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Contingent Liabilities | 12 Months Ended
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Dec. 31, 2020
Commitments and Contingencies Disclosure [Abstract] |
Contingent Liabilities | 20.Contingent Liabilities As of December 31, 2020, the Company was a defendant in five (5) lawsuits and is aware of certain other such claims. The lawsuits fall into three categories: traditional product liability litigation, non-product litigation, and municipal litigation. Each is discussed in turn below. Traditional Product Liability Litigation Two lawsuits mentioned above involve a claim for damages related to an allegedly defective product due to its design and/or manufacture. The lawsuits stem from a specific incident of personal injury and are based on traditional product liability theories such as strict liability, negligence, and/or breach of warranty. The Company management believes that the allegations in these cases are unfounded, that the incidents are unrelated to the design or manufacture of the firearms involved, and that there should be no recovery against the Company. Non-Product Litigation Primus Group LLC v. Smith and Wesson, et al. is a putative class action filed in the United States District Court for the Southern District of Ohio on August 8, 2019. Plaintiff alleges that the defendants’ lawful sale of modern sporting rifles violates the Racketeer Influenced Corrupt Organizations Act and seeks a temporary restraining order (“TRO”) and permanent injunction. On August 20, 2019, the court denied plaintiff’s request for a TRO. On September 3, 2019, defendants filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). On September 16, 2019, plaintiff filed an Amended Complaint. On October 9, 2019, the court dismissed plaintiff’s Amended Complaint, with prejudice. Plaintiff filed a Notice of Appeal on October 15, 2019. The parties fully briefed the appeal and the Court of Appeals for the Sixth Circuit entered an order affirming the dismissal on February 8, 2021. FN Herstal S.A. v. Sturm, Ruger & Co., Inc. was filed in the United States District Court for the Eastern District of Virginia on March 6, 2020. The Complaint alleges injury and economic loss based upon alleged federal and state trademark infringement and unfair competition. These allegations arise from the Company’s use and efforts to seek registration of “Ruger-57” in connection with the launch of a pistol bearing that mark. The Company believes that the suit lacks any merit and has filed an Answer denying all material allegations and Counterclaims seeking cancellation of certain of Plaintiff’s registered trademarks. Discovery will close on March 9, 2021 and a pretrial conference is scheduled for March 12, 2021. Municipal Litigation Municipal litigation generally includes those cases brought by cities or other governmental entities against firearms manufacturers, distributors and retailers seeking to recover damages allegedly arising out of the misuse of firearms by third parties. There is only one remaining lawsuit of this type, filed by the City of Gary in Indiana State Court in 1999. The Complaint in that case seeks damages, among other things, for the costs of medical care, police and emergency services, public health services, and other services as well as punitive damages. In addition, nuisance abatement and/or injunctive relief is sought to change the design, manufacture, marketing and distribution practices of the various defendants. The suit alleges, among other claims, negligence in the design of products, public nuisance, negligent distribution and marketing, negligence per se and deceptive advertising. The case does not allege a specific injury to a specific individual as a result of the misuse or use of any of the Company's products. 70 Table of Contents After a long procedural history, the case was scheduled for trial on June 15, 2009. The case was not tried on that date and was largely dormant until a status conference was held on July 27, 2015. At that time, the court entered a scheduling order setting deadlines for plaintiff to file a Second Amended Complaint, for defendants to answer, and for defendants to file dispositive motions. The plaintiff did not file a Second Amended Complaint by the deadline. In 2015, Indiana passed a new law such that Indiana Code §34-12-3-1 became applicable to the City's case. The defendants filed a joint motion for judgment on the pleadings, asserting immunity under §34-12-3-1 and asking the court to revisit the Court of Appeals' decision holding the Protection of Lawful Commerce in Arms Act inapplicable to the City's claims. On September 29, 2016, the court entered an order staying the case pending a decision by the Indiana Supreme Court in KS&E Sports v. Runnels, which presented related issues. The Indiana Supreme Court decided KS&E Sports on April 24, 2017, and the City of Gary court lifted the stay. The City of Gary court also entered an order setting a supplemental briefing schedule under which the parties addressed the impact of the KS&E Sports decision on defendants' motion for judgment on the pleadings. A hearing on the motion for judgment on the pleadings was held on December 12, 2017. On January 2, 2018, the court issued an order granting defendants’ motion for judgment on the pleadings, but denying defendants’ request for attorney’s fees and costs. On January 8, 2018, the court entered judgment for the defendants. The City filed a Notice of Appeal on February 1, 2018. Defendants cross-appealed the order denying attorney’s fees and costs. Briefing in the Indiana Court of Appeals was completed on the City’s appeal and Defendants’ cross appeal on September 10, 2018. The Court of Appeals issued its ruling on May 23, 2019, affirming dismissal of the City’s negligent design and warnings count on the basis that the City had not alleged that Manufacturer Defendants’ conduct was unlawful. However, the court reversed dismissal of the City’s negligent sale and distribution and related public nuisance counts for damages and injunctive relief. The Manufacturer