FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNIVERSAL CABLE PRODUCTIONS,

LLC, a Delaware limited liability

company; NORTHERN

ENTERTAINMENT PRODUCTIONS,

LLC, a Delaware limited liability

company,

Plaintiffs-Appellants,

v.

ATLANTIC SPECIALTY INSURANCE

COMPANY, a New York insurance

company,

Defendant-Appellee.

No.17-56672

D.C. No.

2:16 cv-04435 PA

OPINION

Appeal from the United States District Court

for the Central District of California

Percy Anderson, District Judge, Presiding

Argued and Submitted March 4, 2019

Pasadena, California

Filed July 12, 2019
2 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

Before: Ransey Guy Cole, Jr.,* A. Wallace Tashima,

and Jacqueline H. Nguyen, Circuit Judges.

Opinion by Judge Tashima

SUMMARY**

Insurance Law

The panel reversed in part and vacated in part the district

court’s summary judgment in favor of Atlantic Specialty

Insurance Company in a diversity insurance coverage action

brought by Universal Cable Productions against its insurer,

Atlantic.

Universal sought to recover for expenses incurred when

they moved production of the television series Dig out of

Jerusalem after Hamas fired rockets from Gaza into Israel. 

Atlantic denied coverage based on the insurance policy’s war

exclusions.

The panel applied California law.

Under the doctrine of contra proferentem, any ambiguity

in a policy exclusion is generally construed against the

* The Honorable Ransey Guy Cole, Jr., United States Chief Circuit

Judge for the U.S. Court of Appeals for the Sixth Circuit, sitting by

designation.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 3

insurer and in favor of the insured. The panel declined to

apply contra proferentem either in favor of Universal’s

interpretation, or in favor of Atlantic. 

The panel held that the district court erred in holding that

Atlantic met its burden of demonstrating that the first two war

exclusions applied. The panel further held that to the

contrary, the record demonstrated that neither exclusion

applied here, and Atlantic breached its insurance contract by

denying Universal coverage on that basis. Specifically, the

panel held that Atlantic breached its contract when it denied

coverage by defining Hamas’ conduct as “war” and “warlike

action by a military force.” The panel also held that the

district court erred when it failed to apply the specialized

meaning, pursuant to Section 1644 of the California Civil

Code, of those two terms. The panel held that the specialized

meaning of both “war” and “warlike action by a military

force” required hostilities to be between either de jure or de

facto sovereigns, and Hamas constituted neither. The panel

directed the entry of summary judgment in favor of Universal

on these two exclusions.

Because the district court did not address the third war

exclusion – whetherHamas’ actions constituted “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 judgment

on Universal’s bad faith claim was predicated on its

erroneous analysis of the first and second war exclusions. 

Because the panel concluded that Atlantic breached its

contract, and because there were remaining triable issues of

fact, the panel vacated the grant of summary judgment on
4 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

Universal’s bad faith claim, and remanded for further

proceedings.

The panel denied Atlantic’s motion to strike as moot. The

panel denied Atlantic’s request for sanctions.

COUNSEL

Amanda Kate Bonn (argued) and Kalpana Srinivasan,

Susman Godfrey LLP, Los Angeles, California; Jacob W.

Buchdahl, Susman Godfrey LLP, New York, New York; for

Plaintiffs-Appellants.

Margaret A. Grignon (argued) and Anne M. Grignon,

Grignon Law Firm LLP, Long Beach, California; Michael

Keeley and Carla. C. Crapster, Strasburger & Price LLP,

Dallas, Texas; for Defendant-Appellee.

OPINION

TASHIMA, Circuit Judge:

In late June and through July of 2014, Hamas fired

rockets from Gaza into Israel. Because of these hostilities,

the plaintiffs, Universal Cable Productions, LLC, and

Northern Entertainment Productions, LLC (collectively

“Universal”), moved the production of their television series

Dig out of Jerusalem. Universal incurred significant

expenses during this move and filed an insurance claim for

coverage of those costs under a television production

insurance policy (the “Policy”).
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 5

Universal’s insurer, defendant Atlantic Specialty

Insurance Company (“Atlantic”), denied coverage, stating

that although the Policy covered expenses related to

terrorism, the hostilities were excluded from coverage. 

Atlantic relied on the Policy’s war exclusions, which

excluded coverage for expenses resulting from “war,”

“warlike action by a military force,” or “insurrection,

rebellion, [or] revolution.” Atlantic concluded that Hamas’

actions were excluded acts of war.

Universal responded that these war exclusions did not

apply because the terms had a specialized meaning in the

insurance context. Specifically, “war” and “warlike action by

a military force” required hostilities between de jure or de

facto sovereigns. Universal argued that Hamas was not

acting as a sovereign, and thus its actions were not excluded

from coverage.

The district court granted summary judgment to Atlantic

and held that, instead of the specialized meanings of “war”

and “warlike action,” the relevant definitions were the

ordinary and plain meanings of each term. The district court

held that under its interpretation, Hamas’ actions clearly

constituted “war” and “warlike action by a military force,”

rather than acts of terrorism. Based on its interpretation of

those two exclusions, the district court also granted summary

judgment to Atlantic on Universal’s bad faith claim.1

Although this case concerns the Israeli-Palestinian

conflict and hostilities between different factions in the

region, the legal analysis boils down to simple contractual

1 The district court did not reach the third war exclusion, i.e., whether

Hamas’ actions constituted “insurrection, rebellion, or revolution.”
6 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

interpretation. Section 1644 of the California Civil Code

requires us to apply the specialized meaning of a term –

instead of the plain, ordinarymeaning – when that specialized

meaning has been developed from customaryusage in a given

industry and when both parties have constructive notice of

that usage. Both “war” and “warlike action by a military

force” have a specialized meaning in the insurance context

and the parties had, at the least, constructive notice of the

meaning. The district court erred when it failed to apply that

meaning. Under that specialized meaning, both “war” and

“warlike action by a military force” require hostilities

between either de jure or de facto sovereigns, and Hamas

constitutes neither.

Accordingly, we reverse the district court’s entry of

summary judgment in favor of Atlantic on the first two war

exclusions and hold that Atlantic breached its contract when

it denied coverage by defining Hamas’ conduct as “war” or

“warlike action by a military force.” Because the district

court did not address the third war exclusion – whether

Hamas’ actions constituted “insurrection, rebellion, or

revolution” – we remand for the district court to address that

question in the first instance. The district court’s grant of

Atlantic’s motion for summary judgment on Universal’s bad

faith claim turned on its erroneous analysis of the first two

war exclusions; accordingly, we vacate the grant of summary

judgment on Universal’s bad faith claim and remand for

proceedings consistent with this opinion.
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 7

I. Background

A. Historical Background

We begin with the history between Israel, Palestine, and

Hamas.2 The Palestinian political identity emerged between

1923 and 1948. Jim Zanotti, Cong. Research Serv.,

RL34074, The Palestinians: Background and U.S. Relations

2 (2015) (“2015 CRS Palestine Report”). In 1947, the United

Nations intended to create two states in what are now Israel

and Palestine – one Jewish and one Arab – but for reasons

that are still disputed, the U.N. ultimately founded only the

Jewish state of Israel. Id. In June 1967, Israel gained control

over the entire area that had historically constituted Palestine. 

