F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

U N I V E R S A L C A B L E P R

O D U C T I O N S , L L C, a Delaware limited liability
company ; N O R

T H E R N E N T E R T A I N M E N T P R O D U C T I O N S , L L C, a Delaware limited liability
company , Plaintiffs-Appellants

,

v.

A T L A N T I C S P E C I A L T Y I

N S U R A N C E C O M P A N Y , a New York insurance
company , Defendant-Appellee. No.17-56672

D.C. No. 2:16 cv-04435 PA

OPI NI ON

A ppeal from the United States District Court for the Central District of California Percy Anderson, District J udg e, Presiding

Arg ued and Submitted March 4, 2019 Pasadena, California

F iled J uly 12, 2019U

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B efore: Ransey

Guy Cole, J r., * A. W allace Tashima, and J acqueline H. Ng

uy en, Circuit J u d g es.

Opinion by

J u dg e Tashima

SUMMARY * *

Insurance Law

The panel reversed in part and vacated in part the district court’s summary judg ment in favor of Atlantic Specialty I nsurance Company

in a diversity

insurance coverag e action broug ht by U n i versal Cable Productions ag a inst its insurer, Atlantic.

U n i v e r sal soug ht to r ecover for ex penses incurred when they moved p roduction of the television series Dig ou t o f J erusalem after Hamas fired rockets from Gaz a into I s r ael. Atlantic denied coverag e based o n the insurance policy ’s war

ex c lusions.

The panel applied California law.

Under the doctrine of c ontra proferentem, any ambig uity in a policy ex clusion i s generally construed ag ainst the

* T h e Ho n o rab le Ran sey Gu y Co l e, J r., U n i ted States Ch ief Circu i t J u d g e fo r t h e U.S. Co u rt o f A p peals f or th e Six th C ircu it, s ittin g b y d esig n atio n

.

** T h is su m m ary co n stitu

t es n o p art o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.U

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insurer and in favor of the insured. T h e panel declined to apply contra proferentem either in favor of Universal’s interpretation, or in favor of Atlantic.

The p anel h eld that the district court erred in holding that Atlantic met its burden of demonstrating that the f irst two war

ex c lusions applied. The panel furthe r h e l d that to the
contra r y , the record demonstrated that neither ex clusion applied here, and Atlantic breached its insurance contract b y deny ing Universal coverag e on that basis. Specifically

, the panel held that Atlantic breached its contract when it denied
coverag e by defining Hamas’ conduct as “war” and “warlike

a c t i o n b y a military force.” The panel also held that the district court erred when it failed to apply the specializ ed meaning

, pursuant to Section 1644 o f the California Civil Code, of those two terms. The panel held that the specializ ed meaning of both “ war” and “warli k e a ction by a military force” req u i red hostilities to be between either de jure or de facto sovereig ns, and Hamas constituted neither. The panel directed the entry of summary judg ment in favor of Universal on these two ex clusions.

B e cause the district court did not a ddress the thir d war

ex c lusion – whether H a

m a s ’ a c t i o n s c o n s t i t

u t ed “insurrection, rebellion, or revolution” – the panel remanded for the district court to address that question in the first instance.

The panel held that the district court’s summary judg ment

on Universal’s ba d f

a i th claim w as predicated on its

erroneous analy sis of the first and second war e x clusions. B ecause the panel concl u d ed that Atlantic breached its contract, a

nd because there were r e maining t r i a ble issues o f fact, the panel vacated t h e grant of summary judg ment onU

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Universal’s b ad faith c laim, and remanded for furth er proceeding s.

The panel denied Atlantic’s motion to strike a s moot. The panel denied Atlantic’s request for sanctions.

COUNSEL

Amand a K ate B o nn (arg u ed) and Kalpana Srinivasan, Susman Godfrey L L P, L os Ang eles, Californi a ; J acob W. B uchdahl, Susman Godfrey L L P, New York, New York; for Plaintiffs-Appellants.

Marg aret A. Grig non (arg ued) and A nne M. G r i gn on, Grig n on L aw F irm L L P, L o ng B each, California; Michael Keeley and Carla. C. Crapster, Strasbur ge r & Price L L P, Dallas, Tex as; for Defendant-Appellee.

OP INION

TASHI MA, Circuit J udg e:

I n late J une and throug h J uly of 2014, Ham a s f i r e d rockets from Gaz a into I srael. B e cause of these hostilities, the plaintiffs, U niversal Cable Productions, L L C, a nd Northern Entertainment Productions, L L C (col l ectively “Universal”), moved the production of their television series Dig o ut o f J erusalem. Universal incurred sig nificant

ex p enses during this move and filed an ins urance claim for
coverag e of those costs under a television production insurance policy

(the “Policy ”).U

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Universal’s insurer, d efendant Atlantic Specialty I nsurance Company (“Atlantic”), denied cover a ge, stating that althoug h the Policy covered ex penses r e l a ted to terrorism, the hostilities were ex cluded from c overag e

. Atlantic relied on the Policy ’s w a r ex clusions, which

ex c luded coverag e for ex p e nses resulting from “war,” “warlike action by a military force,” or “insurrection, rebellion, [ o r] revolution.” Atlantic con cluded that Hamas’ actions were ex cluded acts of war.

Universal responded that these war e x clusions d id not apply b ecause the t e r m s had a specializ ed meaning in the insurance contex t. Specifically

, “ war” and “warlike action b y

a military f

o r ce ” required hostilities between de jure or de facto sovereig ns. U n i v e rsal arg u ed that Hamas was not acting as a sovereig n, and thus its actions were not ex cluded from coverag e.

The district court g ranted summary judg ment to A tlantic and held that, instead o f the specializ e d m eaning s of “ war” and “warlike action,” the relevant definitions were the ordinary and plain meaning s of e ach term. The district court held that under its interpretation, H amas’ actions clearly constituted “war” and “warl ike action by a military force,” rather th a n a c t s of terrorism. B ased o n its interpretation o f those two e x clusions, the district court also g ranted summary judg ment to Atlantic on Universal’s bad faith claim. 1

A lthoug h this case concerns the I sraeli-Palestinian conflict and hostilities bet w e e n different factions in the
reg ion

, the leg al analy sis boils down to simple contractual

1 T h e d i strict co u rt d id n o t reach th e th ird w ar ex clu sio n , i.e., w h eth er Ham as’ actio n s co n s titu ted “ in su rrectio n , reb ellio n , o r rev o lu tio n .”U

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i n terpretation. Section 1644 of the California Civil Cod e requires us to apply the specializ ed meaning o f a term

– instead of the plain, ordinary meaning – when that specializ ed meaning has been d e v eloped from customary usag e in a g iven industry and when both parties have c o nstructive noti c e o f that u sag e. B oth “war” a n d “warlike action by a military force” have a specializ ed meaning in the insurance c ontex t and the p arties h ad, at the least, constructive notice of the meaning

. T he district court erred w hen it failed to apply that meaning

. Un d e r t hat specializ ed meaning

, both “war” a nd “warlike action b y a military force” require hostilities between either de j ure or de f acto sovereig ns, and Hamas constitutes neither.

According ly

, we re verse the district court’s entry o f
summary judg ment in favor of A tlantic on t h e f i r s t two war

ex c lusions a

nd hold that Atlantic breached its contract when it denied coverag e by defining Hamas’ conduct as “war” o r “warlike action by a military force.” B ec a u se the district
court did not address the third w ar ex clusion

– whether H amas’ actions constituted “insurrection, rebellion, o r revolution” – we remand for the district court to address that question in the first insta nce. The district court’s g rant o f Atlantic’s motion for summary judg ment on Universal’s b ad faith claim t u r n e d on its erroneous analy sis of the first two

war ex c lusions; a ccording ly

, we vacate the g rant of summary judg ment on Universal’s bad f a ith c laim and reman d for proceeding s consistent with this opin ion.U

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I. Background

A. Historical Background

W e beg in with the history b etween I srael, Palestine, a nd Hamas. 2 The Palestinian political identity emerg ed b etween 1923 an d 1 948. J im Z a notti, Cong. Research Serv.
, RL 34074, The Palestinians: Background and U.S. Relations 2 (2015) (“2015 CRS Palestine Report”). I n 1947, the United Nations intended to c reate two s t a t es in what are now I srael and Palestine – one J ewish and o n e A rab – but for reasons that are still disputed, the U .N. ultimate ly founded only the J ewish state of I srael. Id. I n J une 1967, I srael g a ined control

over the entire area that had historically constituted Palestine. Id. at 3. Ultimately , I srael annex ed o nly East J erusalem and the G olan Heig hts, leaving t h e W est B ank and Gaz a under I sraeli occupation, but not under I sraeli g overnance. Id.

