On July 12, 2019, the United States Court of Appeals for the Ninth Circuit addressed losses claimed by Universal Cable Productions and Northern Entertainment Productions when they moved the production of a television series away from Jerusalem because Hamas fired rockets from Gaza into Israel.  See Universal Cable Productions, LLC v. Atlantic Specialty Insurance Co., 2019 WL 3049034 (9th Cir. July 12, 2019). They sought coverage for these expenses.  The insurer denied coverage, noting that while the policy covered expenses related to terrorism, two exclusions applied to bar coverage. Specifically, the insurer argued that the policy’s exclusions for “war” and “warlike action by a military force” applied.  In response, the insureds contended that  the exclusions did not apply because the term “war” has a specialized meaning in the insurance context.  The insurer disagreed, contending that the ordinary and plain meaning of “war” governed. 

The Ninth Circuit rejected the insurer’s argument.  It did so without resort to the doctrine of contra proferentum under which ambiguities are resolved in favor of coverage and against the insurer.

Instead, the Ninth Circuit cited California law and the Restatement (Second) of Contracts, noting that “a usage of trade in the “‘location or trade in which the parties are engaged or a usage of trade of which they know or have reason know gives meaning to or supplements or qualifies their agreement’. . . .”  Id. at *8.  In so holding, the court relied on unrebutted expert testimony offered by the insureds showing “the customary usage of ‘war’ and ‘warlike action by a military force’ in the insurance context.”  Id.  The court also noted, “caselaw and insurance treatises buttress [the insureds’] argument that ordinary, popular meanings of these terms do not control in this context.”  Id. 

The  court held that “war” “refers to and includes only hostilities carried on by entities that constitute governments at least de facto in character.”  Id. at *9.  In so holding, it relied upon the seminal decision of Pan Am World Airways v. Aetna Casualty & Surety Co., 505 F.2d 989, 1012 (2d Cir. 1974), in which the Second Circuit held that a  highjacking carried out by the PLO did not fall within the war exclusions.Therefore, the court concluded that “the insurance industry has a customary usage that limits exclusions for “war” to hostilities between de jure or de facto sovereigns.”  Id. at *11.  It found that while Hamas asserted control over Gaza, “Gaza is part of Palestine and not its own sovereign state,” that Hamas “never exercised actual control over all of Palestine,”  that Hamas “has not declared itself independent from Palestine,” and that “Hamas agreed in June 2014 to cede any governing functioning it may have had to the Palestinian Authority.”  Id. at *13.

Universal Cable has important implications in a world where there are frequent terrorist attacks and as to policies could have contained a terrorist exclusion, but did not.See, e.g., Safeco Ins. Co. of America v. Robert S., 26 Cal. 4th 758, 765 (2001) (“[W]e cannot read into the policy what [the insurer] has omitted.”); Fireman’s Fund Ins. Co. v. Atl. Richfield Co., 94 Cal. App. 4th 842, 852 (2001) (“An insurance company’s failure to use available language to exclude certain types of liability gives rise to the inference that the parties intended not to so limit coverage”).   

Furthermore, Universal Cable also is important as another decision confirming that when there is an understood meaning for a term in a specific industry, an insurer cannot avoid that meaning by attempting to argue the “ordinary and plain” meaning of the term.  See, e.g., DIRECTV v. Factory Mut. Ins. Co., 692 F. App’x 494, 495 (9th Cir. 2017) (rejecting insurer’s efforts to apply plain and ordinary meaning of the phrase “direct supplier” as to a contingent business interruption loss; “In light of the extrinsic evidence that trade usage introduced by [the insured], the phrase “direct supplier” is ‘reasonably susceptible’ to the meaning urged by [the insured]”).