Universal Cable Productions v. Atlantic Specialty Insurance
929 F.3d 1143 (2019)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
California Civil Code § 1644 mandates that terms in an insurance policy are interpreted according to their special meaning established by customary usage in the industry, rather than their ordinary sense, especially when parties have constructive notice of that usage, requiring "war" and "warlike action by a military force" exclusions to apply only to hostilities between de jure or de facto sovereign entities.
Facts:
- For the period from January 1, 2014, to June 30, 2015, Atlantic Specialty Insurance Company (Atlantic) issued a television production insurance policy to Universal Cable Productions, LLC, and Northern Entertainment Productions, LLC (collectively Universal).
- The Policy covered losses from "imminent peril" and covered terrorism if not otherwise excluded, but included four war exclusions, the first two being "War, including undeclared or civil war" and "Warlike action by a military force... by any government, sovereign, or other authority."
- In December 2013, Universal's broker emailed Atlantic regarding the planned production of the television series "Dig" in Israel, and Atlantic subsequently confirmed it would not impose additional premiums or exclusions, expressing confidence in Universal's safety and security measures.
- On June 12, 2014, three Israeli teenagers were kidnapped, with Hamas suspected of involvement, and their bodies were recovered on June 30.
- In late June or early July 2014, Hamas began firing rockets from Gaza into Israeli civilian populations, with attacks significantly increasing around July 8.
- On July 8, 2014, the U.S. State Department issued a warning regarding the safety and security of civilians in Israel, and two days later, Universal's security team advised that the security environment prohibited guaranteeing the safety of the "Dig" production team and talent due to rocket attacks and concerns about terrorism.
- Due to the escalating violence, Universal decided to postpone production for a week, and then to move the "Dig" production out of Israel altogether, incurring significant expenses for which it filed an insurance claim.
Procedural Posture:
- Universal Cable Productions, LLC, and Northern Entertainment Productions, LLC (Universal) filed suit against Atlantic Specialty Insurance Company (Atlantic) in the United States District Court for the Central District of California, asserting claims for breach of contract and breach of the implied covenant of good faith and fair dealing.
- Following discovery, Atlantic moved for summary judgment on both claims.
- Universal filed a cross-motion for partial summary judgment on its breach of contract claim.
- In June 2017, the district court granted Atlantic's motion for summary judgment in a short minute order.
- Four months later, the district court issued a written order granting Atlantic's motion and denying Universal's motion, holding that the first two war exclusions barred coverage and that Atlantic did not act in bad faith.
- Universal (Plaintiffs-Appellants) appealed the district court's decision to the United States Court of Appeals for the Ninth Circuit, with Atlantic as the Defendant-Appellee.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does California Civil Code § 1644 require that "war" and "warlike action by a military force" exclusions in an insurance policy be interpreted according to their specialized meaning in the insurance industry, thus limiting coverage denials to hostilities involving de jure or de facto sovereign entities, even when the policy language includes "undeclared war" and when the actions are committed by a U.S.-designated Foreign Terrorist Organization?
Opinions:
Majority - A. Wallace Tashima
Yes, California Civil Code § 1644 requires that "war" and "warlike action by a military force" exclusions in an insurance policy be interpreted according to their specialized meaning in the insurance industry, limiting coverage denials to hostilities involving de jure or de facto sovereign entities, and Atlantic breached its contract by denying Universal coverage on this basis. The court found that the district court erred by not applying California Civil Code § 1644, which mandates the application of a special meaning to contract terms when such meaning is established by customary usage in a given industry and parties have constructive notice. In the insurance context, "war" and "warlike action by a military force" traditionally require hostilities between de jure or de facto sovereigns, as supported by caselaw like Pan Am. World Airways v. Aetna Cas. & Surety Co. and Holiday Inns Inc. v. Aetna Ins. Co., which consistently refused to apply war exclusions to actions by non-sovereign terrorist organizations. The court determined that Hamas, despite providing some social services and having a military wing, does not constitute a de jure or de facto sovereign entity, especially considering its agreement to cede governing functions to the Palestinian Authority in June 2014 and the U.S. government's consistent designation of Hamas as a Foreign Terrorist Organization since 1997. The court clarified that the inclusion of "undeclared war" in the policy language does not override the requirement under California law to apply the specialized meaning for these terms, distinguishing cases from World War II. Furthermore, the court held that Israel's retaliatory actions were not the efficient proximate cause of Universal's losses, as the predominant cause was Hamas's rocket fire, which constituted intentional violence against civilians, more akin to acts of terror than warlike action by a military force. Therefore, the first two war exclusions did not apply, and Atlantic breached its contract.
Analysis:
This case significantly reinforces the principle under California law that insurance policy exclusions, particularly "war" clauses, are not always interpreted in their "plain and ordinary" sense but can have a specialized meaning derived from industry custom and usage. It clarifies that for war exclusions to apply, the hostile actors must possess attributes of de jure or de facto sovereignty, making it harder for insurers to deny claims based on actions by non-state terrorist groups if terrorism is otherwise covered. This ruling encourages insurers to explicitly include "terrorism" exclusions if they intend to exclude such acts from coverage, rather than relying on broad "war" exclusions, especially in policies that specifically state they cover terrorism unless otherwise excluded. It also highlights the importance of the efficient proximate cause doctrine in California insurance law, ensuring that the predominant cause of loss, not remote contributing factors, dictates coverage.
