Universal Cable Prods., LLC v. Atl. Specialty Ins. Co.

• Decision Date: 12 July 2019
• Docket Number: No.17-56672,17-56672
• Citation: Universal Cable Prods., LLC v. Atl. Specialty Ins. Co., 929 F.3d 1143 (9th Cir. 2019)
• Parties: UNIVERSAL CABLE PRODUCTIONS, LLC, a Delaware limited liability company; Northern Entertainment Productions, LLC, a Delaware limited liability company, Plaintiffs-Appellants, v. ATLANTIC SPECIALTY INSURANCE COMPANY, a New York insurance company, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

929 F.3d 1143

UNIVERSAL CABLE PRODUCTIONS, LLC, a Delaware limited liability company; Northern Entertainment Productions, LLC, a Delaware limited liability company, Plaintiffs-Appellants,

v.ATLANTIC SPECIALTY INSURANCE COMPANY, a New York insurance company, Defendant-Appellee.

No.17-56672

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 4, 2019 Pasadena, California

Filed July 12, 2019

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.

Before: Ransey Guy Cole, Jr.,^*A. Wallace Tashima, and Jacqueline H. Nguyen, Circuit Judges.

TASHIMA, Circuit Judge:

In late 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 "Policy").

Universal’s insurer, defendantAtlantic 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, "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 from coverage.

The 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.¹

Although 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.

Accordingly, 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.

I.Background

A.Historical Background

We begin with the history between Israel, Palestine, and Hamas.²The Palestinian political identity emerged between 1923 and 1948.Jim Zanotti, Cong. ResearchServ. , 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 governance.Id.

In the 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.

Hamas 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 CRSPalestine Reportat 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 CRSHamas Reportat 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.

In June 2014, Hamas reached an agreement with Fatah to establish a consensus Palestinian Authority government.2015 CRSPalestine Reportat 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.

The 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.

B.Factual Background

For the 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 excluded.

The relevant exclusions for our analysis are the four war exclusions:

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 ....

Universal’s 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 FormNo. CA00200310.Atlantic subsequently edited some of the policy language and added the fourth war exclusion.

On December 3,...