Id. at 3. Ultimately, Israel annexed only East Jerusalem and

the Golan Heights, leaving the West Bank and Gaza under

Israeli occupation, but not under Israeli governance. Id.

In the mid-1990s, the Palestinian Authority was granted

limited rule in Gaza and parts of the West Bank. Id. at 4, 26. 

In 2005, Israel unilaterally withdrew from Gaza, leaving

control to the Palestinian Authority. Id. at 47. According to

a U.S. Congressional Research Service report, “[a]lthough not

a state, the [Palestinian Authority] is organized like one –

complete with democratic mechanisms; security forces; and

executive, legislative, and judicial organs of governance.” Id.

at 26. The legislative branch is called the Palestinian

Legislative Council. Id. Fatah and Hamas are the largest

Palestinian political movements. Id. at 48.

2 We rely on the parties’ submissions in the record to conduct this

brief historical analysis of the conflict.
8 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

Hamas was founded in 1987. Jim Zanotti, Cong.

Research Serv., R41514, Hamas: Background and Issues for

Congress 400 (2010) (“2010 CRS Hamas Report”). Hamas

is committed “to the destruction of Israel and the

establishment of an Islamic State in all of historic Palestine,

comprised of present-day Israel, the West Bank, and Gaza.” 

2015 CRS Palestine Report at 33. Hamas’ command center

is in Gaza. Id. In 2006, Hamas won a majority of the seats

in the Palestinian Legislative Council. Id. at 26. Since then,

Hamas has provided social services in the Gaza Strip,

collected revenue, established a judicial branch of sorts, and

received some assistance from foreign governments. 

According to the Congressional Research Service, there has

been tension between Hamas’ activities as a “militant

organization uncompromisingly opposed to Israel in defiance

of international opprobrium” and Hamas’ activities as a “de

facto government in Gaza.” 2010 CRS Hamas Report at 17. 

Hamas itself has drawn “a bright line bifurcating the

organization’s leadership from its members in the Gaza

government.” Id. at 18. Furthermore, the same Report notes

that any reference “to the government in Gaza as the ‘Hamas

regime’ does not mean that all or even most of the people

employed in ministries, civil service positions, and even

security forces are necessarily members of Hamas or even

Hamas sympathizers.” Id. at 19.

In June 2014, Hamas reached an agreement with Fatah to

establish a consensus Palestinian Authority government. 

2015 CRS Palestine Report at 1. As part of the agreement,

Hamas agreed to give up any formal responsibility for

governing Palestine, and Hamas’ members no longer served

as government ministers. Id. at 1, 29. Nevertheless, Hamas’

security forces remained in Gaza and have continued to

exercise some control there. Id. at 29.
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 9

The United States has never recognized Palestine or Gaza

as sovereign territorial nations, nor has it ever recognized

Hamas as a sovereign or quasi-sovereign (i.e., a de jure or de

facto government). In fact, since 1997, the United States has

designated Hamas as a Foreign Terrorist Organization under

the Immigration and Nationality Act, 8 U.S.C. § 1189(a)(1). 

Since 2007, Hamas has had a history of firing rockets into

Israel. The United States has continued to designate Hamas

as a Foreign Terrorist Organization and does not negotiate or

enter into treaties with Hamas.

B. Factual Background

For the period from January 1, 2014, to June 30, 2015,

Atlantic issued a television production insurance policy to

Universal. The Policy covered losses that are “a direct result

of an unexpected, sudden or accidental occurrence entirely

beyond your control to include . . . [i]mminent peril, defined

as certain, immediate and impending danger of such

probability and severity to persons or property that it would

be unreasonable or unconscionable to ignore.” The Policy,

which was negotiated before December 2013, covered loss

caused by terrorism if that loss was not otherwise excluded.

The relevant exclusions for our analysis are the four war

exclusions:

1. War, including undeclared or civil war; or

2. Warlike action by a military force,

including action in hindering or defending

against an actual or expected attack, by

any government, sovereign, or other
10 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

authority using military personnel or other

agents; or

3. Insurrection, rebellion, revolution,

usurped power, or action taken by the

governmental authority in hindering or

defending against any of these. Such loss

or damage is excluded regardless of any

other cause or event contributed

concurrently or in any sequence to the

loss.

4. Any weapon of war including atomic

fission or radioactive force, whether in

time of peace or war . . . .

Universal’s broker, Aon/Albert G. Ruben Insurance Services,

Inc., initially sent the first three exclusions above to Atlantic. 

The language was standard insurance industry form language

from the Insurance Service Office, Inc.’s (“ISO”) standard

Form No. CA00200310. Atlantic subsequently edited some

of the policy language and added the fourth war exclusion.

On December 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

February 2014 and filming in Israel,” specifically in “Tel

Aviv and Jerusalem”; (2) stating “[w]e wanted to get some

feedback from you on what issues we may have covering the

production under the blanket policy – any additional

premiums or exclusions beyond our standard terms”; and

(3) asking Atlantic to let Universal “know what [Atlantic’s]

concerns may be on this.”
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 11

The broker then had a discussion with Atlantic “regarding

issues they may have with the project entitled ‘Dig,’

potentially working in Israel.” During that conversation,

Atlantic indicated it “understands that [Universal] takes

seriously safety and security precautions on every production

but that they were particularly concerned about those

precautions in this locale.” As a result, Atlantic asked

Universal to provide “specific information regarding the

security efforts that will be taken during the course of

principal photography.” Atlantic then concluded that it

would “not be imposing any additional premium or additional

coverage terms on Dig relating to the work in Israel,” the

“primary reason for [which] is [its] confidence in the safety

and security measures that will be taken during the

production.” Atlantic did not change the policy’s terms, add

any exclusions – such as a terrorism exclusion – or charge

any additional premium.

1. June 2014 Conflict

After Dig began production in Israel, three Israeli

teenagers were kidnapped on June 12, 2014, and Hamas was

suspected of involvement in the kidnappings. On June 30,

2014, the bodies of the three missing teenagers were

recovered, and there were signs indicating Hamas was

involved. On July 2, 2014, a Palestinian teenager was

abducted and killed by Israelis, presumably in retaliation for

the kidnapping of the Israeli teens. In late June or early July

2014, Hamas began firing rockets from Gaza into Israeli

civilian populations, significantly increasing the number of
12 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

attacks around July 8.3Israel responded by launching a

campaign against Hamas, called “Operation ProtectiveEdge.”

