Universal Cable Productions, LLC, a Delaware limited liability company; Northern Entertainment Productions, LLC, a Delaware limited liability company, Plaintiffs-Appellants,
Atlantic Specialty Insurance Company, a New York insurance company, Defendant-Appellee.
and Submitted March 4, 2019 Pasadena, California
from the United States District Court No. 2:16 cv-04435 PA
for the Central District of California Percy Anderson,
District Judge, Presiding
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
Before: Ransey Guy Cole, Jr., [*] A. Wallace Tashima, and Jacqueline
H. Nguyen, Circuit Judges.
panel reversed in part and vacated in part the district
court's summary judgment in favor of Atlantic Specialty
Insurance Company in a diversity insurance coverage action
brought by Universal Cable Productions against its insurer,
sought to recover for expenses incurred when they moved
production of the television series Dig out of
Jerusalem after Hamas fired rockets from Gaza into Israel.
Atlantic denied coverage based on the insurance policy's
panel applied California law.
the doctrine of contra proferentem, any ambiguity in a policy
exclusion is generally construed against the insurer and in
favor of the insured. The panel declined to apply contra
proferentem either in favor of Universal's
interpretation, or in favor of Atlantic.
panel held that the district court erred in holding that
Atlantic met its burden of demonstrating that the first two
war exclusions applied. The panel further held that to the
contrary, the record demonstrated that neither exclusion
applied here, and Atlantic breached its insurance contract by
denying Universal coverage on that basis. Specifically, the
panel held that Atlantic breached its contract when it denied
coverage by defining Hamas' conduct as "war"
and "warlike action by a military force." The panel
also held that the district court erred when it failed to
apply the specialized meaning, pursuant to Section 1644 of
the California Civil Code, of those two terms. The panel held
that the specialized meaning of both "war" and
"warlike action by a military force" required
hostilities to be between either de jure or de facto
sovereigns, and Hamas constituted neither. The panel directed
the entry of summary judgment in favor of Universal on these
the district court did not address the third war exclusion -
whether Hamas' actions constituted "insurrection,
rebellion, or revolution" - the panel remanded for the
district court to address that question in the first
panel held that the district court's summary judgment on
Universal's bad faith claim was predicated on its
erroneous analysis of the first and second war exclusions.
Because the panel concluded that Atlantic breached its
contract, and because there were remaining triable issues of
fact, the panel vacated the grant of summary judgment on
Universal's bad faith claim, and remanded for further
panel denied Atlantic's motion to strike as moot. The
panel denied Atlantic's request for sanctions.
June and through July of 2014, Hamas fired rockets from Gaza
into Israel. Because of these hostilities, the plaintiffs,
Universal Cable Productions, LLC, and Northern Entertainment
Productions, LLC (collectively "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 (the
insurer, defendant 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.
responded that these war exclusions did not apply because the
terms had a specialized meaning in the insurance context.
Specifically, "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 thus its actions were not excluded
district court granted summary judgment to Atlantic and held
that, instead of the specialized meanings of "war"
and "warlike action," the relevant 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.
this case concerns the Israeli-Palestinian conflict and
hostilities between different factions in the region, the
legal analysis boils down to simple contractual
interpretation. Section 1644 of the California Civil Code
requires us to apply the specialized meaning of a term -
instead of the plain, ordinary meaning - when that
specialized meaning has been developed from customary usage
in a given industry and when both parties have constructive
notice of that usage. Both "war" and "warlike
action by a military force" have a specialized meaning
in the insurance context and the parties had, at the least,
constructive notice of the meaning. The district court erred
when it failed to apply that meaning. Under that specialized
meaning, both "war" and "warlike action by a
military force" require hostilities between either de
jure or de facto sovereigns, and Hamas constitutes neither.
we reverse the district court's entry of summary judgment
in favor of Atlantic on the first two war exclusions and hold
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" - we remand for the district
court to address that question in the first instance. The
district court's grant of Atlantic's motion for
summary judgment on Universal's bad faith claim turned on
its erroneous analysis of the first two war exclusions;
accordingly, we vacate the grant of summary judgment on
Universal's bad faith claim and remand for proceedings
consistent with this opinion.
begin with the history between Israel, Palestine, and
Hamas. The Palestinian political identity emerged
between 1923 and 1948. Jim Zanotti, Cong. Research
Serv., RL34074, The Palestinians: Background and
U.S. Relations 2 (2015) ("2015 CRS Palestine
Report"). In 1947, the United Nations intended to create
two states in what are now Israel and Palestine - one Jewish
and one Arab - but for reasons that are still disputed, the
U.N. ultimately founded only the Jewish state of Israel.
Id. In June 1967, Israel gained control over the
entire area that had historically constituted Palestine.
Id. at 3. Ultimately, Israel annexed only East
Jerusalem and the Golan Heights, leaving the West Bank and
Gaza under Israeli occupation, but not under Israeli
mid-1990s, the Palestinian Authority was granted limited rule
in Gaza and parts of the West Bank. Id. at 4, 26. In
2005, Israel unilaterally withdrew from Gaza, leaving control
to the Palestinian Authority. Id. at 47. According
to a U.S. Congressional Research Service report,
"[a]lthough not a state, the [Palestinian Authority] is
organized like one - complete with democratic mechanisms;
security forces; and executive, legislative, and judicial
organs of governance." Id. at 26. The
legislative branch is called the Palestinian Legislative
Council. Id. Fatah and Hamas are the largest
Palestinian political movements. Id. at 48.
was founded in 1987. Jim Zanotti, Cong. Research
Serv., R41514, Hamas: Background and Issues for
Congress 400 (2010) ("2010 CRS Hamas Report").
