Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 1 of 30 Page ID #:4201 1 LUCIA E. COYOCA (SBN 128314) lec@msk.com 2 VALENTINE A. SHALAMITSKI (SBN 236061) vas@msk.com 3 DANIEL M. HAYES (SBN 240250) dmh@msk.com 4 MITCHELL SILBERBERG & KNUPP LLP 11377 West Olympic Boulevard 5 Los Angeles, CA 90064-1683 Telephone: (310) 312-2000 6 Facsimile: (310) 312-3100 7 Attorneys for Plaintiffs Universal Cable Productions LLC and 8 Northern Entertainment Productions LLC 9 UNITED STATES DISTRICT COURT 10 CENTRAL DISTRICT OF CALIFORNIA – WESTERN DIVISION 11 UNIVERSAL CABLE PRODUCTIONS LLC and 12 NORTHERN ENTERTAINMENT PRODUCTIONS LLC, 13 Plaintiffs, 14 v. 15 ATLANTIC SPECIALTY 16 INSURANCE COMPANY, Defendant. 17 18 19 20 21 22 23 CASE NO. 2:16-cv-4435-PA-MRW The Honorable Percy Anderson MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFFS UNIVERSAL CABLE PRODUCTIONS LLC AND NORTHERN ENTERTAINMENT PRODUCTIONS LLC’S MOTION FOR PARTIAL SUMMARY JUDGMENT [Notice of Motion and Motion; Notice of Lodging Statement of Uncontroverted Facts and Conclusions of Law; Statement of Uncontroverted Facts and Conclusions of Law; Table of Contents of Evidence; Declarations of Andrea Garber, Kurt Ford, Randi Richmond, Matthew Levitt, Dennis Ross, Harold Koh, Ty Sagalow, and Lucia Coyoca; and Request for Judicial Notice filed / lodged and [Proposed] Order lodged concurrently herewith] Date: Time: Ctrm.: 24 25 May 22, 2017 1:30 pm 9A, First Street Courthouse 26 27 28 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT 8814592.1 Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 2 of 30 Page ID #:4202 TABLE OF CONTENTS 1 Page(s) 2 3 MEMORANDUM OF POINTS AND AUTHORITIES........................................... 1 4 I. 5 II. 6 PRELIMINARY STATEMENT ..................................................................... 1 STATEMENT OF MATERIAL FACTS ........................................................ 3 A. The Policy ............................................................................................. 3 B. Addition Of Dig To The Policy As An Insured Production ................. 4 9 C. Events Leading To The Dig Claim ....................................................... 5 10 D. Atlantic’s Denial Of The Dig Claim ..................................................... 7 11 III. 12 STANDARDS OF LAW ................................................................................. 7 7 8 13 14 15 IV. 16 A. Summary Judgment Standard ............................................................... 7 B. Principles For Construing Insurance Policies ....................................... 8 ARGUMENT .................................................................................................. 9 A. Universal Suffered A Loss Falling Within The Scope Of The Extra Expense Coverage ....................................................................... 9 B. Exclusions 1 And 2 Do Not Apply To The Claim ................................ 9 17 18 19 1. Exclusions 1 And 2 Both Require A Conflict Between Sovereigns Or Quasi-Sovereigns ................................................ 9 2. Exclusions 1 And 2 Do Not Apply Because There Was No Conflict Between Sovereigns Or Quasi-Sovereigns................. 16 20 21 22 C. Exclusion 3 Does Not Apply To The Claim ....................................... 21 24 D. Exclusion 4 Does Not Apply To The Claim ....................................... 22 25 V. CONCLUSION ............................................................................................. 25 23 26 27 28 i MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 3 of 30 Page ID #:4203 1 TABLE OF AUTHORITIES Page(s) 2 3 CASES 4 Anderson v. State Farm Mut. Auto. Ins., 270 Cal. App. 2d 346 (1969) .............................................................................. 23 5 6 Conestoga Servs. Corp. v. Exec. Risk Indem., 312 F.3d 976 (9th Cir. 2002) ................................................................................ 7 7 8 E.M.M.I. Inc. v. Zurich Am. Ins. Co., 32 Cal. 4th 465 (2004) .......................................................................................... 8 9 Ennar Latex v. Atlantic Mut. Ins. Co., 10 1995 U.S. Dist. LEXIS 7386 (S.D.N.Y. May 30, 1995) .............................. 10, 17 11 Fireman’s Fund Ins. Co. v. Atl. Richfield Co., 12 94 Cal. App. 4th 842 (2001) ............................................................................... 14 13 Garvey v. State Farm Fire & Cas. Co., 14 48 Cal. 3d 395 (1989) ........................................................................................... 