On July 8, the U.S. State Department issued a warning

regarding the “safety and security of civilians” in Israel,

specifically in Jerusalem. Dig filming was scheduled to take

place in Jerusalem over the next few weeks. Two days later,

the Universal security team advised the Dig production team

that the “security environment in Israel currently prohibits

NBCU Security from being able to guarantee the safety and

securityof our employees, production partners and associated

crew and talent.” The security team indicated that “current

rocket attacks” appeared “to target locations to be used in

forthcoming filming” and it was concerned about “acts of

terrorism within Israel.”

2. Denial of Claim Coverage

On July 11, 2014, the day after receiving the security

team’s advice, Universal decided to postpone production for

a week and informed Atlantic. Four days later, Universal’s

broker notified Atlantic in writing of Universal’s claim

relating to the one-week delay of Dig. Atlantic’s Chief

Underwriting Officer, Peter Williams, then wrote in an

internal email to the claims investigator stating that the claim

was a “covered claim they have immanent [sic] peril. Unless

you are going to invoke the war exclusion.” Atlantic’s senior

claims investigator responded to Williams:

3 Atlantic argues Hamas began firing rockets in mid-June, but

Universal argues it was early July. Because the escalating conduct in

early July likely caused Universal to relocate production, July is the

relevant time period for our analysis.
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 13

Any chance you happen [sic] to suggest that

they push for more than just the week, since

the crew needs to be advised at least one week

in advance for a push and since a ground war

still might occur.

The next day, Atlantic’s Assistant Vice President stated

internally that “it looks like we need to have a lot further

discussion about this.” Atlantic had never applied the war

exclusions before this claim.

Due to escalating violence, Universal decided to move the

Dig production out of Israel altogether and notified Atlantic

of that decision on July 17, 2014 That same day – two days

after Universal’s broker submitted the initial written claim –

Atlantic denied coverage under the war exclusions. 

Atlantic’s supervising claims examiner could not recall any

other claim where a coverage determination was made in two

days, stating that this denial occurred on an expedited

timeframe. During the two days between the filing of the

claim and Atlantic’s denial of coverage, Atlantic employees

engaged in the following analysis: They conducted Google

searches for news articles about Hamas and Israel and

reviewed one case, in which the court declined to apply war

exclusions to the act of Palestinian and Lebanese sub-national

groups bombing a hotel in Beirut. See Holiday Inns Inc. v.

Aetna Ins. Co., 571 F. Supp. 1460, 1503 (S.D.N.Y. 1983). 

Atlantic did not consult the policy’s underwriter about the

intent regarding the exclusions, although its usual practice

was to engage in such a consultation.

Two weeks after denying coverage, Atlantic sent

Universal a denial letter. Atlantic’s letter stated that

“[r]ockets launched toward areas where filming is taking
14 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

place would no doubt reasonably constitute” a covered

imminent peril. Atlantic also stated, however, that “[t]he

question now is not whether the loss falls within the insuring

clause but whether the war exclusion” applies. Atlantic

concluded that “the extra expense associated with the move

is not covered under [the Policy] because of the exclusion for

war and warlike action” – the first and second war exclusions.

C. Procedural History

Universal filed suit against Atlantic, asserting claims for

breach of contract and breach of the implied covenant of good

faith and fair dealing. During litigation, Atlantic took the

position that all four contractual war exclusions barred

coverage.

Following discovery, Atlantic moved for summary

judgment on both claims. Universal filed a cross-motion for

partial summary judgment on its first claim: Atlantic

breached the contract. In June 2017, the district court granted

Atlantic’s motion in a short minute order without further

explanation. 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. 

With regard to the war exclusions, the district court

concluded that under California law, the exclusions should be

understood in their popular and ordinary sense and that

“[s]uch a conflict easily would be considered a ‘war’ by a

layperson.” The district court rejected Universal’s argument

that “war” has a special meaning through usage in the

insurance industry. The district court did not address the

third and fourth exclusions.
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 15

II. Standard of Review

Summary judgment orders are reviewed de novo. LopezValenzuela v. Arpaio, 770 F.3d 772, 777 (9th Cir. 2014) (en

banc). We must view [] “the evidence in the light most

favorable to the nonmoving party” and “determine ‘whether

there are any genuine issues of material fact and whether the

district court correctly applied the law.’” Pension Tr. Fund

for Operating Eng’rs v. Fed. Ins. Co., 307 F.3d 944, 949 (9th

Cir. 2002) (internal quotation marks and citation omitted).

“Because the interpretation of an insurance policy is a

question of law, this Court must make its own independent

determination of the meaning of the relevant contract

language.” 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 of

coverage and on the insurer to establish that the claim is

specifically excluded.” MacKinnon v. Truck Ins. Exch.,

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

The parties do not dispute that the claimed loss is a

covered “imminent peril.” Thus, Atlantic bears the burden of

demonstrating that the war exclusions require denial of

coverage. See id.

III. Contra Proferentem Does Not Apply

With regard to interpreting the Policy’s language, both

parties argue that any ambiguity should be construed in their

favor. Under the doctrine of contra proferentem, any

ambiguity in an exclusion is generally construed against the

insurer and in favor of the insured. Fireman’s Fund Ins. Co.

v. Fibreboard Corp., 227 Cal. Rptr. 203, 206 (Ct. App. 1986). 
16 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

When the language in a policy is proposed by the insured,

however, the language is not construed against the insurer and

may even be interpreted against the insured. Id. at 207. 

Furthermore, when two sophisticated parties negotiate the

terms of the policy, the insured generally cannot invoke the

doctrine of contra proferentem. Garcia v. Truck Ins. Exch.,

682 P.2d 1100, 1106 (Cal. 1984). “[W]here the policyholder

does not suffer from lack of legal sophistication or a relative

lack of bargaining power, and where it is clear that an

insurance policy was actually negotiated and jointly drafted,

we need not go so far in protecting the insured from

ambiguous or highly technical drafting.” AIU Ins. Co. v.

