War (Exclusions), What Is It Good For?
Back in the day, policyholders and insurers (and maybe everyone) understood what war was. War was a military action between government forces of sovereign nations. Today, not so much. With the proliferation of terrorism and armed groups controlling various jurisdictions like pseudo-governments, it is often difficult to know when an attack is war or terrorism. Insurers who cover risks operating in volatile regions often add war exclusions to their policies. The question the 9th Circuit Court of Appeals had recently was whether the war exclusions contained in a television production insurance policy precluded coverage when a production was delayed and then moved from its original location in Israel because of Hamas rocket attacks.
In Universal Cable Productions, LLC. v. Atlantic Specialty Insurance Co., No. 17-56672 (9th Cir. Jul. 12, 2019), the insurance policy was negotiated by the insured’s broker, who originally proposed 3 war exclusions to the insurer. The insurer then made some edits and added a fourth war exclusion. The policy covered losses that were “a direct result of an unexpected, sudden or accidental occurrence entirely beyond” the control of the insured, including “[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.” According to the court, the policy covered loss caused by terrorism if that loss was not otherwise excluded.
Immediately after the rocket attacks and the insured’s request for coverage, the insurer denied coverage invoking the war exclusions. This litigation ensued and motions for summary judgment were made. The district court concluded that under California law the war exclusions should be understood in their popular and ordinary sense. The district court rejected the policyholder’s argument that “war” had a specialized meaning through use in the insurance industry and granted the insurer’s motion for summary judgment.
On appeal, the 9th Circuit reversed, directed summary judgment in favor of the insured on the first two war exclusions and remanded the case back to the district court to consider the third war exclusion. The essence of the decision is that under California law, the words of the war exclusions had to be construed based on the special meaning given to them by usage in the insurance industry and not in their popular and ordinary sense. Cal. Civ. Code § 1644. The court found that “war” had a special meaning in the insurance industry requiring hostilities between de jure and de facto governments. The court then held that Hamas was neither a de jure or de facto sovereign. The court also found that Hama’s actions were not “warlike action by a military force,” but were far closer to acts of terror given the “intentional violence against civilians.” There’s a lot of analysis, including political analysis, here, so reading the case is important to understand the holding.
The detailed findings by the court led to its determination that the first two war exclusions were improperly invoked and granted summary judgment to the policyholder. Because the district court did not consider the third war exclusion, the case was remanded. The court found that this exclusion–for insurrection, rebellion, revolution, etc.–implicated potential factual disputes that had not been decided by the district court.