9 15 Hans v. Louisiana, 134 U.S. 1 (1890) ............................................................................................... 19 16 17 Holiday Inns Inc. v. Aetna Ins. Co., 571 F. Supp. 1460 (S.D.N.Y. 1983) ............................................................ passim 18 19 HS Servs., Inc. v. Nationwide Mut. Ins. Co., 109 F.3d 642 (9th Cir. 1997) ................................................................................ 8 20 21 Knox v. PLO, 306 F. Supp. 2d 424 (S.D.N.Y. 2004) ................................................................ 19 22 MacKinnon v. Truck Ins. Exch., 23 31 Cal. 4th 635 (2003) ................................................................................. passim 24 Nissan Fire & Marine Ins. Co. v. Fritz Cos., 25 210 F.3d 1099 (9th Cir. 2000) .............................................................................. 8 26 Oetjen v. Cent. Leather Co., 246 U.S. 297 (1918) ........................................................................................... 17 27 28 ii MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 4 of 30 Page ID #:4204 1 Pan Am. World Airways v. Aetna Cas. & Surety Co., 505 F.2d 989 (2nd Cir. 1974) ...................................................................... passim 2 3 Safeco Ins. Co. v. Robert S., 26 Cal. 4th 758 (2001) ........................................................................ 8, 14, 15, 24 4 5 Schleimer v. Strahl, 219 Cal. App. 2d 613 (1963) .............................................................................. 10 6 Shell Oil Co. v. Nat’l Union Fire Ins. Co., 7 44 Cal. App. 4th 1633 (1996) ............................................................................. 23 8 State Farm Mut. Auto. Ins. Co. v. Jacober, 9 10 Cal. 3d 193 (1973) ..................................................................................... 8, 25 10 State Farm Mut. Auto. Ins. Co. v. Mrozek, 11 29 Cal. App. 3d 113 (1972) ................................................................................ 23 12 Ungar v. PLO, 402 F.3d 274 (1st Cir. 2005) .................................................................. 18, 19, 20 13 14 United States v. Abdi, 498 F. Supp. 2d 1048 (S.D. Ohio 2007) ............................................................. 16 15 16 United States v. Damra, 621 F.3d 474 (6th Cir. 2010) .............................................................................. 19 17 United States v. PLO, 18 695 F. Supp. 1456 (S.D.N.Y. 1988) ................................................................... 19 19 Weiss v. Arab Bank, PLC, 20 2007 U.S. Dist. LEXIS 94029 (E.D.N.Y. Dec. 21, 2007).................................. 10 21 STATUTES 22 California Civil Code § 1644 ................................................................................................................. 10 23 24 OTHER AUTHORITIES 25 5-43 New Appleman on Insurance Law Library Ed., § 43.02 (2016)..................................................................................................... 14 26 Mitchell Silberberg & Knupp LLP 27 Federal Rules of Civil Procedure Rule 56(a) ............................................................................................................. 8 28 iii MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 5 of 30 Page ID #:4205 1 Restatement (Third) of Foreign Relations Law of the United States § 201 (1987)........................................................................................................ 19 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Mitchell Silberberg & Knupp LLP 28 iv MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 6 of 30 Page ID #:4206 MEMORANDUM OF POINTS AND AUTHORITIES 1 2 I. PRELIMINARY STATEMENT 3 In July 2014, Israel publicly identified the terrorist group Hamas as being 4 responsible for the kidnapping and murder of three Israeli teens. In retaliation, 5 Hamas began indiscriminately bombing Israeli civilian population areas near 6 locations where Plaintiffs Universal Cable Productions LLC (“UCP”) and Northern 7 Entertainment Productions LLC (“NEP”) (collectively, “Universal”) were filming 8 a new television show titled “Dig.” Thereafter, Israel’s military took measures to 9 protect Israeli civilians from these terrorist attacks. Mindful of the safety of cast 10 and crew, Universal first delayed and ultimately moved the Dig production out of 11 Israel, incurring substantial expenses and costs associated with moving a full scale 12 production on short notice. 