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

The district court, citing AIU, held that there was no

presumption in favor of Universal here because

(1) Universal’s broker provided the contested language to

Atlantic, and (2) Universal is a sophisticated party with

bargaining power. In AIU, the insured “unquestionably

possesse[d] both legal sophistication and substantial

bargaining power.” Id. The question was whether the

disputed policy term had a technical meaning (as the insurer

contended) or had a plain and ordinary meaning (as the

insured contended). Id. The record lacked any evidence that

the provision in question had been negotiated or jointly

drafted. Id. Because there was no evidence the parties

intended to adopt a technical meaning, which would have

excluded coverage for the insured, the Supreme Court of

California held that the ambiguity would be resolved against

4 California courts impute an insurance broker’s expertise to its

customer/principal. See Fireman’s Fund, 227 Cal. Rptr. at 206 (“[T]wo

large corporate entities, each represented by specialized insurance broker

or risk managers, negotiated the terms of the insurance contracts.”).
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 17

the party responsible for the inclusion of the provision: the

insurer. Id.

Universal argues that, similarly, any ambiguity here

should be construed against the insurer. Atlantic responds

that, unlike AIU, Universal’s broker provided the policy

language in question, and any ambiguity should instead be

construed against the party that offered the language: 

Universal.

Universal counters that “a distinction must be made

between a broker requesting certain language cut-and-pasted

from other policies issued by an insurer and a broker drafting

or editing specific policy language.” 8 Bus. & Comm. Litig.

Fed. Cts. § 90:42 (4th ed. 2017). “The mere inclusion of

standard form language from another policy at the request of

a policyholder or its broker should not result in a departure

from the rule of contra proferentem.” Id. Here, the disputed

language was insurance industry form language from the

ISO’s standard Form No. CA00200310. “Policy forms

developed by ISO are approved by its constituent insurance

carriers and then submitted to state agencies for review,” and

“[m]ost carriers use the basic ISO forms, at least as the

starting point for their general liability policies.” Pardee

Const. Co. v. Ins. Co. of the West, 92 Cal. Rptr. 2d 443, 456

n.15 (Ct. App. 2000).

Contra proferentem stems “from the fact that the insurer

typically drafts policy language, leaving the insured little or

no meaningful opportunity or ability to bargain for

modifications.” AIU, 799 P.2d at 1265. Although AIU

acknowledged that the insured there “unquestionably

possesse[d] both legal sophistication and substantial

bargaining power,” it opted to apply contra proferentem
18 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

anyway because the parties had not negotiated a technical

meaning. Id. The California Supreme Court concluded that

it would still construe the terms against the insurer because

“such provisions, drafted by the insurers, are highly uniform

in content and wording” and there was “no evidence . . .

suggesting that the provisions in question were actually

negotiated or jointly drafted.” Id. Moreover, the court was

concerned about the insurer interpreting terms in a technical

manner, thus denying coverage when the insured was not on

notice about the technical meaning.

AIU is distinguishable from the case before us. Here, the

provisions were initially offered by Universal’s broker

(although they consisted entirely of form language). 

Moreover, Universal does not rebut the district court’s

conclusion that it is a sophisticated party. Most importantly,

Universal – the insured – is asking the court to interpret

policy language under the customary meaning in the

insurance context. Unlike AIU, where the court was

concerned about restrictive, technical language being

construed against the insured without notice, Universal is

aware of the customary meaning in the insurance context and

asks us to apply that meaning instead of the plain and

ordinary meaning. The typical concerns animating contra

proferentem do not exist here.

Accordingly, we decline to apply contra proferentem in

favor of Universal’s interpretation. We also decline to apply

contra proferentem in favor of Atlantic. The language here

mirrors Atlantic’s own forms – and the forms of many

insurers – and does not warrant a presumption in favor of

Atlantic’s interpretation either. The parties provide no reason
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 19

to protect the insured or the insurer from any ambiguous

drafting in this instance.5

IV. Section 1644 and Customary Usage

The district court erred in holding that Atlantic met its

burden of demonstrating that the first two war exclusions

apply. To the contrary, the record demonstrates that neither

exclusion applies here. Atlantic breached its contract by

denying Universal coverage on that basis.

Under California law, the terms in an insurance policy are

“understood in their ordinary and popular sense, rather than

according to their strict legal meaning; 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.” Cal. Civ. Code § 1644 (emphasis added). A

district court’s failure to consider the special meaning of a

term in “industry custom and practice” is reversible error. 

See Nat’l Am. Ins. Co. of Cal. v. Certain Underwriters at

Lloyd’s London, 93 F.3d 529, 537 (9th Cir. 1996). Here, the

district court erred in holding that the war exclusions should

be understood in their ordinary and plain sense, instead of

applying the special meaning of the terms in the insurance

context.

5 The Supreme Court recently addressed California’s contra

proferentem doctrine in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407,

1417–18 (2019). The Court concluded that contra proferentem applies

“only after a court determines that it cannot discern the intent of the

parties.” Id. “When a contract is ambiguous, contra proferentemprovides

a default rule based on public policy.” Id. We need not address the

Supreme Court’s discussion of ambiguity because, as noted above, the

public policy considerations for applying contra proferentem do not exist

here.
20 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

We note that § 1644’s requirement that courts apply

customary usage is cabined by a few requirements. 

Generally, a party asking a court to apply customary usage

would be engaged in the relevant trade – here, the insurance

trade. See Restatement (Second) of Contracts § 222(3)

(stating that “[u]nless otherwise agreed, a usage of trade in

the vocation or trade in which the parties are engaged or a

usage of trade of which they know or have reason to know

gives meaning to or supplements or qualifies their

agreement” (emphasis added)). Although Universal is not in

the insurance trade, it is a sophisticated party that frequently

engages in business related to the insurance trade. Moreover,

it is represented by a broker – who is Universal’s agent – in

the insurance trade.

If any party is not engaged in the trade, the party offering

customary usage must show the parties had actual or

constructive notice of the customary usage.6See id. § 220(1)

(stating that “[a]n agreement is interpreted in accordance with

a relevant usage if each party knew or had reason to know of

the usage and neither party knew or had reason to know that

the meaning attached by the other was inconsistent with the

usage”). Here, Universal has met that burden. As discussed

below, Universal provides unrebutted expert evidence

demonstrating the customary usage of “war” and “warlike

action by a military force” in the insurance context. Caselaw

and insurance treatises buttress Universal’s argument that

ordinary, popular meanings of these terms do not control in

this context. Moreover, as Universal notes, Atlantic’s own

denial letter stated that “Appleman on Insurance discusses

6 This requirement ensures that customary usage is not used as a

shield against consumers who are entirely unaware of usage in a particular

trade.
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 21

exclusions for war, including the meaning of war and similar

terms. ‘War is a “course of hostility” between “states or

state-like entities.”’” And Universal’s expert noted that “if

the policy does not contain a terrorism exclusion, there is a

reasonable expectation that acts of terrorism by a known

terrorist organization, regardless of however else theymay be

characterized, will be covered.” Universal stated that it

reasonably expected the exclusionary clause would be

interpreted according to customary usage, especially after the

December 2013 emails about the policy’s coverage in Israel. 