I n the mid-1990s, the Palestinian Authorit y wa s g ranted limited rule in Gaz a and p arts of the W est B ank. I d. at 4, 26. I n 2005, I srael unilaterally w ithdrew from Gaz a, leaving control to the Palestinian Authority

. Id. at 47. According to

a U.S. Cong ressional Resea r c h S e r v i c e r e p ort, “[ a] lthoug h not

a state, the [Palestin i a n Authority ] is org aniz ed like one

– complete with democratic mechanisms; securit y forces; a nd

ex e c utive, leg islative, and judicial o rg ans of g overnance.” Id.
at 26. T h e leg islative branch is called the Palestinian L eg islative Council. Id. F a t ah a n d H amas are the larg e st Palestinian political movements. I d. at 48.

2 W e rely o n th e p arties’ su b m i s s i o n s in th e reco rd to co n d u ct th is b rief h isto rical an aly sis o f

th e co n f lict.U

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Hamas was founded in 1 9 8 7

. J im Z anotti, Cong. Research Serv
., R41514, Hamas: Background and Issues for Congress 400 (20 1 0 ) (“2010 CRS Hamas Report”). Hamas is committed “to the destruction of I srael and the establishment of an I slamic State in all of historic Palestine, comprised o f p resent-day I srael, the W e st B ank, and G a z a

. ” 2015 CRS Palestine Report at 33. Hamas’ command center is in Gaz a. Id. I n 2 006, Hamas won a maj o r i t y of the seats in the Palestinian L eg islative Council. Id. at 26. Since then, Hamas has provided social services in the G az a Strip, collected revenue, established a judicial branch of sorts, and received some assistance from fo reig n g overnments. According to the Cong ressional Research Servi c e, t here has been tens i o n between Hamas’ activities a s a “militant
org aniz ation u ncompromising ly opposed to I srael in defiance of international opprobrium” and Hamas’ a ctivities as a “de facto g overnment in Gaz a.” 2010 CRS Hamas Report at 17. Hamas itself has drawn “a brig ht line bifurca t ing the
org aniz ation’s leadership from its members in t h e Gaz a g overnment.” Id. at 18. F u rthermore, the same Report notes that any reference “to the g overnment in Gaz a as the ‘Hamas
reg ime’ does not mean that all o r e ven mo s t of the people employ e d in ministries, civil service posi t i ons, and even

s e c u rity forces are necessarily members of Hamas o r ev e n Hamas sy mpathiz ers.” Id. at 19.

I n J u ne 2014, Hamas reached an ag reement with F atah to establish a consensus Palestinian Authority g overnment. 2015 CRS Palestine Report at 1. As part of the ag r eement, Hamas a g reed to g ive up a ny formal responsibili t y f o r g overning Palestine, and Hamas’ members no long er served

as g o vernment ministers. Id. at 1, 29. Nevertheless, Hamas’ security forces r emained in Gaz a and h ave c ontinued to

ex e r cise some control there. Id . at 29.U

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The United States has never recog niz ed Palestine or Gaz a

as sovereig n t e r ritorial nations, nor h as it e ver recog niz ed Hamas as a sovereig n or quasi-sovereig n (i.e., a de jure or de facto g o v ernment). I n fact, since 1997, the United States has desig nated Hamas a s a F oreig n T errorist Org aniz ation under the I mmig ration and Nationality Act, 8 U.S.C. § 1189(a)(1). Since 2007, Hamas has had a history of firing rocke t s into I srael. The United States has continued to desig nate Hamas

as a F oreig n Terrorist Org aniz ation and d oes not neg otiate o r enter into treaties with Hamas.

B. Factual Background

F or the peri od from J anuary 1, 2014, to J une 30, 2015, Atlantic issued a television production insurance poli c y to Universal. The Policy covered losses that are “a direct result of an unex pected, sudden or accidental oc c u r rence entirely bey ond y our control to include

. . . [ i] mminent peril, defined

as certain, immediate and impending d a ng er o f such probability and severity to persons or property t h a t it would be unreasonable or unconscionable to i g nore.” The Policy

, wh i c h was neg otiated before December 2013, covered loss caused by terrorism if that loss was not otherwise ex c luded.

The relevant ex clusions for our analy sis are the four war

ex c lusions:

1. W ar , including undeclared or civil war; o r

2. W a r like action by a military force, including action in h indering or defending
ag ainst an actual or ex pected at t a c k, b y any g overnment, sovereig n , or otherU

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authority u sing military p e r sonnel or other

ag ents; or

3. I n s u r r e ct i o n , r e b e l l i o n , r e v o l u t i o n , usurped power, or ac t ion taken by the
g overnmental authority in hindering or defending ag a inst any of these. Such loss

or damag e is ex c l u d ed r e g ardless o f any

o t h e r c a u s e o r e v e n t c o n t r i b u t e d concurrently or in any sequence to the loss.

4. Any weapon of war including atomic fi s s i on or r adioactive force, whether in time of peace or war . . . .

Universal’s b roker, Aon/Albert G. Ruben I nsurance Services, I nc., initially sent the first three ex c lusions above to Atlantic. The lang u a g e was standard insurance industry f orm lang uag e from the I nsurance Service O ffice, I nc

. ’ s (“I SO”) standard F orm No. CA00200310. Atlantic subsequently edited some of the policy

lang uag e and added the fourth war ex c lusion.

On Decem b e r 3, 2013, Universal’s broker emailed Atlantic about three developments: (1) noting “that there is

a production in development that is tentatively starting up in F ebruary 2014 and filming in I srael,” specifically in “Tel Aviv and J erusalem”; (2) stating “[ w ] e wanted t o ge t some feedback from y ou on what issues we may have covering the production under the blanket p olicy – any additional premiums o r ex clusions b ey ond o ur standard terms”; a nd (3) a sking Atlantic to let Universal “know w h a t [ Atlantic’s]
concerns may

be on this.”U

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The broker then had a discussion with Atlantic “reg arding issues t h e y may have w ith the project entitled ‘Dig ,’ potentially working in I srael.” During that conversati o n, Atlantic indicated it “understands that [ Universal] takes seriously safety and security precautions on every production but that they were particularly concerned a b o u t those precautions in this locale.” As a result, Atlantic asked Univer sal to provide “specific information reg arding the security e fforts that will be taken during the c ourse o f principal p h otog raphy .” Atlantic then concluded that it would “not b e imposing a

ny a dditional premium or additional
coverag e terms on Dig r elating to the work in I s rael,” the “primary reason for [ which] is [its ] confidence in the safety and secur i t y m easures that will be taken during the production.” Atlantic did n ot chang e the policy ’s terms, a dd
any ex clusions – such as a terrorism ex clu s i o n

– o r charg e any additional premium.

1. June 2014 Conflict

A fter Dig b eg an production in I srael, three I srae l i teenag ers were kidnapped o n J une 12, 2014, and Hamas was suspected of involvement in the kidnappings

. On J une 30, 2014, the bodi es o f the three missing teenag ers were recovered, and there were s i gns indicating Hamas was involved. On J uly 2, 2014, a Palestinian t e e n ag er was abducted and killed by

I sraelis, presumably

in retaliation for the kidnapping of the I sraeli teens. I n late J une or early J uly 2014, Hamas beg an firing rockets from G a z a into I sraeli civilian p opulations, sig nificantly increasing the n u mber o fU

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a t t a c k s around J uly 8. 3 I srael responded by launching a campaig n ag a inst Hamas, called “ Op e r a t i o n P r o t e c t i v e E d g e.”