13 At the time, Defendant Atlantic Specialty Insurance Company (“Atlantic”) 14 was Universal’s production insurer. The policy issued by Atlantic (“the Policy”) 15 covered losses resulting from “imminent peril,” including imminent peril caused 16 by acts of terrorism. And when Dig was added as an insured production to the 17 Policy, Atlantic had consented to filming the series in Israel without changing any 18 terms of coverage because of the filming location, imposing a terrorism exclusion, 19 or telling Universal that terrorist acts would not be covered. Universal therefore 20 reasonably expected Atlantic would cover the expenses associated with moving the 21 Dig production, and was taken completely off-guard when Atlantic denied 22 coverage for the claim. At a time when insurer support was most critical – i.e., 23 when the physical safety of cast and crew was at risk – Atlantic turned its back on 24 Universal and disclaimed any responsibility for the claim. 25 Atlantic conceded the situation in Israel in July 2014 fell within the scope of 26 the Extra Expense coverage of the Policy because the situation constituted 27 “imminent peril.” But rather than honor the claim, Atlantic denied coverage on the Mitchell Silberberg & Knupp LLP 28 grounds that losses resulting from Hamas’ terrorist acts purportedly fell within the 1 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 7 of 30 Page ID #:4207 1 scope of the Policy’s “war exclusions.” Specifically, in its denial letter, Atlantic 2 contended that Hamas’ terrorist acts constituted (1) war, or (2) warlike action by a 3 military force of a government, sovereign or other authority. After the lawsuit was 4 filed, Atlantic belatedly argued for the first time that Hamas’ terrorist acts also 5 constituted (3) insurrection, rebellion, revolution, or usurpation of power, or (4) 6 use of a weapon of war including atomic fission or radioactive force. This is a 7 transparent attempt by Atlantic to rewrite the terms of coverage. 8 The issue before the Court on this Motion is whether any of these four war 9 exclusions apply. As a matter of law, they do not, for the following reasons: 10 First, exclusions 1 and 2 are inapplicable because they apply only when the 11 conflict at issue is between two sovereign or quasi-sovereign states. Here, Hamas 12 is neither a sovereign nor quasi-sovereign because: 13  The U.S. government has designated Hamas as a terrorist organization, and 14 does not recognize it as a sovereign or a quasi-sovereign state. Under the 15 political question doctrine, that determination is binding on the judiciary 16 and is not subject to second-guessing in civil litigation disputes; and, 17  As a matter of law, Hamas lacks the necessary attributes to be deemed a 18 19 sovereign or quasi-sovereign. Second, exclusion 3 does not apply because Hamas is not attempting to seize 20 control of Israel’s government so that it can govern Israel, a necessary prerequisite 21 of the exclusion for “insurrection, rebellion, revolution, [and] usurpation of 22 power.” Instead, according to its own mission statement, Hamas seeks to destroy 23 the state of Israel altogether. 24 Third, exclusion 4 does not apply because it excludes only losses caused by 25 a weapon of war using atomic fission or radioactive force. It is undisputed that no 26 such weapon was used in the conflict between Hamas and Israel. Moreover, 27 regardless of whether atomic fission/radioactive force is a necessary prerequisite, Mitchell Silberberg & Knupp LLP 28 Hamas used weapons of terror, not weapons of war. 2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 8 of 30 Page ID #:4208 Thus, Universal moves for partial summary judgment on the ground that, as 1 2 a matter of law, Atlantic breached the Policy by failing to cover the extra expenses 3 Universal incurred in postponing and relocating the Dig production. In the 4 alternative, Universal seeks an order finding that none of the four enumerated war 5 exclusions apply. At a minimum, Universal requests the Court enter an order 6 requiring the war exclusions to be interpreted based on the meanings set forth by 7 Universal herein. 8 II. STATEMENT OF MATERIAL FACTS 9 A. The Policy Beginning in January 2010, following extensive negotiations, Atlantic1 10 11 issued a production policy to NBCUniversal Media, LLC (“NBCUniversal”) 12 insuring against certain risks commonly incurred in connection with television 13 productions. SUF ¶¶ 2-4. The policy was renewed from year to year, until 14 issuance of the Policy at issue here, Motion Picture/Television Producers Portfolio 15 Policy No. MP00163-04, which had an eighteen month policy period from January 16 1, 2014 to June 30, 2015. Id. ¶¶ 5, 6. NBCUniversal is the first Named Insured 17 under the Policy. Id. ¶ 7. UCP and NEP are production companies and indirect 18 subsidiaries of NBCUniversal and they are also Named Insureds under the Policy. 