At the least, both parties should have known the customary

usage of “war” and “warlike action” in the insurance context.

Accordingly, we apply the customary usage of the terms

in the insurance context here.

A. The First War Exclusion

1. The special meaning of “war” in the insurance

context

Universal provided the district court with substantial

unrebutted evidence that, in the insurance context, the term

“war” has a special meaning that requires the existence of

hostilities between de jure or de facto governments. 

Universal relied on caselaw, insurance treatises, and expert

testimony to show the existence of this industry custom.

With regard to caselaw, Universal relied on 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 governments at least de facto in

character. See Pan Am. World Airways v. Aetna Cas. &

Surety Co., 505 F.2d 989, 1012 (2d Cir. 1974); see also
22 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

Holiday Inns, 571 F. Supp. at 1503 (holding in the insurance

context that “war” must be “between sovereign or quasisovereign states”). The courts in both Pan Am and Holiday

Inns refused to treat violent actions by Palestinian terrorist

organizations targeting civilians as falling within the “war”

exclusion. Pan Am, 505 F.2d at 1016 (declining to find that

hijacking carried out by the Popular Front for the Liberation

of Palestine fell within war exclusions); Holiday Inns, 571 F.

Supp. at 1472, 1503 (declining to find that mortar shelling by

Palestinian and Lebanese factions in Beirut fell within war

exclusions). Holiday Inns specifically rejected the argument

that a “common meaning” of war applies in the insurance

context, holding instead that “[i]n commercial litigation

arising out of insurance policies, words and phrases are

construed ‘for insurance purposes’ – a context quite different

from those of politics or journalism.” 571 F. Supp. at 1464

(quoting Pan Am, 505 F.2d at 993). The Second Circuit in

Pan Am concluded that “war is a course of hostility engaged

in by entities that have at least significant attributes of

sovereignty.” Pan Am, 505 F.2d at 1012.

Similarly, a leading insurance treatise recognizes that in

this context, “‘war’ is defined as the employment of force

between governments or entities essentiallylike governments,

at least de facto,” because “[w]ar is often viewed as the

method by which a nation prosecutes its right by force.” 

10A Couch on Insurance § 152:3 (3d ed. 2017).7 Another

7 Couch refers to this meaning – requiring sovereignty – as the

“ordinary meaning” of war. 10A Couch on Insurance § 152:3 (3d ed.

2017). Couch states that the technical meaning of war in the insurance

context requires “formally and constitutionally declared” war. Id. Couch

does not discuss any other applicable meaning of “war” in the insurance

context, including Atlantic’s argument for a broader approach.
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 23

treatise notes that “while the sovereign act and war exclusions

are not entirely irrelevant to coverage of terrorist related

losses, an insurer seeking to invoke these exclusions faces

steep factual, legal and political hurdles” because of caselaw

defining war as the act of a sovereign. 32-191 Appleman on

Insurance Law & Practice Archive § 191.02 (2d ed. 2011).

With regard to the record, Universal’s insurance industry

expert stated that under insurance industry custom, “an

underwriter cannot merge the two concepts and say that ‘an

act of terrorism’ can be also an ‘act of war,’” because “if the

policy does not contain a terrorism exclusion, there is a

reasonable expectation that acts of terrorism by a known

terrorist organization, regardless of however else theymay be

characterized, will be covered.” Atlantic did not rebut this

argument; nevertheless, the district court did not consider

Universal’s expert testimony regarding the special meaning

of “war” in the insurance context. Moreover, Universal

explained to the district court that even Atlantic’s denial

letters noted that “[w]ar is a course of hostility between states

or state-like entities,” and “[t]o constitute a de facto state, a

group must have significant attributes of sovereignty.” The

district court did not address this fact either.

The district court held that Universal “[did] not present

specific evidence from the negotiation or drafting of the

Policy reflecting the parties’ intention to use any technical or

special meaning of ‘war,’” or any specific evidence that “the

parties or [Universal’s broker] had in mind the more

restrictive meaning of ‘war’ discussed in Pan Am or Holiday

Inns when the Policy was negotiated.” (citing Cal. Civ. Code

§ 1644). In coming to this conclusion, the district court

conflated the various provisions of § 1644 and shifted the

burden to Universal without any explanation. Section 1644
24 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

states that words in a contract 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.” Cal.

Civ. Code § 1644 (emphases added). The former provision

requires that the terms have been “used by the parties in a

technical sense,” but the latter requires simply that the special

meaning of the terms be “given to them by usage.” Id. This

interpretation is supported by California law, which provides

that “[p]arties are presumed to contract pursuant to fixed and

established usage and custom of the trade or industry.” 

S. Pac. Transp. Co. v. Santa Fe Pac. Pipelines, Inc., 88 Cal.

Rptr. 2d 777, 785 (Ct. App. 1999); see also Nat’l Am. Ins. Co.

of Cal., 93 F.3d at 537 (holding that “[o]rdinary rules of

construction permit custom or usage evidence both to explain

the meaning of language and to imply terms, where no

contrary intent appears from the terms of the contract”).

Contrary to the district court’s holding, California law

does not require Universal to introduce “specific evidence

from the negotiation or drafting of the Policy reflecting the

parties’ intention” to use any “special meaning of ‘war.’” 

Such an interpretation would conflate § 1644’s distinction

between technical meaning and customary usage. Instead, as

noted above in this Part IV, the only requirement is that the

parties had at least constructive notice of the usage, which

they did here. Atlantic failed to show that “war” did not have

a special meaning in the insurance context, especially

considering Universal’s ample evidence to the contrary.

Atlantic does not explicitly dispute that “war” has a

special meaning in the insurance industry requiring hostilities

between de jure and de facto governments. Atlantic instead
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 25

focuses on whether California law requires this special

meaning.

First, Atlantic argues that under Sony Computer

Entertainment America, Inc. v. American Home Assurance

Co., 532 F.3d 1007, 1013 (9th Cir. 2008), Universal bears the

burden to submit some extrinsic evidence of the parties’

intent to adopt a special meaning. Sony addressed technical

meaning, which – unlike customary usage – does require a

showing of intent. Furthermore, § 1644 provides no

qualifications or requirement of intent to its mandate

regarding the application of customary usage. As discussed,

Atlantic’s interpretation would render § 1644’s distinction

between technical meaning and customary usage surplusage. 

Moreover, Atlantic’s reliance on interpretive rules requiring

plain meaning in other contexts is misplaced, given § 1644’s

specific requirement that plain and ordinarymeaning does not

apply if customary usage exists. See Burger v. Emp. Ret.