On J u ly 8, the U.S. State Department issued a warning
reg arding the “safety and s e cu rity of civilians” in I srael, specifically in J erusalem. Dig filming was scheduled to take place in J erusalem over the nex t few weeks. Two day s later, the Universal security team a dvised the Dig production team that the “security environment in I sr ae l currently prohibits NB CU Security from b eing able t o g uarantee the safety a nd security of our employ ees, production partners a nd associated

crew a nd talent.” The s e cu r ity team indicated that “current

r o c k e t attacks” appeared “to targ et locations to be used in forthcoming filming ” and i t w as concerned about “acts o f terrorism within I srael.”

2. Denial of Claim Coverage

On J uly 1 1, 2014, the d ay a f ter receiving the s e c u rity team’s advice, Universal decided to postpone production for

a week and informed Atlantic. F o ur d a y s l ater, Universal’s broker notified Atlantic in writing of Universal ’ s claim

r e l ating to the one-week delay of Dig

. Atlantic’s C h i e f Underwriting Officer, Peter W i l liams, then wrote in an internal email to the c laims investig ator stating that the claim

was a “covered claim they have immanent [ sic] peril. Unless
y ou are g oing to invoke the war e x clusion.” Atlantic’s senior claims investig ator responded to W illiams:

3 A tlan t ic arg u es Ham as beg an f irin g r o c k e t s in m id

- Ju n e, b u t Un i v ersal arg u es it w as early J u ly

. B ecau se th e escalatin g co n du ct in early J u ly l i k ely c a u s e d Un iv ersal to relo cate p ro d u ctio n , J u ly is th e relev an t tim e p erio d f

o r o u r an aly sis.U

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Any chance y o u h a ppen [ sic] to sug g est that they push for more than just the week, since the c rew n eeds to be a dvised a t least one week in advance for a push and since a g round war still mig ht occur.

The nex t day

, A tlantic’s A ssistant Vice President stated internally that “it looks like w e need to h a v e a lot f urther discussion ab o u t t h is.” Atlantic had never applied the war

ex c lusions before this claim.

Due to escalating violence, Universal decided to move the Dig p roduction out of I srael altog e t h e r a nd notified A tlantic of that decision on J uly

17, 2014 That same day – two day s after Universal’s broker submitted the initial written claim

– Atlantic denied coverag e under the war ex c l u s ions. Atlantic’s supervising claims ex aminer could not r ec all any other claim where a coverag e determination was made in two day s, stating that this denial occurred on a n ex p edited timeframe. During the two day s between t h e filing of the claim and Atlantic’s denial of cover a g e, Atlantic employ ees eng ag ed in the following analy sis: T h ey c o n d u cted Goog le searches for news a

rticles about Hamas and I srael a nd reviewed one case, in which the court declined to apply war

ex c lusions to the act o f Palestinian and L ebanese sub-national
g roups bombing a hote l i n B e irut. See Holiday Inns Inc. v

. Aetna I n s

. C o

. , 5 71 F

. Supp. 1460, 1503 (S.D.N.Y. 1983). Atlantic did no t consult the policy ’ s underwriter about the intent r e g arding the ex clusions, althoug h its usual practice was to eng ag e in such a consultation.

Two weeks after deny ing coverag e, A t lantic sent Universal a denial letter. Atlantic’s letter stated that “[ r] ockets launched toward a r e as where filming is takingU

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p l a c e would no doubt reasonably c o n stitute” a cover e d imminent peril. A tlantic also sta t e d, however, that “[ t] he question now is not whether the loss falls within the insuring clause but whether the war ex clusion” applies. At l a n t ic concluded that “the e x tra e x pense associated with the m o ve is not covered u nder [ the Policy ] because of the e x clusion for

war and warlike action” – the first and second war e x clusions.

C. Procedural History

Universal filed suit ag ainst Atlantic, asserting claims for breach of contract and breach of the implied covenant of g ood faith and fair dealing

. During lit i gation, Atlantic took the position that all four contractual war ex clusions barred
coverag e.

F o llowing discovery

, Atlantic moved for summary judg ment on b oth claims. Universal filed a cross-motion for
p a rtial summary judg ment on its first claim: A tlantic breached the c ontract. I n J une 2017, the d istrict court g ranted Atlantic’s motion in a short minute orde r w i t h out f urther

ex p lanation. F our months later, the d istrict c ourt issued a wri t t e n order g ranting A tlantic’s motion and deny ing Universal’s motion, holding that the first two war ex clusions barred c overag e and that Atlantic did n ot act in bad faith. W ith reg a

rd to the war ex clusions, the district court concluded that under California law, the ex clusions should be understood in their popular and ordinary sense and that “[ s] uch a conflict easily would be c onsidered a ‘war’ by a lay person.” The district c ourt r ejected Universal’s arg ument tha t “war” has a special meaning throug h u sag e in the ins u rance industry

. The district court did not address the third and fourth ex clusions.U

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II. Standard of

Review

Summary judg ment orders are reviewed de novo. LopezValenzuela v. A rpaio
, 770 F .3d 772, 777 (9th Cir. 2014) (en banc). W e must view [ ] “th e e v i d e n ce in the lig ht most favorable to the nonmoving party ” a nd “determine ‘whether there a re any g enuine issues of material fact and whether the district c o u r t c orrectly applied the law.’” P e nsion Tr. Fund for Operating Eng’rs v. Fed. Ins. Co.
, 307 F .3d 944, 949 (9th Cir. 2002) (internal quotation marks and citation omitted).

“B ecaus e the interpretation of an insurance policy is a question of law, this Court must make its own independent determina t ion of the meaning of the relevant contract lang uag e.” Conestoga Servs

. Corp. v. Exec. Risk Indem.

, 312 F .3d 976, 981 (9th Cir. 2002). “The burden is on the insured to establish that the claim is within the basic scope o f
coverag e and on the insurer to establish that the claim is specifically ex cluded.” M acKinnon v. Truck I

ns. Exch.

, 73 P.3d 1205, 1213 (Cal. 2003).

The parties do not dispute t h a t t h e claimed loss is a covered “imminent peril.” Thus, Atlantic bears the burden o f demonstratin g t h at the war ex clusions require denial o f
coverag e. See id

.

III. Contra P rof

erentem Does Not Apply

W ith reg ard to interpreting the Policy ’s lang uag e, both parties arg ue that any ambig uity should be construed in their fav o r. Under the doctrine of contra proferentem, any ambig uity in an ex clusion is g enerally construed ag ainst the insurer and in favor of the insured. Fireman’s Fund I ns. Co.

v. Fibreboard Corp.
, 227 Cal. Rptr. 203, 206 (Ct. App. 1986).U

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W h en the lang uag e in a policy is proposed by the insured, however, the lang uag e is not construed ag ainst the insurer a nd
may even be interprete d aga i n s t the insured. Id

. at 207. F urthermore, when two s o phisticated p arties neg o tiate the
t e r ms of the policy

, the insured g enerally cannot invoke t h e doctrine of contra proferentem. Garcia v. Truck Ins

. E x c h.

, 682 P.2d 1 100, 1106 ( Cal. 1 984). “ [W ] here the policy holder does not suffer from lack of leg al sophistication or a relative lack o f barg aining power, and where it is clear t h a t an insurance policy

was actually

neg otiated and jointly drafted,

we need not g o so far in pr o t e c t i n g the insured from ambig uous or hig hly technical d r a ft i n g.” AIU Ins. Co. v

. Superior Court , 799 P.2d 1253, 1265 (Cal. 1990). 4

The district court, c i t i ng AIU
, held that there w as no p r e s u m p t i o n i n f

a v o r o f U n i v e rs a l h e r e b e c au s e (1) Universal’s broker provided the contested lang uag e to Atlantic, and (2) Universal is a sophisticated party with barg a ining p ower. I n AIU
, the insured “unquest i o n ably possesse[ d ] b oth leg al sophistication and substantial barg a ining power.” I

d

. The question was whether the disputed policy

term had a technical meaning (as the insurer contended) or had a p l a in and ordinary meaning (as the insured contended). I

d. T he record lacked any evidence that
t h e provision in q

uestion had been neg otiated or jointly draf t e d

. I d. B ecause there was no evidence the parties intended to adopt a technic a l m e aning

, which would have

ex c luded coverag e for the insured, the Supreme Court o f California held that the ambig uity would be resolved ag ainst

4 Calif o rn i a co u rts i m

p u te an in su

ran ce b ro k er’ s ex p ertise to its

cu sto m er/p rin cip al. S

ee Firema n’s Fu n d , 2 2 7 Cal. Rp tr. at 2 0 6 (“ [T ]w o larg e co rp orate en tities, each rep resen ted b y sp ecialized in su ran ce b ro k er

o r risk m an ag ers, n eg o tiated th e term s o f th e in su ran ce co n tracts.”).U

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the party responsible for the inclusion o f the provision: the insurer. Id.

