An interesting and potentially game-changing legal case is playing out in federal court in New York where Gov. Andrew Cuomo’s insurance and banking regulators are arrayed against the National Rifle Association.

Earlier this year, New York’s Department of Financial Services effectively stymied NRA activities in that state by extracting civil penalties totaling $8.3 million from two insurance companies and threatening regulatory actions against other insurers or banks that might consider doing business with the NRA.

In response, the NRA filed a lawsuit last month claiming that unless a federal judge stops the New York regulators, the gun owners’ group could be driven out of business in the state where it was first organized in 1871.

To understand the seriousness of the legal threat, it helps to know the role that insurance plays in the modern-day success of the NRA and how Iowa insurance legend Gary Kirke helped invent the group’s signature insurance product 40 years ago.  

Kirke, who sold his insurance brokerage in 1998, was one of the earliest brokers to sell insurance through trade associations, and the NRA was one of his early clients. In 1977, he drew up a plan to help the NRA boost membership by providing low-cost insurance.

The policy Kirke helped create covered the loss or theft of members’ guns, provided a death benefit for members shot or killed while hunting or traveling on NRA business, and a million dollars of liability insurance for gun-related activity — all for just one dollar a year per member.

With that policy the NRA was able to boost membership from fewer than 1 million to more than 2 million in just a few years.

The NRA called the insurance “Carry Guard,” and although the premium has risen, the low-cost insurance is still a key aspect of membership for the group’s more than 5 million members.

Until the New York regulators stepped in earlier this year, the broker for Carry Guard was Lockton Cos., with Chubb Ltd. providing the coverage.

The NRA lawsuit contends that New York’s governor has a long-standing animus toward it and that Cuomo ordered regulators to take aim at its Carry Guard policies last fall in the wake of the Las Vegas shooting that left 58 people dead and 851 others injured.

Cuomo and Maria Vullo, New York’s superintendent of financial services, have said they acted when it became clear that repeated mass shootings at locations throughout the country were undermining modern standards for corporate social responsibility.

Because of the NRA’s continued opposition to what many believe are reasonable standards for gun control, Cuomo and Vullo said, New York insurers and banks that continued to do business with the NRA were putting their reputations and their managements at legal risk.

Actions by New York regulators prompted Lockton to announce in February that it would quit doing business with the NRA; days later, a second insurance brokerage also severed ties with the NRA, according to the lawsuit.  

The NRA’s legal action claims that Cuomo and Vullo want to “blacklist” the NRA and violate the group’s free-speech rights.

Without liability coverage or banking services to handle income received from members and others, the lawsuit says, the NRA won’t be able to maintain its offices, operate educational programs or hold rallies and other political events.

The lawsuit also says that Lockton agreed in May to pay a civil penalty of $7 million to the state of New York and that Chubb accepted a $1.3 million fine for its role in providing insurance to the NRA.

Unless a federal judge intervenes, the lawsuit says, the NRA’s ability to raise money and do business will be affected and the group will be forced to severely curtail its activities.