. According to NBC, California’s Department of Insurance is conducting an investigation into the NRA’s insurance practices in that state. A similar inquiry is underway in Washington State, where Insurance Commissioner Mike Kreidler ordered the gun group to cease offering Carry Guard to residents, citing a violation of state insurance law.
Experts like Brian Knight of the Mercatus Center, a libertarian think tank at George Mason University, say the Department of Financial Service’s letter amounted to a “thinly veiled” but nonetheless improper threat that could amount to an effort to suppress the NRA’s free speech.
But Kochenburger believes that’s a misunderstanding of the DFS guidance. “As far as I know it, it is unusual to focus on reputational risk, but part of regulator’s mission is to be concerned about the health of the companies they regulate,” he said.
“Is DFS implying companies should think twice about working with the NRA? Sure,” Kochenburger said. “But is the implicit threat that if you work with NRA, we will retaliate against you? I don’t see that. DFS is stating that the harm isn’t from us. It’s from your customers and vendors, and what they might think.”