Universal arg ues that, similarly

, any ambig uity here should be construed ag ain s t the insurer. Atlantic responds
t h a t, unlike AIU

, Universal’s b roker provided the policy lang uag e in question, and a n y ambig uity should instead be construed ag ainst the pa r t y t hat offered the lang uag e: Universal.

Universal counters th at “a distinction must be made between a b r oker requesting c e rtain lang uag e cut-and-pasted from other p olicies issued b y an insurer and a broker drafting

or editing specific policy lang uag e.” 8 B us. & Comm. L itig

. F ed. Cts. § 90:42 (4th e d. 2 017). “ Th e mere inclusion o f standard form lang uag e f

rom another policy a t the request o f

a polic y holder or its broker should not r esult in a departure from the rule of contra proferentem.” Id

. Here, the disputed lang uag e was insurance industry form lang u ag e f r o m the I S O ’ s standard F orm No. CA00200310. “ Policy f orms developed by I SO are approved by its c o n s tituent insurance carriers and then submitted to state ag encies for review,” a nd “[ m] ost carriers use the basic I SO f orms, a t l e a s t as the starting p oint for t h e i r g eneral liability policies.” Pardee Const. Co. v. Ins. Co. o

f the W est , 92 Cal. Rptr. 2d 443, 456 n.15 (Ct. App. 2000).

Contra proferentem stems “from the fact that the insurer ty pically drafts policy lan gu a ge , leaving the insured little o r

no meaning f

ul opportunity or ability to barg ain for mod i f i c ations.” AIU

, 799 P.2d at 1 265. Althoug h AIU acknowledg ed that the insured there “un q u estionably possesse[ d] both leg a l s ophistication and substantial barg a in i n g power,” it opted to apply contra proferentemU

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any way because the p ar t i e s had not neg otiated a technical meaning

. Id. The California Supreme Court concluded that it would still construe the terms ag ainst th e i nsurer because “such provisions, drafted by the insurers, are hig hly uniform i n c o n tent and wording ” a nd there was “no evidence

. . . s u gge sting that the provisions in question were actually
neg otiated or jo i n t ly drafted.” I d

. Moreover, the court was concerned about the insurer interpreting terms in a technical
manner, thus deny ing coverag e when the insured was not on notice about the technical meaning

.

AIU is disting uishable from the case before u s. Here, the provisions w e r e initially offered by Universal’s broker (although they consisted e ntirely of form lang uag e). Moreover, Universal do e s not rebut the district court’s conclusion that it is a sophisticated party

. Most importantly

, Universal – the insured – is asking the c o u r t to interpret policy lang u ag e under the customary meaning in the insurance contex t. Unl i k e A IU
, where the court was concerned about restrictive, technical lang uag e being construed ag ainst the insured without n o tice, Universal is

aware o f the customary meaning in the insurance contex t a nd asks u s to apply that m ea n i ng instead of the plain a nd

o r d inary meaning

. The ty pical concerns animating cont r a proferentem do not ex ist here.

According ly

, we decline to apply contra proferent e m i n favor of U niversal’s interpretation. W e also decline to a pply
contra profe r e ntem in favor of Atlantic. The lang u ag e here mirrors Atlantic’s own forms

– a n d the forms of many insurers – and does not warrant a p resumption in favor o f Atlantic’s interpretation e ither. The p arties provide no reasonU

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to protect the insured or the insurer f ro m a n y ambig uous drafting in this instance. 5

IV. Section 1644 and Custom ary Usage

The d istrict court erred i n holding that Atlantic met its burden of demonstrating th a t the first two war ex clusions apply

. T o t h e contrary , the r ecord demonstrates that neither

ex c lusion applies h ere. Atlantic breached its co n t r a c t b y deny ing Universal coverag e on that basis.

Under California law, the terms in a n insurance policy a

re “understood in th e i r o rdinary and popular sense, rather than

a c c o r ding to their strict leg al meaning ; unless used b y t h e parties i n a technical sense, or unless a special m eaning is given to them by usage, in whi c h case the latter must be followed

. ” Cal. Civ. Code § 1644 ( e m p h a sis added). A d i strict court’s failure to c onsider the special meaning of a term in “industry custom and practice” is r e v ersible error. See Nat’l Am. Ins. Co. o f Cal. v. Certa i n Un de r writers at Lloyd’s London

, 93 F .3d 529, 5 37 (9th Cir. 1996). Here, the district court erred in holding that the war ex clusions should be understood in their ordinary and plain sense, instead o f apply ing the special meaning of th e t e r ms in the insurance
contex t.

5 T h e Su

p rem e Co u rt recen tl y ad d ressed Calif o rn ia’ s co n tra p ro f eren tem d o ctrin e in La mp s Plu s , In c. v. Va rela

, 1 3 9 S. Ct. 1 4 0 7
, 1 4 1 7

– 1 8 (2 0 1 9 ). T h e C o u rt co n clu d ed th at co n tra p ro f eren tem ap p lies

“ on ly af ter a co u rt d eterm in es th at it can n o t d iscern th e in t e n t o f t h e p arties.” Id

. “ W h en a co n tract is am b ig u o u s, co n tra p ro f

eren tem p ro v i des

a d ef au lt ru le based o n p u

b lic p o li c y .” Id

. W e n eed n o t ad d ress th e Su p rem e Co u rt’ s d i scu ssio n of am b ig u i ty b ecau se, as n o ted ab ov e, th e p u b lic p o licy co n sid eratio n s f o r ap p ly in g co n t

ra p ro f eren tem d o n o t ex ist h ere.U

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W e note that § 1644’s requirement that court s apply customary usag e is cabined by a few requirements. G e n erally

, a party asking a c ourt to apply customary us a ge would be e ng ag ed in the relevant trade – here, the insurance
tra d e. S ee Restatement ( Second) of Contracts § 222(3) (stating that “[ u] nless o therwise ag r eed, a usag e of trade in the vocation or tra d

e i n w h i ch the parties are engaged or a usage o f t rade of which they k

n o w or have reason to know
g ives meaning to o r supplements or qu a lifies their
ag reement” (emphasis added)). A lthoug h Universal is not in the insurance trade, it is a sophisticated party that f requently
eng ag es in business related to the insurance trade. Moreover, it is represented by a broker – who is Universal’s a g ent – in the insurance trade.

I f any p arty is not eng ag e d in the trade, the party offering

c u s tomary usag e must show the parties had actual o r constructive notice of the customary usag e. 6 See id. § 220(1) (stating that “[ a] n ag reement is interpreted in accordance with

a relevant usag e if each party knew or had reason to know o f the usag e and neither party knew or had reason to know that the meaning attached by the other w as inconsistent with the
usag e ”). Here, Universal has met that burden. As d iscussed below, Univers al provides unrebutted ex pert evidence demonstrating the customary usag e o f “war” and “warlike action by a military force” in the insurance contex t. Caselaw and insurance treatises b uttres s U niversal’s arg ument that ordinary

, popul a r meaning s o f these terms do not control in this contex t

. Moreover, as Universal notes, Atlantic’s o wn denial letter stated that “A p p l e m a n on I nsurance discusses

6 T h is req u irem en t en su

res t h a t cu sto m ary u sag e is n o t u sed as a sh ield ag ain st co n su

m ers w h o are en tirely u n aw are o f u sag e in a p articu lar trad e.U

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ex c lusions for war, including the meaning of war a nd similar
t e r m s

. ‘ W ar is a “ c ourse of hostility ” between “states o r state-like entities.”’” And Universal’s e x pert noted that “if the policy does not contain a terrori s m e x c lusion, there is a reasonable ex p ectation that acts of terrorism by a kn o wn terrorist org aniz ation, reg ardless of however else they may be characteriz ed, will be covered.” Universal stated t h a t i t reasonably ex pected the ex c lusionary clause wo u l d be interpreted according to customary usag e, especially after the December 2013 emails about the p olicy ’s coverag e in I srael. At the least, b oth parties should h a v e known th e customary usag e of “war” and “warlike a c tion” in the insurance contex t.

