On July 12, 2019, the Ninth Circuit Court of Appeals found two aEURoewaraEUR? exclusions inapplicable, under California law, to a loss caused by 2014 hostilities between Israel and Hamas. Universal Cable Productions, LLC v. Atlantic Specialty Insurance Co., No. 17-56672, 2019 WL 3049034 (July 12, 2019). In doing so, the court overturned the Central District of CaliforniaaEUR(TM)s award of summary judgment in favor of Atlantic Specialty Insurance Company.

The partiesaEUR(TM) dispute arose out of AtlanticaEUR(TM)s refusal to indemnify Universal for costs associated with UniversalaEUR(TM)s decision to move production of a television miniseries out of Israel in July 2014. UniversalaEUR(TM)s decision was in response to a flare-up of hostilities between Israel and Hamas, which included rockets fired by Hamas into civilian areas in Israel. Atlantic denied coverage for UniversalaEUR(TM)s claim based on two exclusions for aEURoewaraEUR? and aEURoewarlike actionaEUR? by a aEURoegovernment, sovereign, or other authority using military personnel or other agents.aEUR?

In granting summary judgment in AtlanticaEUR(TM)s favor, the district court applied the aEURoewaraEUR? and aEURoewarlike actionaEUR? exclusions and held that their plain and ordinary meanings precluded coverage for UniversalaEUR(TM)s claim. Universal appealed the ruling, arguing the terms aEURoewaraEUR? and aEURoewarlike actionaEUR? have specialized definitions in the insurance context preventing their application here.

The Ninth Circuit agreed with Universal, finding compelling that UniversalaEUR(TM)s negotiations for the policy terms and affirmative disclosure of its plans to shoot the series in Israel required utilization of the insurance-industry meanings for aEURoewaraEUR? and aEURoewarlike action.aEUR? The court then reasoned that the aEURoewaraEUR? exclusion was inapplicable because Hamas was neither the lawfully recognized nor effective government of Palestine. Universal submitted case law, leading treatises, and expert testimony to establish that aEURoewaraEUR? in the insurance context requires aEURoehostilities carried on by entities that constitute governments at least de facto in character.aEUR? The court examined the evidence and found that Hamas deferred to the legally recognized government of Palestine, the Palestinian Authority, and did not exert control similar to a governmental body. The court also noted that the executive branch of the United States government aEUR" the branch tasked with conducting the countryaEUR(TM)s international affairs aEUR" did not and has never recognized Hamas as a legitimate governmental authority.

The Ninth Circuit surprisingly applied a virtually identical analysis to the exclusion of aEURoewarlike actionaEUR? by an aEURoeauthority using military personnel or other agents,aEUR? holding it still requires acts by a legally recognized or effective government body. The court relied on precedent taking an historical view of warfare and delineating between aEURoewarlike operationsaEUR? and violence by political groups upon civilians aEURoeat places far removedaEUR? from the theatre of warfare.

The Ninth Circuit also surprisingly rejected the district courtaEUR(TM)s conclusion that the Israeli governmentaEUR(TM)s actions could have been the proximate cause of the loss. The court instead concluded that Universal moved production out of Israel solely as a result of HamasaEUR(TM) acts and not the Israeli militaryaEUR(TM)s retaliation. The court disregarded the theory that a conflagration between Israel and Hamas, generally, and not simply the Hamas rocket attacks, was the cause of UniversalaEUR(TM)s decision to move filming.

Of note, the court remanded the case for further consideration on the application of a third exclusion, for aEURoeinsurrection, rebellion, [or] revolution.aEUR? Hence, there is still the possibility Universal will not be afforded coverage for its loss.

This decision may not enjoy widespread significance in the P&C insurance world since its particular circumstances are not likely to regularly recur. However, for those involved in cyberinsurance, the significance of this decision may be much greater. Governments and sovereigns are finding ways to conduct warfare in subtle and nefarious ways aEUR" cyberattacks. Whether a War Exclusion applies to a cyberattack is being litigated now in the aftermath of NotPetya. That litigation is a hot topic in the cyberinsurance space and will continue to be discussed and analyzed as cyberattacks increasingly become governmentsaEUR(TM) preferred vector for instability and destruction.