In Universal Cable Productions LLC, et al. v. Atlantic Specialty Insurance Co., No. 2:16-cv-04435 (C.D. Cal. Oct. 6, 2017), the United States District Court for the Central District of California held that a “war” exclusion barred insurance coverage for losses arising from NBCUniversal’s decision to postpone and relocate production of its action-thriller miniseries Dig, due to an armed conflict between Israel and Hamas. During the conflict, Hamas and other militant groups fired over 4,000 rockets and mortar shells into Israel, forcing NBCU to halt filming in Jerusalem and move production to Croatia and New Mexico.
Atlantic had issued an insurance policy to NBCU, which insured against certain risks commonly incurred in connection with television productions. The policy provided coverage for losses arising from, among other things “imminent 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.” While Atlantic conceded that the Dig claim involved an imminent peril, it denied coverage based on the policy’s exclusion for “war” and “warlike action by a military force.” NBCU argued that the Israel/Hamas conflict was not a “war,” as defined in the policy, but instead was a terrorist uprising for which the policy did provide coverage.
The district court concluded that the war exclusion barred coverage. While the court recognized that Hamas is often characterized as a terrorist group, it nevertheless determined that Hamas functions as a quasi-sovereign entity within the Palestinian Authority’s territory in the Gaza Strip. The court noted that Hamas is one of the largest political movements in the region, where it participates in common governmental activities, including executive, legislative, and judicial organs of governance. According to the court, because Hamas was neither a guerrilla group nor a private militia, the war exclusion applied and the separate terrorism coverage did not.
Several aspects of the decision may be subject to appellate review. Notably, the court appears to have been swayed by Atlantic’s invitation to blur the dichotomy between “war” and “terrorism.” Atlantic had argued that, “in today’s world,” war and terror can and do overlap, pointing to media coverage and statements by politicians that terrorist attacks are “acts of war.” Nonetheless, other courts have refused to apply that rationale in the context of insurance policy terms, and instead interpret terms based on their technical meaning and not colloquial or political rhetoric. See In re Sept. 11 Litig., 751 F.3d 86, 93 (2d Cir. 2014) (explaining that an “act of war” should be interpreted more narrowly in the insurance context in comparison to other contexts). Indeed, blurring the distinction between war and terrorism would risk rendering illusory any separate terrorism coverage.
In addition, although NBCU argued that the war exclusion was, at the very least, ambiguous and should therefore be construed in favor of the insured, the court appeared disinclined to offer NBCU the benefit of the doubt, noting that courts “need not go so far in protecting the insured” where it “does not suffer from a lack of legal sophistication or a relative lack of bargaining power.” That conclusion is at odds with the general rule that any ambiguities should be resolved in favor of the insured. Indeed, the court’s conclusion makes the extra leap of suggesting that NBCU should be penalized due to the sophistication of the insurance broker—Aon— notwithstanding Aon’s own belief that the Dig production would be insured against acts of terrorism in Israel, including acts by known terrorist groups.
Despite the potential flaws in the court’s reasoning, the decision should serve as powerful reminder that policyholders should review for any potential gaps in coverages that were purchased specifically to mitigate losses arising from project cancellations or postponements—particularly when those projects take place internationally. Here, even though NBCU purchased a customized “manuscripted” policy that was specifically intended to cover its television productions, this district court nonetheless declined to find coverage for television production relocation costs in the context of an armed conflict. Similar event cancellation coverages are often used in other contexts, including film productions, musical performances, sports events, economic fora, and political summits, yet such coverages can still leave open dangerous gaps in the event of a terrorist attack, a natural or non-natural disaster, or a hacking event. Reviewing policies and indemnity agreements for potential gaps before a loss occurs, and strategically presenting claims to insurers after a loss, can make a crucial difference in maximizing coverage for disrupted projects in the U.S. and abroad.