According ly

, we apply the customary usag e of the terms in the insurance contex t here.

A. The First W

ar Exclusion

1. Th e s p ecial meaning of “war” in the insurance
context

Universal prov i ded the district court with substantial unrebutted evidence that, i n t h e insurance contex t, the term “war” has a special meaning that r eq uires the ex istence o f hostilities between de ju re or d e facto g overnments. Universal relied on caselaw, insurance treatises, and ex pert testimony to show the ex istence of this industry custom.

W ith r eg ard to caselaw, U niversal relied o n a set of cases defining “war” in accordance with the international law definition: war refers to and includes only hostilities carried

on by entities that constitute g overnments at least de facto in character. See P an A m. W orld Airways v. Aetna Cas. & Surety C o

. , 505 F

. 2d 989, 1012 (2d Cir. 1974); see alsoU

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Holiday I nns , 571 F

. Supp. at 1503 (holding in the insurance
contex t that “ war” must be “ between sovereig n o r quasis overeig n states”). The courts in b oth Pan Am a nd Holi d a y Inns refused t o treat violent actions b y Palestinian terrorist
org aniz ations targ eting civili a n s as falling within the “ war”

ex c lusion. Pan Am , 505 F

. 2d at 1016 (declining to find that hijacking carried out by

the Popular F ront for the L iberation of Palestine fell w ithin war ex c lusions); Holiday Inns
, 571 F

. Supp. a t 1472, 1503 (declining to find that mortar shelling b y Palestinia n a n d L ebanese factions in B e irut fell within war

ex c lusions). Holiday Inns specifically rejected the arg ument that a “ c o mmon meaning ” of war applies in the insurance
contex t, h olding instead that “[ i ] n c o mmercial litig ation arising o ut of insurance policies, words and phrases a re construed ‘for insurance purposes’ – a contex t quite different fr o m t h o se of politics or journalism.” 5 71 F

. Supp. at 1464 (quoting P an A m , 505 F

. 2d at 993). T h e S e c o nd Circuit in Pan Am concluded that “war is a c ourse of hostility eng ag ed in by entities that have at least sig nific a n t a t t ributes o f sovereig nty .” Pan Am , 505 F .2d at 1012.

Similarly

, a leading insurance treat i s e recog niz es that in this contex t, “‘war’ is defined as t h e e mploy ment o f force between g overnments o r e n t i t i e s e s s e n t i ally like g overnments, at least de facto,” because “[ w] ar is often v iewed as the meth o d by which a nation prosecutes its r ig ht by force.” 10A Couch on I nsurance § 1 52:3 (3d ed. 2017). 7 A n other

7 Co u c h ref

ers to th is m ean in g

– req u irin g so v ereig n ty

– as th e

“ ord in ary m ean i n g ” o f w ar. 1 0 A Co u ch o n In s u ran ce § 1 5 2 :3 (3 d ed

. 2 0 1 7 ). Co u ch states th at th e tech n ical m ean i n g o f w ar i n th e in su ran ce

co n tex t req u ires “ f

o rm ally an d co n stitu

t io n ally d eclared ” w ar. Id

. Co u ch d o es n ot d iscu ss an y o th er ap p licab le m ean in g o f “ w ar” in th e in su ran ce

co n tex t, in clu d in g A tlan t ic’ s arg u m en t f o r a b ro ad er ap pro ach

.U

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treatise n otes that “while the sovereig n act and war ex clusions

are not e nti rely irrelevant to coverag e of terrorist r elated losses, a n insurer seeking to i n v o k e these ex clusions faces steep factual, leg al and political hurdles” because o f caselaw defining war a s the act of a sovereig n. 32-191 Appleman on I nsurance L aw & Practice Archive § 191.02 (2d ed. 2011).

W ith r eg ard to the record, Universal’s insurance industry

ex p ert stated that under insurance industry cus t o m, “an underwriter cannot merg e the two concepts and sa y t h a t ‘an act of terrorism’ can be a lso an ‘act o f war,’” because “if the policy does n ot contain a terro ri s m ex clusion, there is a reasonable ex p ectatio n that acts of terrorism by a known terrorist org aniz ation, reg ardless of however else they may be characteriz ed, will b e covered.” Atlantic did not rebut this
arg ument; nevertheless, the district court did not c o n s i der Universal’s e x pert testimony r eg a rding th e special meaning of “war” in the insurance contex t. M o r e over, Universal

ex p lained to the d istrict court that even A tlantic’s denial letters n oted that “[ w] ar is a course of h ostility between states

or stat e -like entities,” and “[ t] o constitute a de facto state, a g roup must have sig nificant attr i b u t e s of sovereig nty .” The district court did not address this fact either.

The district court held that Universal “[ d id ] n o t present specific evidence from the neg otiation or drafting of the Policy reflecting the parties’ intention to use any technical o r special meaning of ‘war,’” or any specific evidence that “the parties or [ Unive r s al’s broker] had in mind the more restrictive meaning of ‘war’ d iscussed in Pan Am or H oliday Inns when the Policy was n eg otiated.” (citing Cal. Civ. Code § 1 6 44). I n c oming to thi s co n clusion, the district court conflated the various pro visions of § 1644 and shifted the burden to Universal with o ut any e x planation. Section 1644U

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states that w ords in a contract are “unde r s tood in their ordinary and popular sense

. . . u nless used b y the parties in

a technical sense, or unless a special meaning is given to them by usage , in which c ase the l at t er must be followed.” Cal. C i v. Code § 1644 (emphases a dded). The former provis i o n requires that the term s h ave been “used by the parties in a technical sense,” but the latter requires simply that the special meaning o f the terms be “g iven to them by usag e.” Id

. This interpretation is supported by California law, which provides that “[ p] arties are presumed to contract pursuant to fix ed a nd established usag e and custom of the trade or industry

. ” S. Pac. Transp. Co. v. Santa Fe Pac. Pipelines, Inc. , 88 Cal. Rptr. 2d 7 77, 785 (Ct. App. 1999); see a lso Nat’l Am. Ins. Co. of Cal.

, 93 F

. 3d at 537 (holding that “[ o] rd i n ary rules o f construction permit custom or usag e evidence both to e x plain the meaning of lang uag e and to imply terms, where no contrary intent appears from the terms of the contract”).

Contrary to the district c ourt’s holdin g, C alifornia law does not require Universal to introduc e “ specific evidence from the neg otiation or drafting of the P o l i c y reflecting the parties’ intention” to u se any “spec i a l m eaning of ‘ war.’” Such an interpretation w ould conflate § 1644’s distinction between technical meaning and customary usag e. I n stead, a s noted above i n this Part I V, the only requirement is that the parties had a t l e a st constructive notice of the usag e , which they did here. Atlantic f

ailed to show that “war” did not have

a s p e cial meaning in the insurance contex t, especially considering Universal’s ample evidence to the contrary

.

Atl a n t ic does not ex plicitly dispute that “war” has a special meaning in the insurance industry requiring hostilities b e tween de jure and de facto g overnments. A tlantic insteadU

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focuses o n whether California law requires this special meaning

.

F irst, Atla n t i c arg ues that under Sony Computer Ent e r t ainment America, Inc. v. American Home Assurance Co.
, 532 F .3d 1007, 1013 (9th Cir. 2 008), Universal bears the bur d e n t o submit some ex trinsic evidence of the parties’ intent to adopt a special meaning

. Sony a d dressed technical meaning

, which – unlike customary usag e – does require a showing o f i ntent. F urthermore, § 1644 provides no qualifications or requirement of intent to its mandate
reg arding the application of customary usag e. As discussed, A t l antic’s interpretation would render § 1644’s distinction between technical meaning and customary usag e surplusag e

. Moreover, Atlantic’s reliance on interpretive rules requiring plain meaning in other contex ts is misplaced, g iven § 1644’s specific requirement that plain a nd ordinary meaning does not apply if customary usag e ex ists

. See B urger v. Emp. R e t. Sys.
, 226 P.2d 38, 3 9–40 (Cal. Dist. Ct. App. 1954) (requiring
p l a in and ordinary meaning for c onstitutional measures adopted by popular vote); Kaiser v

. H o p k i n s , 58 P.2d 1278, 1279 ( Cal. 1936) (requiring plain an d ordinary meaning for

c onstitutional measures because they a re adopted “b y t h e meaning appare n t on its face”); Vandegrift v. Bd. of Su p e r visors
, 100 Cal. Rptr. 87, 90–91 (Ct. App. 1 972) (same).