19 Id. ¶¶ 8, 9. The Policy covers losses the insureds might incur associated with their 20 21 television productions, with specific coverage for expenses incurred due to, inter 22 alia, “imminent peril,” which is defined as “certain, immediate and impending 23 danger of such probability and severity to person or property that it would be 24 unreasonable or unconscionable to ignore.” Id. ¶¶ 10, 11 (Policy, Section III – 25 Extra Expense, § I). The Extra Expense coverage includes, among other things, 26 those expenses incurred in connection with the postponement and/or relocation of 27 Mitchell Silberberg & Knupp LLP 1 Atlantic is a OneBeacon Insurance Group company, which operates Atlantic and various OneBeacon entities. Statement of Uncontroverted Facts (“SUF”) ¶ 1. All 28 references to Atlantic include the OneBeacon entities and their employees / agents. 3 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 9 of 30 Page ID #:4209 1 productions resulting from imminent peril. Id. ¶ 10. The Policy does not exclude 2 losses caused by acts of terrorism. Id. ¶ 13. Each NBCUniversal/Universal 3 television production is added as an Insured Production to the Policy on an 4 individual basis. Id. ¶ 44. 5 B. Addition Of Dig To The Policy As An Insured Production 6 Aon/Albert G. Ruben Insurance Services, Inc. (“Aon”) is NBCUniversal’s 7 insurance broker. SUF ¶ 15. On December 11, 2013, Aon submitted an 8 application to Atlantic for Dig to be added to the Policy as an Insured Production. 9 Id. ¶ 16. The application disclosed that production would take place, in large part, 10 in Israel. Id. ¶ 17. 11 Intermittent violence in Israel has occurred since the establishment of the 12 State of Israel in 1948. Id. ¶ 18. In recent decades, a Palestinian group known as 13 Hamas has conducted numerous anti-Israeli attacks, “including shootings, suicide 14 bombings, and standoff mortar-and-rocket attacks against civilian and military 15 targets.” Id. ¶ 19. Hamas has been designated as a terrorist organization by the 16 U.S. government since 1997, and the U.S. has never recognized Hamas as a 17 sovereign or quasi-sovereign. Id. ¶¶ 20, 67. 18 In its submission to have Dig added to the Policy as an Insured Production, 19 Aon specifically addressed with Atlantic the higher risks associated with producing 20 a television show in Israel. SUF ¶¶ 21-24. Atlantic expressed concerns about 21 safety and security precautions, and Aon advised Atlantic that the Dig production 22 would have an NBCUniversal Security team on site and coordination with the 23 mayor of Jerusalem and the local police to “assist[] in assuring the safety of the 24 production company when they are working in Jerusalem.” Id. 25 While Universal agreed to implement additional security for the production, 26 as to the terms of the policy, Aon expressly told Atlantic: “we would like to avoid 27 any deviation from our standard policy terms if possible.” Id. ¶¶ 24, 25. On Mitchell Silberberg & Knupp LLP 28 December 12, 2013, and again on January 14, 2014, Atlantic accepted and 4 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 10 of 30 Page ID #:4210 1 confirmed coverage for Dig as an Insured Production under the Policy without 2 requiring that any Policy terms be changed. Id. ¶¶ 26, 27. Specifically, Atlantic 3 did not add any new or Israel-specific exclusions or endorsements to the Policy, or 4 otherwise change the Policy in any way. Id. ¶ 27. Atlantic also did not 5 communicate to Aon, NBCUniversal, or Universal, that it intended to exclude from 6 coverage attacks or violence by terrorist groups, such as Hamas, in Israel. Id. ¶ 28. 7 Although the Policy did not exclude, and therefore covered, losses caused by 8 acts of terrorism, the Policy did exclude from coverage losses caused by: 1. War, including undeclared or civil war; or 9 2. Warlike action by a military force, including action in 10 hindering or defending against an actual or expected attack, by any government, sovereign or other authority 11 using military personnel or other agents; or, 3. Insurrection, rebellion, revolution, usurped power, or 12 action taken by governmental authority in hindering or defending against any of these. Such loss or damage is 13 excluded regardless of any other cause or event contributed concurrently or in any sequence to the loss. 14 4. Any weapon of war including atomic fission or 15 radioactive force, whether in time of peace or war…. 