Sys., 226 P.2d 38, 39–40 (Cal. Dist. Ct. App. 1954) (requiring

plain and ordinary meaning for constitutional measures

adopted by popular vote); Kaiser v. Hopkins, 58 P.2d 1278,

1279 (Cal. 1936) (requiring plain and ordinary meaning for

constitutional measures because they are adopted “by the

meaning apparent on its face”); Vandegrift v. Bd. of

Supervisors, 100 Cal. Rptr. 87, 90–91 (Ct. App. 1972)

(same).

Second, Atlantic argues that the parties did not choose to

use “war” in any formal or technical sense because of the

inclusion of “undeclared war” in the first exclusion. Atlantic

relies on two non-binding cases that addressed whether

insurance policies applied to undeclared wars during World

War II. See N.Y. Life Ins. Co. v. Durham, 166 F.2d 874, 876

(10th Cir. 1948) (holding that where an insurance policy
26 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

expressly excluded losses due to “undeclared war,” the

parties expressly “chose not to use the word ‘war’ in its

technical or formal sense”); Gagliormella v. Met Life Ins.

Co., 122 F. Supp. 246, 249 (D. Mass. 1954) (holding that a

policy excluded undeclared war between “United States and

another country”). These cases are distinguishable for three

reasons. First, both cases discuss war between de jure

governments, which the Israeli-Hamas conflict was not. See

Part IV.A.2. Second, the Tenth Circuit’s interpretation of

“undeclared war” as an express indication of the parties’

intent to avoid the special meaning of the term “war” does not

apply under California law, which mandates the application

of a special meaning under § 1644. Third, Universal’s

unrebutted expert testimony notes that the current customary

usage of “war” in the insurance industry was developed

gradually after the 9/11 attacks (and related litigation) to

distinguish between acts of war and acts of terror in the

insurance context. Although Universal’s expert does not

discuss the contract’s use of “undeclared war” and its

potential implication here, Atlantic has not provided any

evidence to contradict the expert’s conclusion that “war” has

a specialized meaning in this instance.

Finally, Atlantic relies on three cases – all outside the

insurance context – holding that the 9/11 terrorist attacks

were acts of war. Atlantic failed to recognize, however, that

the district court in In re September 11 Litigation, 931

F. Supp. 2d 496, 514 (S.D.N.Y. 2013), aff’d, 751 F.3d 86,

90–91 (2d Cir. 2014), cautioned that its holding in the

CERCLA

8

context should be “read narrowly, fitting the facts

of this case only” and “should not be a precedent for cognate

8 The Comprehensive Environmental Response, Compensation, and

Liability Act, 42 U.S.C. §§ 9601–9675.
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 27

laws of insurance.” The Second Circuit reaffirmed this

distinction, noting that courts should still have a “narrow

reading of a contractual ‘act of war’ exclusion,” but the

“remedial purpose of CERCLA is both different and

unrelated” to typical contractual terms. In re Sept. 11 Litig.,

751 F.3d at 92–93. Similarly, Atlantic’s reliance on Hamdan

v. Rumsfeld, 548 U.S. 557 (2006), and Hamdi v. Rumsfeld,

542 U.S. 507 (2004), both habeas cases, fails to recognize

that “war” has a special meaning in the insurance context.

Outside of these inapposite cases, Atlantic does not

dispute that the insurance industry has a customary usage that

limits exclusions for “war” to hostilities between de jure or de

facto sovereigns. The district court erred by failing to apply

this special meaning. Because the district court should have

applied the special meaning, we need not address whether the

district court’s analysis of the plain and ordinary meaning of

“war” was incorrect.

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

The district court erroneously concluded that Universal

did not meet its burden to demonstrate that “Hamas is a

terrorist group for all purposes,” and that the war exclusion

applied. But Universal does not need to show that Hamas

acts as a terrorist group “for all purposes” in order to prove

that the policy covers Hamas’ conduct. Instead, the

appropriate question is whether Hamas was acting as a de jure

or de facto sovereign at the time of the 2014 hostilities.

“Under international law, a state is an entity that has a

defined territory and a permanent population, under the

control of its own government, and that engages in, or has the

capacity to engage in, formal relations with other such
28 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

entities.” Restatement (Third) of Foreign Relations Law

§ 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 recognize

Hamas as a legitimate authority in either Palestine or Gaza –

the relevant territories for our analysis. Hamas does not

engage in formal relations on behalf of Palestine (or even

Gaza). The record does not indicate that Hamas controls

Palestine’s borders, airspace, or immigration. This is

particularly important when we consider Hamas’ recognition

of the Palestinian Authority’s control over all governing

functions.

Atlantic argues that Hamas has significant attributes of

sovereignty, which supports the district court’s conclusion

that Hamas is a de facto sovereign. Atlantic relies on Pan Am

and Holiday Inns in coming to this conclusion, but Atlantic

cherry-picks selected portions of those cases’ descriptions of

what constitutes a de facto sovereign.

Pan Am focused on whether the entity in question had

“significant attributes of sovereignty,” or whether it was an

entity “that constitute[d] government[] at least de facto in

character,” similar to “enemy nations at war with one

another.” 505 F.2d at 1012. Atlantic incorrectly states that

Pan Am described a de facto government as “a force

[controlling] a substantial territory with trappings of state.” 

Id. at 1009. That definition was not Pan Am’s holding, but

rather part of a summary of the parties’ arguments before the

district court. To the contrary, Pan Am held that a terrorist

group was not a de facto government because it was not

acting on behalf of the recognized government. Id. at 1012.
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 29

Atlantic also argues that in Holiday Inns, the court held

war can exist between de facto governments, meaning entities

that “stake out and maintain adverse claims to territory.” 

571 F. Supp. at 1500. Atlantic does not include the full

quotation:

It is not sufficient to achieve such status that

the group or entity in question occupy

territory within the boundary of the sovereign

state upon the consent of that state’s de jure

government. That is so, even if that

government’s consent extends to permitting

its guests to exercise considerable control and

autonomy within the camps or other facilities

in which they dwell. “De facto governments”

manifest “attributes of sovereignty” when

they stake out and maintain adverse claims to

territory, accompanying those claims with

declarations of independence and sovereignty.

Id. (emphases added). Holiday Inns also held that private

militias do not constitute de facto sovereigns when a de jure

government exists in the form of executive and legislative

leadership (even if that de jure government functions with

“considerable difficulty”). Id. Holiday Inns specifically

noted that a de facto sovereign would not recognize the de

jure government’s sovereignty, let alone agree not to disturb

it. Id. Here, the Palestinian Authority is the de jure

government, and Hamas has recognized the Palestinian

Authority as the controlling government of Palestine. 

Holiday Inns therefore supports the conclusion that Hamas is

not the de facto sovereign of Palestine.
30 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

Atlantic argues that “Hamas operates political, military,

and social branches,” and its social service branch operates

hospitals, schools, and other services, just like any other

government. See United States v. El-Mezain, 664 F.3d 467,

485–86 (5th Cir. 2011); see also Estates of Ungar v.