Second, Atlantic arg ues that the p arties did not choose to

use “war” in any formal or technical sense becau s e o f the inclusion of “undeclared war” in the first ex clusion. A tlantic relies on two non-bindi n g cases that addressed whether insurance policies applied t o undeclared wars during W orld W a r I I

. See N.Y

. Life Ins. Co. v

. Durham

, 166 F

. 2d 874, 876 (10th Cir. 1948) (holding th a t w here an insurance p olicyU

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ex p ressly ex cluded losses due t o “undeclared war,” the parties ex pressly “ ch o s e not to use the word ‘war’ in its technical or formal sense”); G agliormella v. Met Life Ins. C o

. , 122 F

. Supp. 246, 249 (D. Mass. 1954) (holding th a t a policy ex c luded undeclared war between “United States and another country ”). These cases are d isting uishable for three

reasons. F irst, both cases discuss wa r between de jure
g overnments, w hich the I sraeli-Hamas conflict was not. See Part I V.A.2. S e c o nd, the Tenth Circuit’s interpretation o f “undeclared war” as an ex pres s indication of the parties’ intent to avoid the special meaning of the term “war” does not apply under California law, w hich mandates the a p plication of a s p ecial meaning under § 1644. Third, Universal’s unrebutted ex pert testimony notes that the current customary usag e of “war” in t h e i n surance industry was developed
g r a d u ally a fter the 9/11 attacks ( and r elated litig ation) to disting uish b etween acts of war and a c t s o f terror in the insurance contex t. A lthoug h Univers al ’ s ex pert does not discuss the contract’s u se of “undeclared war” a n d its potential implication h ere, Atlantic ha s n ot provided any evidence to c ontradict the ex pert’s conclusion that “war” has a specializ ed meaningin this instance.

F inally

, Atlantic relies on three c ases – a l l o utside the insurance contex t – hold i n g that the 9/11 terrorist attacks

were a cts o f war. Atlantic failed to recog niz e, however, that the district court in In re September 11 Litigation
, 931 F

. Supp. 2d 496, 514 ( S.D.N.Y. 2 013), aff’d

, 75 1 F .3d 86, 90–91 (2d Cir. 2014), cautioned that its holding in the CERCL A 8 contex t should be “read narrowly

, fitting the facts of this case only ” and “should not b e a precedent f or cog nate

8 T h e Co m

p reh en s iv e En v iro n

m en tal Resp o n se, Co m

p en satio n , an d L iab ility A ct, 4 2 U.S.C. § § 9 6 0 1

– 9 6 75

.U

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laws of i n s u r ance.” The Second Circuit reaffirmed this distinction, n oting that courts sh o u l d s till have a “narrow reading of a c ontractu al ‘ act of war’ ex clusion,” but the “remedial purpose of CERCL A is both different a nd unrelated” to ty

pical contractual terms. In re Sept. 11 Litig.
, 751 F .3d at 92–93. Similarly

, Atlantic’s reliance on Hamdan

v. Ru m sfeld

, 548 U.S. 557 (2006), and Hamdi v. R u msfeld

, 542 U.S. 507 (2004), both habeas cases, fails to r e co g niz e that “war” has a special meaning in the insurance contex t.

Outside of these inapposite cases, Atlantic does not dispute that the insurance industry has a customary usag e that limits ex clusions for “ war” to hostilities between de jure or de facto sovereig

ns. T he d istrict court erred by f ailing to apply this special meaning

. B e cause the district court should have applied the special meaning

, w e need not address whether the district court’s analy sis of the plain and ordinary meaning o f “war” was incorrect.

2. Hamas is neither a de jure nor a de facto sovereign

Th e d istrict court erroneously concluded that Universal did not meet its burden to demonstrate that “Hamas is a terrorist g roup for a ll p urposes,” and that the war ex clusion

a p p l ied. B ut Universal does n ot need to show that Hamas

a c t s as a terrorist g roup “for all purposes” in order to prove that the policy covers Hamas’ conduct. I nstead

, the appropriate question is whether Hamas was acting as a de jure or de facto sovereig

n at the time of the 2014 hostilities.

“Under international law, a state is an entity tha t has a defined territory a

nd a permanent population, under t he control of its own g overnment, and that eng ag es in, or has the capacit y to e ng ag e in, formal relations with other suchU

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entities.” Restatement (Third) of F o reig n Relations L aw § 201 (1987); see also Holiday Inns
, 571 F

. Supp. at 1499–1500. The United States, the European Union, Canada, Australia, and multiple other countries do not rec o g niz e Hamas as a leg itimate authority in either Palestine or Gaz a

– the relevant territories for o ur analy sis. Hamas do es not eng ag e in formal relations on behalf of Palestine ( o r even Gaz a). The record does n ot indicate that Hamas c ontrols Palestine’s borders, airspace, or immig ration. T h is is particularly important when we consider Hamas’ recog nition of the Palestinian Authority ’s c o n t rol over all g overning functions.

Atlantic arg ues that Ham a s has sig nificant attributes o f sovereig nty , w hich supports the district court’s concl u s i on that Hamas is a de facto sovereig n. Atlantic relies on Pan Am and Holiday I

nns in c oming to this conclusion, b u t A tlantic cherry

- picks selected portions of those cases’ descriptions o f what constitutes a de facto sovereig n

.

Pan Am focused on whether the ent i ty in question h ad “sig nificant a ttributes of sovereig nty ,” o r whether it was an entity “ that c onstitute[ d] g overnment[ ] at least de facto in character,” similar to “enemy n ations at war with o ne another.” 505 F

. 2d at 1012. Atlantic incorrectly states that Pan Am described a de f acto g overnment as “ a f orce [ controlling ] a substantial territory with trappi n gs of state.” Id. at 1009. Th a t d e f

inition was not Pan Am ’s holding

, but rather part of a summary of the parties’ arg uments before the district court. To the co n t r a ry , Pan Am held that a terrorist
g roup was not a de fact o go v e r n ment because it was not acting on b ehalf of the recog niz ed g overnment. I d. at 1012.U

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Atlantic also arg ues that in Holiday Inns
, the court h eld

war can ex ist between de facto g overnments, meaning entities
t h a t “stake out and maintain adverse claims to territor y

. ” 571 F

. Supp. at 1500. A t lantic does not include the full quotation:

It is n ot sufficient to achieve suc h s t a tus that the g r oup or entity in question occupy territory within the boundary of the sovereig n state upon the consent o f that state’s de jure
g ov e rn ment. T hat is so, even if that
g overnment ’ s consent ex tends to permitting its g uests to ex e rcise considerable control a nd autonomy within the camps or other f acilities in which they dwell. “De facto g o vernments”

man i f est “attributes of sovereig nty ” when they stake out and maintain adverse claims to territory

, accompanying those claims with d e c l a r a t i o ns of independence and s o v e r e i g n t y

.