Defendants filed a Petition to Transfer the case to the Indiana Supreme Court on July 8, 2019. The Petition was denied on November 26, 2019. The case was remanded to the trial court for further proceedings, though there has been no activity since then. Summary of Claimed Damages and Explanation of Product Liability Accruals Punitive damages, as well as compensatory damages, are demanded in certain of the lawsuits and claims. In many instances, the plaintiff does not seek a specified amount of money, though 71 Table of Contents aggregate amounts ultimately sought may exceed product liability accruals and applicable insurance coverage. For product liability claims made after July 10, 2000, coverage is provided on an annual basis for losses exceeding $5 million per claim, or an aggregate maximum loss of $10 million annually, except for certain new claims which might be brought by governments or municipalities after July 10, 2000, which are excluded from coverage. The Company management monitors the status of known claims and the product liability accrual, which includes amounts for asserted and unasserted claims. While it is not possible to forecast the outcome of litigation or the timing of costs, in the opinion of management, after consultation with special and corporate counsel, it is not probable and is unlikely that litigation, including punitive damage claims, will have a material adverse effect on the financial position of the Company, but may have a material impact on the Company’s financial results for a particular period. Product liability claim payments are made when appropriate if, as, and when claimants and the Company reach agreement upon an amount to finally resolve all claims. Legal costs are paid as the lawsuits and claims develop, the timing of which may vary greatly from case to case. A time schedule cannot be determined in advance with any reliability concerning when payments will be made in any given case. Provision is made for product liability claims based upon many factors related to the severity of the alleged injury and potential liability exposure, based upon prior claim experience. Because the Company's experience in defending these lawsuits and claims is that unfavorable outcomes are typically not probable or estimable, only in rare cases is an accrual established for such costs. In most cases, an accrual is established only for estimated legal defense costs. Product liability accruals are periodically reviewed to reflect then-current estimates of possible liabilities and expenses incurred to date and reasonably anticipated in the future. Threatened product liability claims are reflected in the Company's product liability accrual on the same basis as actual claims; i.e., an accrual is made for reasonably anticipated possible liability and claims handling expenses on an ongoing basis. A range of reasonably possible losses relating to unfavorable outcomes cannot be made. However, in product liability cases in which a dollar amount of damages is claimed, the amount of damages claimed, which totaled $1.1 million and $0.1 million at December 31, 2020 and 2019, respectively, are set forth as an indication of possible maximum liability the Company might be required to incur in these cases (regardless of the likelihood or reasonable probability of any or all of this amount being awarded to claimants) as a result of adverse judgments that are sustained on appeal. During 2020, one (1) traditional product liability lawsuit was filed against the Company and one (1) was resolved. As of December 31, 2020, the Company was a defendant in three (3) lawsuits involving its products, including two (2) traditional lawsuits and one (1) municipal lawsuit. During 2019, two (2) traditional product liability lawsuits were filed against the Company and three (3) were resolved. As of December 31, 2019, the Company was a defendant in three (3) lawsuits involving its products, including two (2) traditional lawsuits and one (1) municipal lawsuit. 72 Table of Contents The Company’s product liability expense was $1.1 million in 2020, $0.7 million in 2019, $1.5 million in 2018. This expense includes the cost of outside legal fees, and other expenses incurred in the management and defense of product liability matters. A roll-forward of the product liability reserve and detail of product liability expense for the three years ended December 31, 2020 follows: Balance Sheet Roll-forward for Product Liability Reserve
|  |  |  |  |  |  |  |  |  | Cash Payments |  |  |  |  |
|  | Balance Beginning of Year (a) |  |  | Accrued Legal Expense (Income) (b) |  |  | Legal Fees (c) |  |  | Settlements (d) |  |  | Balance End of Year (a) |
2018 |  | $ | 819 |  |  |  | 731 |  |  |  | (183 | ) |  |  | (195 | ) |  | $ | 1,172 |
2019 |  | $ | 1,172 |  |  |  | (37 | ) |  |  | (240 | ) |  |  | (77 | ) |  | $ | 818 |
2020 |  | $ | 818 |  |  |  | 300 |  |  |  | 8 |  |  |  | — |  |  | $ | 1,126 |
Income Statement Detail for Product Liability Expense
|  | Accrued Legal Expense (b) |  |  | Insurance Premium Expense (e) |  |  | Total Product Liability Expense |
2018 |  | $ | 731 |  |  |  | 783 |  |  | $ | 1,514 |
2019 |  | $ | (37 | ) |  |  | 755 |  |  | $ | 718 |
2020 |  | $ | 300 |  |  |  | 839 |  |  | $ | 1,139 |
Notes
(a) | The beginning and ending liability balances represent accrued legal fees only. Settlements and administrative costs are expensed as incurred. Only in rare instances is an accrual established for settlements.
(b) | The expense accrued in the liability is for legal fees only. In 2019, the costs incurred related to cases that were settled or dismissed were less than the amounts accrued for these cases in prior years.
(c) | Legal fees represent payments to outside counsel related to product liability matters.
(d) | Settlements represent payments made to plaintiffs or allegedly injured parties in exchange for a full and complete release of liability.
(e) | Insurance expense represents the cost of insurance premiums.
There were no insurance recoveries during any of the above years.

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