Palestinian Auth., 304 F. Supp. 2d 232, 250 (D.R.I. 2004)

(concluding that “Hamas operates through a political branch

and a military branch”). Atlantic does not dispute that Gaza

is part of Palestine and not its own sovereign state. At most,

Hamas exerted control over Gaza. Hamas never exercised

actual control over all of Palestine and has agreed – at least in

principle – not to disturb the Palestinian Authority, the de jure

government of Palestine. Hamas has not declared itself

independent from Palestine. Atlantic also does not dispute

that Hamas agreed in June 2014 to cede any governing

function it may have had to the Palestinian Authority. As

noted by the Congressional Research Service, Hamas has a

vested interest in separating its military and political factions. 

2010 CRS Hamas Report at 18.

In sum, based on the record before us, Hamas did not

constitute a de facto or de jure sovereign during the July 2014

conflict between Hamas and Israel.

Our conclusion is bolstered by the executive branch’s

refusal to recognize Hamas as a de jure or de facto sovereign

at the material time. “Who is the sovereign, de jure or de

facto, of a territory is not a judicial, but is a political question,

the determination of which by the legislative and executive

departments of any government conclusively binds the

judges.” Oetjen v. Cent. Leather Co., 246 U.S. 297, 302

(1918). The Supreme Court has held that “recognition of

foreign governments so strongly defies judicial treatment that

without executive recognition a foreign state has been called
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 31

‘a republic of whose existence we know nothing,’ and the

judiciary ordinarily follows the executive as to which nation

has sovereignty over disputed territory[.]” Baker v. Carr,

369 U.S. 186, 212 (1962) (citation omitted). It is only “once

sovereignty over an area is politically determined and

declared” that “courts may examine the resulting status[.]” 

Id. This court has recognized in the insurance context that

“the Constitution commits to the executive branch alone the

authority to recognize, and to withdraw recognition from,

foreign regimes.” Mingtai Fire & Marine Ins. Co., Ltd. v.

United Parcel Serv., 177 F.3d 1142, 1145 (9th Cir. 1999). 

Mingtai Fire held that “whether China is the sovereign, de

jure or de facto, of the territory of Taiwan is a political

question” and thus “we look to the statements and actions of

the ‘political departments’ in order to answer” the question. 

Id.

The executive branch has never recognized Gaza as a

state or Hamas as a de jure or de facto sovereign. Instead,

pursuant to its authority under § 219 of the INA, 8 U.S.C.

§ 1189(a)(1), the Secretary of State has consistently

designated Hamas as a Foreign Terrorist Organization since

1997. Atlantic does not dispute that the executive branch

does not recognize Hamas as a sovereign and instead

designates Hamas as a foreign terrorist organization.

Atlantic responds to Universal’s arguments about the

executive branch by arguing that the definition of “war” in

the insurance context under California law “is not a political

question to be answered by reference to formal executive or

legislative action.” Atlantic cites Ungar v. Palestine

Liberation Organization, 402 F.3d 274, 280 (1st Cir. 2005),

which held that a district court’s decision regarding

sovereignty does not “signal[] an official position on behalf
32 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

of the United States with respect to the political recognition

of Palestine.” Ungar is inapplicable here for two reasons. 

First, it is non-binding, whereas Mingtai Fire is binding on

this court. Mingtai Fire holds that a court’s recognition of

sovereignty, even in the insurance context, is a political

question. Second, in Ungar, the district court declined to

recognize Palestine as a state or the Palestinian Authority as

a sovereign. The district court’s “resolution of that question

[was] not incompatible with any formal position thus far

taken by the political branches,” and thus did not affect the

official position of the United States in any manner. Id. 

Here, the district court’s analysis – and Atlantic’s

interpretation – would contradict the executive branch’s

refusal to recognize Hamas as a sovereign.

Even if the executive branch’s position were not per se

binding on this court, its position certainly informs our

analysis when we face a political question. After 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.

B. The Second War Exclusion

1. The district court erred in applying “warlike action

by a military force” to Hamas’ conduct

The district court’s interpretation of the second war

exclusion, which excludes coverage for “warlike action by a

military force” by a “government, sovereign, or other

authority,” is infected by many of the same legal errors as the

district court’s interpretation of the first exclusion. Like the
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 33

first exclusion (“war”), the second exclusion (“warlike

action”) has a special meaning in the insurance industry that

derives from the typical exclusion for “warlike operations.” 

See Pan Am, 505 F.2d at 1015–17 (analyzing multiple cases

holding that “warlike operations” also requires a de jure or a

de facto sovereign). That special meaning requires

(1) “operations of such a general kind or character as

belligerents have recourse to in war,” and (2) that such

operations be carried out by the military forces of a sovereign

or quasi-sovereign government. See Pan Am World Airways,

Inc. v. Aetna Cas. & Sur. Co., 368 F. Supp. 1098, 1130

(S.D.N.Y. 1973), aff’d, 505 F.2d 989; see also Holiday Inns,

571 F. Supp at 1503 (refusing to apply exclusion for “war,

invasion, act of foreign enemy, hostilities or warlike

operations (whether war be declared or not)” to Palestinian

and Lebanese sub-national factions’ shelling of a Holiday Inn

in Beirut (emphasis added)). As with the first exclusion,

Atlantic fails to demonstrate how Hamas is a de facto or de

jure sovereign and thus engaged in “warlike action by a

military force” instead of covered acts of terrorism.

Pan Am distinguished between warlike operations and

terrorist activity as follows:

There is no warrant in the general

understanding of English, in history, or in

precedent for reading the phrase ‘warlike

operations’ to encompass (1) the infliction of

intentional violence by political groups

(neither employed by nor representing

governments) (2) upon civilian citizens of

non-belligerent powers and their property

(3) at places far removed from the locale or

the subject of any warfare. . . . This
34 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

conclusion is merely reinforced when the

evident and avowed purpose of the destructive

action is not coercion or conquest in any

sense, but the striking of spectacular blows for

propaganda effects.

Pan Am, 505 F.2d at 1015–16 (quoting Pan Am. World

Airways, Inc., 368 F. Supp. at 1130). A leading insurance

treatise notes that “warlike operations” are “normally part of

an armed conflict between combatants and usually do not

include intentional violence against civilians by political

groups.” 10A Couch on Insurance § 152:3–4 (3d ed. 2017). 

The treatise also notes that “the standard war exclusion does

not explicitly extend to acts of terrorism,” as “[t]errorists do

not typically fit [the] profile” of “combatants” who “operate

lawfully in accordance with the laws and customs of war.” 