16 SUF ¶ 12 (Policy, General Conditions, § III). (Exclusions 1-4 above are referred to 17 as “the War Exclusions” and each individual part is referred to by number.) None 18 of the words used in the War Exclusions are specifically defined in the Policy. 19 C. Events Leading To The Dig Claim 20 When the Dig pilot episode started filming in Israel on June 2, 2014, 21 conditions in Israel were considered safe for filming. Id. ¶¶ 29, 30. But conditions 22 in Israel began to destabilize when three Israeli teenagers were kidnapped on June 23 12, 2014, with “many signs that point[ed] to Hamas involvement.” Id. ¶¶ 31, 32. 24 On June 26, 2014, production of the Dig pilot episode was completed. Id. ¶ 25 33. The show then went on hiatus for pre-production and preparation for filming 26 of the next five episodes, with production scheduled to resume on July 20, 2014. 27 Id. ¶ 34. On or about June 30, 2014, the bodies of the three missing teenagers were Mitchell Silberberg & Knupp LLP 28 found, and it was again reported that there were signs “indicat[ing] that Hamas was 5 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 11 of 30 Page ID #:4211 1 involved.” Id. ¶ 35. After allegations were made that Hamas was responsible for 2 the murders, Hamas began firing rockets into Israel, and in response, Israel began 3 to take affirmative action to protect its civilian citizens and to stop Hamas’ attacks. 4 Id. ¶ 36. 5 Due to the deteriorating security conditions in Israel, on July 8, 2014, the 6 State Department warned about concerns as to “the safety and security of civilians” 7 in and around Israel and Jerusalem, where certain Dig filming was scheduled to 8 take place. Id. ¶¶ 37, 38. As tensions increased throughout early July, the 9 NBCUniversal security team assessed the situation. Id. ¶ 39. Ultimately, on July 10 10, 2014, they advised the UCP Dig production team that “the security 11 environment in Israel currently prohibits NBCU Security from being able to 12 guarantee the safety and security of our employees, production partners and 13 associated crew and talent.” Id. ¶ 40. 14 Thus, on July 11, 2014, UCP decided to postpone, for one week, production 15 of the Dig episodes that had been scheduled to resume on July 20, 2014. Id. ¶ 41. 16 That same day UCP informed Atlantic that, due to the circumstances and 17 concomitant safety concerns for cast and crew members, production of the show 18 was being postponed by one week. Id. ¶ 42. UCP also told Atlantic that UCP 19 might be compelled to move the Dig production to another location if conditions 20 did not improve. Id. ¶ 43. 21 Unfortunately, rather than improving, the security situation in Israel further 22 deteriorated. On July 16, 2014, the State Department reported: “right now the 23 potential we’re looking at is … an even greater escalation of violence” in and 24 around Israel. Id. ¶ 44. Faced with the prospect of escalating violence, UCP 25 decided to move the Dig production out of Israel, and informed Atlantic of its 26 decision on July 17, 2014. Id. ¶¶ 45, 46. Universal incurred substantial expenses 27 in connection with the initial delay in production and the subsequent relocation of Mitchell Silberberg & Knupp LLP 28 the production to Croatia and New Mexico. Id. ¶¶ 47, 48. 6 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 12 of 30 Page ID #:4212 1 D. Atlantic’s Denial Of The Dig Claim 2 On July 15, 2014, Aon submitted to Atlantic a formal notice of the claim on 3 NBCUniversal’s and UCP’s behalf (the “Claim”). Id. ¶ 49. Atlantic then assigned 4 an “investigator,” Daniel Gutterman, and an in-house claims lawyer, Pamela 5 Johnson, to investigate and evaluate coverage for the Claim. Id. ¶ 50. Atlantic 6 denied the Claim, ultimately setting forth the grounds for its denial in a July 28, 7 2014 letter to NBCUniversal. Id. ¶ 51. In its denial letter, Atlantic conceded the Claim constituted “imminent peril” 8 9 and therefore triggered the Extra Expense coverage under Section III of the Policy: 10 “Rockets launched [by Hamas] toward areas where filming is taking place would 11 no doubt reasonably constitute a ‘certain, immediate and impending danger of such 12 probability and severity to person or property that it would be unreasonable or 13 unconscionable to ignore.’… The question now is not whether the loss falls 14 within the insuring clause but whether the war exclusion or the terrorism 15 coverage applies.” Id. ¶¶ 52, 55 (emphasis added); see also id. ¶ 56. However, 16 Atlantic “concluded that the extra expense associated with the move is not covered 17 under [the Policy] because of the exclusion for war and warlike actions.” Id. ¶ 53. 