Universal Cable Productions, LLC v. Atlantic Specialty Insurance Co., 929 F.3d 1143 (9th Cir. 2019) was decided by the United States Court of Appeals for the Ninth Circuit on July 12, 2019 (No. 17-56672). The Ninth Circuit reversed the grant of summary judgment to Atlantic on the first two war exclusions and held that Atlantic breached the policy by denying coverage on the theory that Hamas' conduct was "war" or "warlike action by a military force." Hamas was neither a de jure nor a de facto sovereign during the July 2014 hostilities, so neither exclusion applied, and the panel directed entry of summary judgment for Universal on those two exclusions. Because the district court never reached the third exclusion — insurrection, rebellion, or revolution — the panel remanded that question. The grant of summary judgment on the bad faith claim, which rested on the erroneous exclusion analysis, was vacated and remanded.

The question before the court

When an insurance policy excludes loss caused by "war" or "warlike action by a military force," does that exclusion reach violence committed by a non-state armed group, or does the insurance industry's customary usage confine both terms to hostilities between de jure or de facto sovereigns?

The governing rule

Under California Civil Code section 1644, contract words are understood in their ordinary and popular sense "unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed." The panel read the statute's two clauses as distinct: technical meaning requires a showing of the parties' intent (Sony Computer Entertainment America, Inc. v. American Home Assurance Co., 532 F.3d 1007, 1013 (9th Cir. 2008)), while customary usage requires only that the parties had actual or constructive notice of the usage. In the insurance trade, "war" carries the international-law sense adopted in Pan American World Airways v. Aetna Casualty & Surety Co., 505 F.2d 989, 1012 (2d Cir. 1974) — hostilities "engaged in by entities that have at least significant attributes of sovereignty" — and Holiday Inns Inc. v. Aetna Insurance Co., 571 F. Supp. 1460, 1503 (S.D.N.Y. 1983), requiring hostilities "between sovereign or quasi-sovereign states." "Warlike action by a military force" derives from the "warlike operations" exclusion and likewise requires that the operations be carried out by the military forces of a sovereign or quasi-sovereign government. Who holds sovereignty, de jure or de facto, is a political question on which courts follow the executive branch. Oetjen v. Central Leather Co., 246 U.S. 297, 302 (1918); Mingtai Fire & Marine Ins. Co. v. United Parcel Service, 177 F.3d 1142, 1145 (9th Cir. 1999).

How the court applied it

Universal moved production of the series Dig out of Jerusalem after Hamas fired rockets from Gaza into Israel in 2014; Atlantic denied the extra-expense claim under the policy's war exclusions. The panel held the district court erred at the threshold by applying the plain and ordinary meaning of "war." Universal offered unrebutted expert testimony, caselaw, and treatises establishing an insurance-trade usage requiring de jure or de facto sovereigns; Atlantic did not contest the existence of that usage, arguing instead that California law did not compel it. Because section 1644 conditions customary usage only on notice — and Atlantic's own denial letter had quoted Appleman for the proposition that war is a course of hostility between states or state-like entities — both parties had at least constructive notice. Applying the trade meaning, the panel measured Hamas against the Restatement (Third) of Foreign Relations Law section 201 criteria: Hamas did not conduct Palestine's formal foreign relations, the record did not show it controlled borders, airspace, or immigration, it had never declared independence from Palestine, and in June 2014 it agreed to cede governing functions to the Palestinian Authority, the de jure government it recognized. The executive branch had designated Hamas a Foreign Terrorist Organization since 1997 and had never recognized it as a sovereign. Atlantic's contrary authorities — CERCLA and habeas decisions calling the September 11 attacks acts of war — were inapposite because In re September 11 Litigation expressly cautioned against extending its reasoning to insurance law.

What the court concluded

The Ninth Circuit reversed the grant of summary judgment to Atlantic on the first two war exclusions and held that Atlantic breached the policy by denying coverage on the theory that Hamas' conduct was "war" or "warlike action by a military force." Hamas was neither a de jure nor a de facto sovereign during the July 2014 hostilities, so neither exclusion applied, and the panel directed entry of summary judgment for Universal on those two exclusions. Because the district court never reached the third exclusion — insurrection, rebellion, or revolution — the panel remanded that question. The grant of summary judgment on the bad faith claim, which rested on the erroneous exclusion analysis, was vacated and remanded.

From the opinion

Why it matters for cyber conflict

This is the closest existing authority on whether a state-sponsored or state-linked cyber attack can be excluded from insurance coverage as an act of war, and it holds that the sovereignty of the attacker — judged by the executive branch's recognition decisions, not by the attacker's firepower or territorial control — is the controlling question. An insurer invoking a war exclusion against a loss caused by a proxy group, a criminal ransomware crew, or an unattributed intrusion must show the actor was a de jure or de facto sovereign, not merely that the operation looked warlike.

Editorial note: this case note was drafted with AI assistance by the JLCW Research Desk, checked against the text of the opinion, and reviewed by a human editor before publication. Every quotation above is carried through from the opinion itself. See our editing policy.

Read the opinion: Universal Cable Productions, LLC v. Atlantic Specialty Insurance Co. on CourtListener. This note is a summary prepared by the Journal, not legal advice, and not a substitute for the opinion itself.

The scholarship behind this: Cyber Insurance and Corporate Risk in Cybercrime

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