Jerusalem (Photo: Shutterstock.com)

This story is reprinted with permission from the Insurance Coverage Law Center, the industry's only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe.

The U.S. Court of Appeals for the Ninth Circuit has ruled that an insurance company could not rely on two “war” exclusions in its policy to deny coverage to its insured for damages the insured suffered after Hamas fired rockets from Gaza into Israel.

The Case

In late June and through July 2014, Hamas fired rockets from Gaza into Israel. Because of these hostilities, Universal Cable Productions, LLC, and Northern Entertainment Productions, LLC (together, “Universal”) moved the production of their television series Dig out of Jerusalem.

Universal incurred significant expenses during this move and filed an insurance claim for coverage of those costs under a television production insurance policy it had obtained from Atlantic Specialty Insurance Company.

Atlantic denied coverage, stating that although the policy covered expenses related to terrorism, the hostilities were excluded from coverage. Atlantic relied on the policy's war exclusions, which excluded coverage for expenses resulting from “war,” “warlike action by a military force,” or “insurrection, rebellion, [or] revolution.”

Atlantic concluded that Hamas' actions were excluded acts of war.

Universal responded that these war exclusions did not apply because the terms had a specialized meaning in the insurance context. Specifically, according to Universal, “war” and “warlike action by a military force” required hostilities between de jure or de facto sovereigns. Universal argued that Hamas was not acting as a sovereign and, therefore, that its actions were not excluded from coverage.

Universal sued Atlantic, which moved for summary judgment.

The U.S. District Court for the Central District of California granted summary judgment to Atlantic and held that, instead of the specialized meanings of “war” and “warlike action,” the definitions were the ordinary and plain meanings of each term. The district court held that under its interpretation, Hamas' actions clearly constituted “war” and “warlike action by a military force,” rather than acts of terrorism.

Based on its interpretation of those two exclusions, the district court also granted summary judgment to Atlantic on Universal's bad faith claim.

Universal appealed to the Ninth Circuit.

The Ninth Circuit's Decision

The circuit court reversed.

In its decision, the Ninth Circuit explained that both “war” and “warlike action by a military force” had a specialized meaning in the insurance context and that the parties had, at the least, constructive notice of the meaning.

Under that specialized meaning, the Ninth Circuit said, both “war” and “warlike action by a military force” required hostilities between either “de jure or de facto sovereigns.”

Hamas constituted neither, the circuit court ruled. It pointed out that the United States has never recognized Hamas as a sovereign or quasi-sovereign (that is, a de jure or de facto government) and that, since 1997, the United States has designated Hamas as a Foreign Terrorist Organization under the Immigration and Nationality Act, 8 U.S.C. § 1189(a)(1).

Therefore, the Ninth Circuit reversed the district court's entry of summary judgment in favor of Atlantic on the first two war exclusions and held that Atlantic breached its contract when it denied coverage by defining Hamas' conduct as “war” or “warlike action by a military force.”

Because the district court did not address the third war exclusion – whether Hamas' actions constituted “insurrection, rebellion, or revolution” – the circuit court remanded for the district court to address that question.

Finally, the circuit court vacated the district court's grant of Atlantic's motion for summary judgment on Universal's bad faith claim, reasoning that it turned on the district court's erroneous analysis of the first two war exclusions.

The case is Universal Cable Productions, LLC v. Atlantic Specialty Ins. Co., No. 17-56672 (9th Cir. July 12, 2019). Attorneys involved include: Amanda Kate Bonn (argued) and Kalpana Srinivasan, Susman Godfrey LLP, Los Angeles, California; Jacob W. Buchdahl, Susman Godfrey LLP, New York, New York; for Plaintiffs-Appellants. Margaret A. Grignon (argued) and Anne M. Grignon, Grignon Law Firm LLP, Long Beach, California; Michael Keeley and Carla. C. Crapster, Strasburger & Price LLP, Dallas, Texas; for Defendant-Appellee.

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Mr. Meyerowitz is the Director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He may be contacted at smeyerowitz@meyerowitzcommunications.com.