Hamas is committed "to the destruction of Israel and the
establishment of an Islamic State in all of historic
Palestine, comprised of present-day Israel, the West Bank,
and Gaza." 2015 CRS Palestine Report at 33. Hamas'
command center is in Gaza. Id. In 2006, Hamas won a
majority of the seats in the Palestinian Legislative Council.
Id. at 26. Since then, Hamas has provided social
services in the Gaza Strip, collected revenue, established a
judicial branch of sorts, and received some assistance from
foreign governments. According to the Congressional Research
Service, there has been tension between Hamas' activities
as a "militant organization uncompromisingly opposed to
Israel in defiance of international opprobrium" and
Hamas' activities as a "de facto government in
Gaza." 2010 CRS Hamas Report at 17. Hamas itself has
drawn "a bright line bifurcating the organization's
leadership from its members in the Gaza government."
Id. at 18. Furthermore, the same Report notes that
any reference "to the government in Gaza as the
'Hamas regime' does not mean that all or even most of
the people employed in ministries, civil service positions,
and even security forces are necessarily members of Hamas or
even Hamas sympathizers." Id. at 19.
2014, Hamas reached an agreement with Fatah to establish a
consensus Palestinian Authority government. 2015 CRS
Palestine Report at 1. As part of the agreement, Hamas agreed
to give up any formal responsibility for governing Palestine,
and Hamas' members no longer served as government
ministers. Id. at 1, 29. Nevertheless, Hamas'
security forces remained in Gaza and have continued to
exercise some control there. Id. at 29.
United States has never recognized Palestine or Gaza as
sovereign territorial nations, nor has it ever recognized
Hamas as a sovereign or quasi-sovereign (i.e., a de jure or
de facto government). In fact, 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). Since 2007, Hamas has had a history of firing
rockets into Israel. The United States has continued to
designate Hamas as a Foreign Terrorist Organization and does
not negotiate or enter into treaties with Hamas.
period from January 1, 2014, to June 30, 2015, Atlantic
issued a television production insurance policy to Universal.
The Policy covered losses that are "a direct result of
an unexpected, sudden or accidental occurrence entirely
beyond your control to include . . . [i]mminent peril,
defined as certain, immediate and impending danger of such
probability and severity to persons or property that it would
be unreasonable or unconscionable to ignore." The
Policy, which was negotiated before December 2013, covered
loss caused by terrorism if that loss was not otherwise
relevant exclusions for our analysis are the four war
1. War, including undeclared or civil war; or
2. Warlike action by a military force, including
action in hindering or defending against an actual or
expected attack, by any government, sovereign, or other
authority using military personnel or other agents; or
3. Insurrection, rebellion, revolution,
usurped power, or action taken by the governmental authority
in hindering or defending against any of these. Such loss or
damage is excluded regardless of any other cause or event
contributed concurrently or in any sequence to the loss.
4. Any weapon of war including atomic fission or radioactive
force, whether in time of peace or war . . . .
broker, Aon/Albert G. Ruben Insurance Services, Inc.,
initially sent the first three exclusions above to Atlantic.
The language was standard insurance industry form language
from the Insurance Service Office, Inc.'s
("ISO") standard Form No. CA00200310. Atlantic
subsequently edited some of the policy language and added the
fourth war exclusion.
December 3, 2013, Universal's broker emailed Atlantic
about three developments: (1) noting "that there is a
production in development that is tentatively starting up in
February 2014 and filming in Israel," specifically in
"Tel Aviv and Jerusalem"; (2) stating "[w]e
wanted to get some feedback from you on what issues we may
have covering the production under the blanket policy - any
additional premiums or exclusions beyond our standard
terms"; and (3) asking Atlantic to let Universal
"know what [Atlantic's] concerns may be on
broker then had a discussion with Atlantic "regarding
issues they may have with the project entitled 'Dig,'
potentially working in Israel." During that
conversation, Atlantic indicated it "understands that
[Universal] takes seriously safety and security precautions
on every production but that they were particularly concerned
about those precautions in this locale." As a result,
Atlantic asked Universal to provide "specific
information regarding the security efforts that will be taken
during the course of principal photography." Atlantic
then concluded that it would "not be imposing any
additional premium or additional coverage terms on
Dig relating to the work in Israel," the
"primary reason for [which] is [its] confidence in the
safety and security measures that will be taken during the
production." Atlantic did not change the policy's
terms, add any exclusions - such as a terrorism exclusion -
or charge any additional premium.
June 2014 Conflict
Dig began production in Israel, three Israeli
teenagers were kidnapped on June 12, 2014, and Hamas was
suspected of involvement in the kidnappings. On June 30,
2014, the bodies of the three missing teenagers were
recovered, and there were signs indicating Hamas was
involved. On July 2, 2014, a Palestinian teenager was
abducted and killed by Israelis, presumably in retaliation
for the kidnapping of the Israeli teens. In late June or
early July 2014, Hamas began firing rockets from Gaza into
Israeli civilian populations, significantly ...