Id

. (emphases added). Holiday Inns a l s o h eld that private militias do not constitute de facto sovereig ns when a de jure
g overnment ex ists in the form of ex ecutive and leg islative leadership (even if that de jure go v ernment functions with “considerable difficulty ”). Id

. Holiday Inns specifically noted that a de facto sovereig n w o uld not recog niz e the de jure g overnment’s sovereig nty , let alone ag ree not to disturb it. Id

. H e re, the Palestinian Authority is the de jure
g overnment, and H a m a s has recog n iz ed the Palestinian Authority as the controlling g overnment of Palestine. Holiday Inns therefore supports the conclusion that Hamas is not the de facto sovereig

n of Palestine.U

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Atlantic arg ues that “Hamas operates political, military

, and social b ra nches,” and its social service branch o perates hospitals, schools, and other s er v i c es, just like any other
g overnment. See United S tates v. El-Mezain

, 664 F .3d 467, 485–86 (5th C i r

. 2011); see also Estates of Ungar v

. Palestinian Auth

., 304 F

. Supp. 2d 232, 250 (D.R.I

. 2 004) (concluding that “Hamas operates throug h a political b ranch and a military branch”). Atlantic does not dispute that Gaz a is part of Palestine a

n d not its o wn sovereig n state. At most, Hamas ex erted control over Gaz a. Hamas never ex ercised actual control over all of Palestine a n d has ag reed – a t least in principle

– not to disturb the Palestinian Authority

, the de jure
g overnment o f P alestine. Hamas has not declared itself independent from Palestine. Atlantic also does not dispu te that Hamas ag reed i n J une 2014 to c ede any g overning function it may have h ad to the Palestinia n A u t h o r ity

. A s noted by the Cong ressional Resear c h S ervice, Hamas has a vested interest in separating its military and political factions. 2010 CRS Hamas Report at 18.

I n sum, based on the record befor e us, H amas did not constitute a d e facto or d e jure sovereig n during the J uly 2014 conflict between Hamas and I srael.

Ou r c onclusion is bolstered by the ex ecutive branch’s refusal to recog niz e H amas as a de jure o r de facto sovereig n at the material ti m e. “ Who is the sovereig n, de jure or de facto, of a territory is not a judicial, but is a political question, the determination of which by the leg islative a nd e x ecutive departments of any g overnmen t c o nclusively binds the judg es.” O etjen v. Cent. Leather Co
., 246 U.S. 297, 302 (1918). The Supreme C o urt has held that “recog nition o f foreig n g overnments so strong ly defies judicial treatment that without ex ecutive recog nition a foreig n state has been calledU

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‘a republic of whose e x istence we k now no t h i ng ,’ and the judiciary ordinarily

follows the e x ecutive as to which nation has sovereig nty over disputed t e r r i tory [ .] ” Baker v. Carr
, 369 U.S. 1 86, 212 (1962) (citation omitted). I t is only “once

sov e r e i g nty o ver an area is politically determined a nd declared” that “courts m a y e x amine the resulting status[ .] ” Id

. T his c ourt has recog niz ed in the insurance contex t that “the Constitution commits to the ex ecutive branch alone the authority to r ecog niz e, and to withdraw recog nition f r om, foreig n r eg imes.” Mingtai Fire & Marine Ins. Co., Ltd. v

. United Parcel Serv.
, 177 F .3d 1 142, 1145 (9th Cir. 1999). Mingtai Fire held that “whether China is the s o vereig n, de j u r e o r d e facto, of the territory of Taiwan is a political question” a

nd thus “we look to the statements and actions o f the ‘political depart m ents’ in order to answer” the question. Id

.

The ex ecut i v e b ranch has never recog niz ed Gaz a as a state or Hamas as a de jure or de facto soverei gn

. I n s t ead, pursuant to its authority under § 219 o f t h e I N A, 8 U .S.C. § 1189(a)(1), the S e cretary o f State has consistently desig nated Hamas as a F oreig n T error i s t Org aniz ation since 1997. A tlantic does not dispute th a t the ex e cutive b ranch does not recog niz e Hamas a s a soverei gn and instead desig nates Hamas as a foreig n terrorist org aniz ation.

Atlantic responds to Universal’s arg uments about the

ex e c utive b ranc h b y a r g u ing that the definition of “ war” in the insurance c ontex t under California law “ is not a political question t o be answered by reference to formal ex e cutive o r leg islative action.” Atlantic cites Ungar v. Palestine Liberation Organization , 402 F .3d 274, 280 (1st Cir. 2005), which held that a dis t ri ct court’s decision reg arding sovereig nt y d o e s not “sig nal[ ] an official position on behalfU

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of the U nited States with respect to th e p o l i t ical recog nition of Palestine.” Ungar is inapplica b l e here f or two reasons. F irst, i t i s n o n-binding

, whereas Mingtai Fire is b inding on this c ourt. Mingtai Fire holds that a court’s recog nition o f sovereig nty , even in the insurance contex t, is a political question. Second, in U

n g a r , the district court declined to recog niz e Palestine as a state or the Palestinian Authority a s

a sovereig n. The district court’s “resolution of that question [ was] not i n co mpatible with any formal position thus far
t a k e n by the political branches,” and thus did not affec t t h e official position of the United States in any m a nner. Id

. Here, the district court’s analy sis – a n d Atlantic’s interpretation – woul d contradict the ex ecutive branch’s refusal to recog

niz e Hamas as a sovereig n.

Even if the ex ecutive branc h ’ s position were not per se binding on this court, its position c e r tainly informs our analy sis w hen we face a p olitical question. After considering the factual and historical record and the ex ecu t i v e branch’s position, we conclude Hamas is not a d e j u r e or a de facto soverei gn

. T h us, H amas’ conduct in the summer of 2014
cannot b e defined as “war” for th e purposes of interpreting this policy

.

B. The Second W

ar Exclusion

1. The district court e rred in applying “warlike a c tion by a military force” to Hamas’ conduct

The district court’s interpretation of the second war

ex c lusion, which ex cludes coverag e for “warlike a ction by a military for ce ” by a “g overnment, sovereig n, or other authority ,” is infected by many of the same leg al errors as the district c ourt’s interpretation of the first ex clusion. L ike theU

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first ex clusion (“war”), the second ex clusion (“warlike action”) has a special meaning in the insurance industry that derives f rom the ty

pical ex clusion for “warlike operations.” See Pan Am
, 505 F .2d at 1015–17 (analy z ing multiple cases holding that “warlike operations” also requires a d e jure or a de f act o s o v ereig n). That special meaning requires (1) “operations o f such a g eneral kind o r character a s bellige rents h ave r ecourse to in war,” and (2) that such operations be carried out by the military forces of a sovereig n

or quasi-sovereig n g overnment. See Pan Am W orld Airways, Inc. v

. Aetna Cas. & Sur. Co.
, 368 F

. Supp. 1 098, 1130 (S.D.N.Y. 1973), aff’d

, 505 F .2d 989; see also Holiday Inns
, 571 F

. Supp a t 1503 (refusing to apply ex clus i o n f o r “war, invasion, ac t o f foreig n enemy , h ostilities or warlike operations (whether w ar be declared or not)” to Palest inian and L ebanese sub-national factions’ shelling of a Holiday I nn in B eirut (emphasis added)). As with the f i r s t ex clusion, Atlantic fails to demonstrate how Hamas is a d e facto or de jure sovereig n and thus eng ag e d in “warlik e a c t ion b y a military force” instead of covered acts of terrorism.

Pan Am dist i n guished between w arlike operations a nd terrorist activity

as follows:

T h er e is no warrant in the g enera l unders tanding of Eng lish, in history

, o r in precedent for reading the phrase ‘ warlike operations’ to encompass (1) the infliction of intentional viole n ce by political g roups (neit her employ ed by nor representing
g overnments ) (2) upon civilian citiz ens o f non-bellig erent p owers and their proper ty (3) a t p laces far removed from the locale o r the subject of any warfare.

. . . T hisU

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c o n clusion is merely r einforced when t h e evident and avowed purpose o f the destructive action is not coercion or c o nquest in any sense, but the striking of spectacular blows for
propag anda effects.

Pan Am
, 5 05 F .2d at 1 015–16 (quoting Pan Am. W orld Airways, Inc.
, 368 F

. Supp. at 1130). A leading i n surance treatise notes that “warlike operations” are “normally part o f

an armed conflict between combatants and usually do n o t include intentional violence against civilians by political
groups .” 10A Couch o n I nsurance § 152:3–4 (3d ed. 2017). The treatise also notes that “the standard war ex c lusion does
not ex plicitly ex tend to acts of terrorism,” as “[ t] errorists do not ty pically fit [ the] profile” o f “combatants” who “operate lawfully in accordance with the law s and customs of war.” I d

. § 152:18. Atlantic does not provide any evidence to t h e contrary or e x plain why w arlike o perations should c over acts of terrorism.