Id. § 152:18. Atlantic does not provide any evidence to the

contrary or explain why warlike operations should cover acts

of terrorism.

Atlantic notes that Universal’s customary usage for

“warlike action” seemingly conflates “war” and “warlike

action.” Nevertheless, we do not have to identify the precise

differences between the two exclusions to conclude that

neither exclusion applies here. Customary usage dictates that

both exclusions require a showing of de jure or de facto

sovereignty, and Atlantic cannot show either. Much of the

analysis for the “war” exception applies here.

Moreover, 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
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 35

groups.” Id. § 152:4. Hamas constitutes such a political

group. Furthermore, the specific action that disrupted Dig’s

production was Hamas firing rockets into Israeli civilian

centers. One of Universal’s experts relied on a U.N. report

that determined that the weapons Hamas used were unguided

missiles and were likely used to injure and kill civilians

because of their indiscriminate nature. Hamas’ conduct

consisted of intentional violence against civilians – conduct

which is far closer to acts of terror than “warlike action by a

military force.”

Because Hamas is not a de facto sovereign – and because

its actions did not constitute “warlike action by a military

force,” – we hold that the second war exclusion does not

apply here.

2. The district court erred in failing to address the

efficient proximate cause doctrine in holding

Israel indirectly contributed to Hamas’ conduct

In applying the “warlike action” exclusion, the district

court concluded that Israel’s retaliatory actions also triggered

this exclusion. The district court held that “Israel is

indisputably a sovereign state, and its actions directly or

indirectly contributed to the situation that caused

postponement and relocation of the Dig production,” as “[i]t

is not disputed that Israel took action to counter Hamas’

attacks.” This conclusion is incorrect for two reasons.

First, even if Israel countered Hamas’ attacks, the district

court does not explain how Israel’s actions were the

proximate cause of Universal’s losses in moving the

production of Dig. The evidence indicates that, at the least,

Universal’s decision to relocate production was a result of
36 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

Hamas firing rockets into Israel (where filming was

occurring), and not a result of Israel’s retaliatory conduct.

Moreover, the district court’s analysis is contrary to

California’s efficient proximate cause doctrine. “Policy

exclusions are unenforceable to the extent that they conflict

with section 530 [of the California Insurance Code] and the

efficient proximate cause doctrine.” Julian v. Hartford

Underwriters Ins. Co., 110 P.3d 903, 907 (Cal. 2005). The

California Supreme Court has held that the “efficient

proximate” cause is the “predominant, or most important

cause of a loss.” Id. (citing Garvey v. State Farm Fire &Cas.

Co., 770 P.2d 704 (Cal. 1989)). Thus, “the fact that an

excluded risk contributed to the loss would not preclude

coverage if such a risk was a remote cause of the loss.” Id.

Here, the record demonstrates that the efficient proximate

cause for the relocation was Hamas’ rocket fire from Gaza

into Israel. The district court’s reliance on Israel’s indirect

contribution to continued hostilities from Hamas was not

supported by any evidence in the record. Atlantic’s letter

denying coverage noted that Universal had to relocate

because of “heightened violence in [Israel]” due to Hamas

“firing rockets into those cities [Tel Aviv and Jerusalem]”

where filming was likely to occur. More importantly, the

district court did not consider what the predominant cause of

Dig’s relocation actually was, and Atlantic provides no

evidence that Israeli retaliation was the predominant cause of

Universal’s losses. 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 here.
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 37

Accordingly, we reverse the district court’s grant of

summary judgment with regard to the second war exclusion.

V. Exclusion Three

Atlantic also asks us to affirm on a ground the district

court did not reach: the third exclusion (“insurrection,

rebellion, [or] revolution”). As Universal stated at oral

argument – and confirmed by the parties’ briefing on the

motion to strike – this question implicates potential factual

disputes that the district court has yet to consider. We thus

remand to the district court to decide the applicability of the

third exclusion in the first instance.9

VI. Universal’s Bad Faith Claim

Similarly, because we hold that Hamas does not constitute

a de jure or de facto sovereign, the policy covers Hamas’

hostilities as acts of terrorism creating imminent peril (unless

the district court finds that the third exclusion applies). The

district court’s summary judgment of Universal’s bad faith

claim was predicated on its erroneous analysis of the first and

second war exclusions. Because we reverse the district

court’s entry of judgment in favor of Atlantic and conclude

that Atlantic breached its contract, and because triable issues

of fact remain with regard to Universal’s claim that Atlantic

acted in bad faith in denying its claim, we vacate the district

9 Although Atlantic initially raised the fourth exclusion in district

court, neither the district court nor the parties on appeal address it. We

leave it to the district court to decide whether the fourth exclusion remains

a live issue and, if so, to decide its applicability in the first instance.
38 UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS.

court’s judgment on Universal’s bad faith claim and remand

for further proceedings consistent with our opinion.10

VII. Motion to Strike

Atlantic filed a motion to strike portions of Universal’s

reply brief and further excerpts of the record because

Universal relied on materials that were not a part of the

district court record (and of which we cannot take judicial

notice). These materials were two deposition transcripts that

were not filed with the district court, but were filed as further

excerpts of the record here. The transcripts involved the third

war exclusion, which the district court did not consider.

Because we do not reach the third war exclusion, the

motion to strike the portions of the record and reply brief that

rely on the unsubmitted materials, see Fed. R. App. P. 10; 9th

Cir. Rule 30-2, has been mooted.

We decline to sanction Universal for its conduct because

the depositions were not scheduled by the parties until after

briefing on the summary judgment motion was completed. 

Universal, thus, did not have an opportunity to supplement

the record before this appeal was taken because the district

court did not rule on the third war exclusion.

VIII. Conclusion

For the reasons stated above, we hold that Atlantic

breached its contract when it denied coverage by defining

10 We, of course, recognize and leave open the possibility that how the

district court decides the third and fourth exclusions may affect its

ultimate decision of Universal’s bad faith claim.
UNIVERSAL CABLE V. ATLANTIC SPECIALTY INS. 39

Hamas’ conduct as “war” and “warlike action by a military

force.” We reverse the district court’s entry of summary

judgment in favor of Atlantic on the first and second war

exclusions, and direct the entry of summary judgment in

favor of Universal on the first and second war exclusions. 

Because the district court did not address the third war

exclusion – whetherHamas’ actions constituted “insurrection,

rebellion, or revolution” – we remand for the district court to

address that question in the first instance. We vacate the

grant of summary judgment on Universal’s bad faith claim

and remand for proceedings consistent with this opinion.

Atlantic’s motion to strike [Dkt. 33] is DENIED as moot,

and the request for sanctions is DENIED. Costs on appeal

are awarded to Universal.

REVERSED in part, VACATED in part, and

REMANDED with directions.