August 12, 2019
The US Court of Appeals for the Ninth Circuit has ruled that an insurance company could not rely on two "war" exclusions in the policy to deny coverage to the insured for damages that the insured suffered after Hamas fired rockets from Gaza into Israel. The case is Universal Cable Prods., Ltd. Liab. Co., v. Atl. Specialty Ins. Co., No. 17-56672, 2019 U.S. App. LEXIS 20704 (9th Cir. July 12, 2019.
In June and July 2014 Hamas, a Palestinian Sunni-Islamist fundamentalist organization, fired rockets from Gaza into Israel. Due to those threats, Universal Cable Productions, LLC and Northern Entertainment Productions, LLC (together, "Universal") moved the production of television series "Dig" out of Jerusalem where it was originally being filmed. To facilitate this move, Universal incurred several significant expenses 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 for this claim stating that the policy did cover expenses related to terrorism, the hostilities in question were precluded from coverage. The war exclusions that Atlantic relied on excluded coverage for expenses resulting from "war," "warlike action by a military force," or "insurrection, rebellion, [or] revolution", and came to the conclusion that the actions of the Hamas were excluded acts of war.
Universal argued that the war exclusions did not apply because terms have a specialized meaning in the context of insurance. Specifically that "war" and "warlike action by military force" required hostility between sovereigns. Universal argued that Hamas was not acting as a sovereign, so its actions are not excluded from coverage. Universal sued Atlantic, which moved for summary judgment. The U.S. District Court for the Central District of California granted that request for summary judgment and held that instead of the specialized meanings for "war" and "warlike action,' the definitions were the plain and ordinary meaning 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, and granted summary judgment to Atlantic on Universal's bad faith claim.
The circuit court reversed. The Ninth Circuit noted that both terms had a specialized meaning within the context of insurance, and that the parties had constructive notice of the meaning. Under the specialized meaning, the Ninth Circuit that both "war" and "warlike action by a military force" both required hostilities between either "de jure" or "de facto" sovereigns, and that Hamas did not constitute either. In fact, since 1977, the U.S. has designated Hamas as a Foreign Terrorist Organization under the Immigration and Nationality Act, 8 U.S.C. §1189.
So the Ninth Circuit reversed the district courts ruling of summary judgment in favor of Atlantic on the definitions of the first two war exclusions, and vacated the district court's grant of Atlantic's motion for summary judgment on Universal's bad faith claim, reasoning that the decision turned on the analysis of the war exclusions.
Editors Note: The Ninth Circuit remanded the case to the district court for further consideration on the application of a third, undiscussed exclusion that precludes coverage for "insurrection, rebellion, [or] revolution." So Universal may still be left out to dry. Although these circumstances are unlikely to reoccur, this decision might still carry weight in the new world of cyberinsurance. In a case filed in January in Illinois (case: 2018 L 0011008) the court is currently attempting to decide whether or not a cyber attacks can be considered an act of war.