A t lantic notes that Universal’s customary usag e f o r “w a rlike action” seeming ly conflates “war” and “warlike action.” Nevertheless, we do not h ave to identify the precise differences between the two ex clusions to conclude that neither ex clusion applies here. Customary usag e dictates that both ex c l u sions require a showing o f de jure or de facto sovereig nty , and Atlantic c a nno t show either. Much of the analy sis for the “war” ex ception applies here.

Moreover, the nature of H amas’ conduct in J une and J uly 2014 also supports our conclusion that Hamas w as not eng ag ing in “warlike actio n b y a military force.” Couch’s insurance treatise notes that “ warlike o perations” would “ not include intentional violence ag ainst civilians by politicalU

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gr o u p s

. ” Id. § 152:4. Hamas constitutes such a politica l
g roup. F urthermore, the specific action that disrupted Dig ’s production was Hamas f iring r ockets into I sraeli civilian

ce n ters. O ne of Universal’s ex perts relied on a U.N. report that d etermined that the weapons Hamas used w ere ung uided

m i ssiles and w ere likely used to injure and kill c iv i l i a n s because of their indiscriminate natur e

. Hamas’ conduct consisted o f intentional violence a g ainst civilians – conduct which is far closer to acts of terror than “warlike action by a military force.”

B e cause Hamas is n ot a de facto sovereig n – and because its actions did n o t constitute “warlike a ction by a military force,” – w e hold that the second war ex clusion does not apply here.

2. The dis t r i c t court erred in failing to address the efficient proximate ca u s e doctrine in holding Israel indirectly contributed to Hamas’ conduct

I n apply ing the “warlike action” e x clusion, t h e district
court concluded that I srael’s r etaliatory actions also trig g ered
t h is ex clusion. The district court held that “I sra e l i s indisputably a sovereig n st ate, and its actions directly o r i n d i rectly contributed to the situation that cause d postponement and r elocation of the Dig production,” as “[ i] t is not disputed that I srael took a ction to cou n ter Hamas’ attacks.” This conclusion is incorrect for two reasons.

F irst, e ven if I srael countered Hamas’ attacks, the district
court does not ex p lain how I srael’s actions were the
prox imate cause o f Universal’s losses i n moving the
p r o d u c t ion of Dig

. T he e v idence indicates that, at the least

, U n iversal’s decision to relocate production was a result o fU

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Hamas firing rockets into I srael (where film i n g was occurring ), and not a result of I srael’s retaliatory conduct.

M oreover, the district court’s analy sis is contrar y t o California’s e fficient p ro x imate cause doctrine. “Policy

ex c lusions are unenforc e a b l e to the ex tent that they conflict with section 530 [ o f t h e California I nsurance Code] and the effici e n t p rox imate cause d octrine.” Julian v. Hartford Underwriters Ins. Co.
, 110 P.3d 903, 907 (Cal. 20 0 5). The California Supreme Court h a s held that the “efficient
pr o x i m ate” cause is the “predominant, or most important

cause of a loss.” Id

. (citing Garvey v. State F a rm Fire & Cas. Co.
, 770 P.2d 704 (Ca l

. 1 9 8 9)). Thus, “the fact that an

ex c luded risk contribute d t o the loss would not preclude
coverag e if such a risk was a remote cause of the loss.” Id

.
Here, the record demonstrates that the efficient prox imate

cause for the relocation was Hamas’ ro c ket fire from Gaz a into I srael. The district court’s reliance on I srael’s indirect contribution to continued hostilities from H amas was not supported by any evidence in the rec o r d. Atlantic’s letter deny ing c overag e noted that Universal had to relocate because of “heig htened violence in [I srael ] ” due to Hamas “firing rockets into those cities [ Tel A viv and J erusalem] ” where filming was likely to occur. More imp o r t a n t l y , the district court did not consider what the predominant cause o f Dig ’s relocation a ctually w a s , and Atlantic provides no evidence that I sraeli r etaliation was the predominant cause o f Universal’s losses. The district court erred i n holding that because I srael i n directly contributed to Hamas’ conduct, I srael’s conduct as a sovereig n nation trig g ered the war

ex c lusion here.U

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A cc o rding ly

, we reverse the district court’s g rant o f
summary judg ment with reg ard to the second war ex clusion.

V. Exclusion Three

A t lantic also asks us to affirm o n a g round the district

cou r t did not reach: the third ex clusion (“insurrection, rebellion, [ or] revolution”). A s Universal stated a t oral
arg ument

– a n d confirmed by the parties’ briefing on the motion to strike – this question implicates potential fa ctual disputes th a t t h e d i strict court has y et to consider. W e thus remand to the district court to d ecide the applicability of the third ex clusion in the first instance. 9

VI. Universal’s Bad F aith Claim

Similarly

, because we hold that Hama s does n o t constitute

a de jure o r de facto sovereig n, the policy covers Hamas’ hostilities as acts of terrorism creating imminent peril (unless the district court finds that the third ex c lusion applies). The district court’s summary judg ment of U n i v ersal’s b ad faith claim was predicated on its erroneous analy sis of the first a nd second w ar ex clusions. B ecause we reverse the district court’s entry of judg ment i n f avor of Atlantic and conclude that Atlantic breached its contract, and because triable issues of fact remain with reg ard to Universal’s claim that Atlantic acted in bad faith in d eny ing its claim, we vacate the district

9 A l th o u g h A tlan tic in itially raise d t h e fo u rth ex clu sio n in d istrict

co u rt, n eith er th e d i s t r ict co u rt n o r t h e p arties o n ap p eal ad d ress it. W e leav e it t o th e district co u rt to d ecid e w h eth er th e f

o u rth ex clu sio n rem ain s a liv e issu e an d , if

so , to d ecid e its ap p l icab ility in th e f irst in stan ce.U

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court’s judg ment on U niversal’s bad faith claim and remand for further proceeding s consistent with our opinion. 1 0

VII. Motion to Strike

Atlantic filed a motion t o s t rike portions of Universal’s reply b rief and further ex cerpts of the record because Universal relied on materia l s that were not a p art of the district cour t r e cord (and of which we cannot take judicial notice). T hese materials w ere two deposition transcripts that

were not filed with the d istrict court, but were filed as f urther

ex c e rpts of the record here. The transcripts involved the third

war ex clusion, which the district court did not consider.

B e cause w e do not reach the third war ex clusion, the motion to strike the portions of the record and reply brief that rely on the unsubmitted materials, see F e d. R. App. P. 10; 9th Cir. Rule 30-2, has been mooted.

W e decline to sanction Universal f or its conduct because the depositions were not scheduled b y th e p a rt i es until a fter briefing on th e s u m mary judg ment motion was completed. Universal, thus, did n ot have an op p o r t u nity to supplement the record before this appeal was taken because the district court did not rule on the third war ex clusion.

VIII. Conclusion

Fo r the reasons stated above, we hold that Atlantic breached its contract when it denied coverag e by d ef ining

10 W e, o f co u rse, reco g n ize an d leav e o pen th e p o ssib ility th at h o w th e d istrict co u rt d eci d e s th e th ird an d f o u rth ex clu sio n s m ay af f ect its

u ltim ate d ecisio n

o f Un iv ersal’ s b ad f

aith claim

.U

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Hamas’ c onduct as “w a r ” a n d “warlike action by a military force.” W e reverse t he d istrict c o u rt’s entry of summary judg ment in f

avor of At l an t i c on the first a nd second war

ex c lusions, and direct t h e e ntry of summary judg ment in favor o f Universal on the first and second war ex clus i o ns. Be c a u s e the district court did not address the third war

ex c lusion – whet

h e r H a m a s ’ a c t i o n s c o n s t i tuted “insurrection, rebellion, or revolution” – we remand for the district court to address that q u e stion in the f irst instance. W e vacate the
g rant of sum m ary judg ment on Universal’s bad faith claim and remand for proceeding s consistent with this opinion.

Atlantic’s motion to strike [ Dkt. 3 3] is DENIED a s moot, and the request for sanctions is D E N IED

. Costs on appeal are awarded to Universal.

REVERSED in part, V ACATED in part, a nd REMANDED w ith directions.