In a significant win for policyholders, the Ninth Circuit rejected an insurer’s argument that the common meaning of “war” applied when interpreting a war exclusion, instead of the customary usage of the term, pursuant to Cal. Civ. Code 1644, and revived NBC Universal’s attempt to recover at least $6.9 million in costs incurred to relocate the production of a television show from Jerusalem during the 2014 Israeli-Palestinian conflict. Universal Cable Prods., et al., LLC v. Atl. Specialty Ins. Co., 2019 WL 3049034, at *10 (9th Cir. July 12, 2019).
The Ninth Circuit considered whether losses incurred by plaintiffs, Universal Cable Productions, LLC’s and Northern Entertainment Productions, LLC’s (collectively, “Universal”), arising from moving production of its television series, Dig, out of Jerusalem in 2014 following a rocket attack by Hamas, were covered under Universal’s television-production insurance policy, which contained three so-called “war” exclusions. The court analyzed the history of Hamas and Palestine-Israeli relations, finding that “[a]fter considering the factual and historical record and the executive branch’s position, we conclude Hamas is not a de jure or a de facto sovereign. Thus, Hamas’ conduct in the summer of 2014 cannot be defined as ‘war’ for the purposes of interpreting this policy.” The court found that the insurer failed to prove that the “warlike action” exclusion applied because Hamas was not a de facto sovereign and because “the nature of Hamas’ conduct in June and July 2014 also supports our conclusion that Hamas was not engaging in ‘warlike action by a military force.’ Couch’s insurance treatise notes that ‘warlike operations’ would ‘not include intentional violence against civilians by political groups.’ Hamas constitutes such a political group.” Importantly, the court found that “‘war’ has a special meaning in the insurance industry requiring hostilities between de jure and de facto governments.” The appellate court also rejected the district court’s causation analysis, explaining that the district court erred in holding that, because Israel indirectly contributed to Hamas’ conduct, Israel’s conduct as a sovereign nation triggered the war exclusion.
The Universal case is a reminder of the importance of not merely accepting an insurer’s narrow interpretation of exclusionary language. This is especially so with respect to so-called “war” exclusions, the wording of which has remained relatively constant despite an ever-changing geo-political world landscape, rendering the exclusion inapplicable to modern hostilities by groups that do not constitute sovereigns. Policyholders should be proactive, before a loss occurs, and identify and insist on narrowly tailored language for potentially overly broad exclusions, like the war exclusion, to ensure that the exclusion makes sense in the context of the current environment so that coverage applies as expected if or when a loss should occur.