18 Atlantic did not cite Exclusion 3 (insurrection, etc.) or Exclusion 4 (weapon of 19 war) in its denial letter. Id. ¶ 54. 20 III. STANDARDS OF LAW 21 A. 22 Interpretation of an insurance policy is a question of law, and thus Summary Judgment Standard 23 appropriate for determination at summary judgment. Conestoga Servs. Corp. v. 24 Exec. Risk Indem., 312 F.3d 976, 981 (9th Cir. 2002); MacKinnon v. Truck Ins. 25 Exch., 31 Cal. 4th 635, 641 (2003) (same). 26 Summary judgment is appropriate when “there is no genuine issue as to any 27 material fact” and “the moving party is entitled to a judgment as a matter of law.” Mitchell Silberberg & Knupp LLP 28 Fed. R. Civ. P. 56(a). When the moving party does not bear the ultimate burden of 7 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 13 of 30 Page ID #:4213 1 persuasion at trial on an issue, the moving party “may carry its initial burden of 2 production by either . . . produc[ing] evidence negating an essential element of the 3 nonmoving party’s case, or . . . show[ing] that the nonmoving party does not have 4 enough evidence of an essential element of its claim or defense to carry its ultimate 5 burden of persuasion at trial.” Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 6 F.3d 1099, 1106 (9th Cir. 2000). 7 It is Universal’s burden to establish that Atlantic breached the Policy by 8 refusing to pay for the losses incurred due to a covered claim. See HS Servs., Inc. 9 v. Nationwide Mut. Ins. Co., 109 F.3d 642, 644-45 (9th Cir. 1997). After Universal 10 meets this burden, the burden then shifts to Atlantic to establish the War 11 Exclusions apply. Id. (“The insurer bears the burden of bringing itself within a 12 policy’s exclusionary clauses.”). 13 B. Principles For Construing Insurance Policies 14 An exclusion in an insurance policy precludes coverage only if it is 15 “expressly and unambiguously excluded,” using “conspicuous, plain, and clear” 16 language. State Farm Mut. Auto. Ins. Co. v. Jacober, 10 Cal. 3d 193, 200-02 17 (1973); MacKinnon, 31 Cal. 4th at 639. Thus, “insurance coverage is ‘interpreted 18 broadly so as to afford the greatest possible protection to the insured,. . . [whereas] 19 exclusionary clauses are interpreted narrowly against the insurer.’” MacKinnon, 20 31 Cal. 4th at 639 (citation omitted). See also HS Servs., 109 F.3d 642, 645 (9th 21 Cir. 1997) ( “Exclusionary clauses are strictly construed.”). 22 Where there are two reasonable interpretations of an exclusion, the court 23 “must resolve the ambiguity in favor of the insured, consistent with the insured’s 24 reasonable expectations.” E.M.M.I. Inc. v. Zurich Am. Ins. Co., 32 Cal. 4th 465, 25 473 (2004) (emphasis added); Safeco Ins. Co. v. Robert S., 26 Cal. 4th 758, 763 26 (2001) (reversing grant of summary judgment to defendant insurance company 27 because the insured reasonably expected coverage for the claim purportedly Mitchell Silberberg & Knupp LLP 28 excluded). In order to prevail, the insurer must prove that “its interpretation is the 8 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 14 of 30 Page ID #:4214 1 only reasonable interpretation.” MacKinnon, 31 Cal. 4th at 655. 2 IV. ARGUMENT A. Universal Suffered A Loss Falling Within The Scope Of The 3 Extra Expense Coverage 4 It is Universal’s initial burden to show that the event causing Universal’s 5 loss falls within the scope of coverage of the policy. See Garvey v. State Farm 6 Fire & Cas. Co., 48 Cal. 3d 395, 406 (1989). Here, that burden is easily satisfied. 7 The Policy, by its terms, covers those extra expenses associated with interruption, 8 postponement, or relocation of an Insured Production as a result of “imminent 9 peril.” SUF ¶ 10 (Policy, Section III – Extra Expense, § I.1.g). Atlantic has 10 admitted the facts and circumstances that caused the postponement and move of 11 the Dig production constitute “imminent peril.” Id. ¶¶ 52, 54, 56. Thus, there is no 12 dispute that Hamas’ repeated launching of rockets and mortars into Israel during 13 July 2014 constituted imminent peril. Id. 14 The burden then shifts to Atlantic to prove that the Claim is excluded from 15 coverage by the War Exclusions. Garvey, 48 Cal. 3d at 406. Atlantic cannot meet 16 its burden as to any War Exclusion, as set forth in Sections IV.B-D below. 17 B. 18 Atlantic’s application of Exclusions 1 (“War”) and 2 (“Warlike action by a Exclusions 1 And 2 Do Not Apply To The Claim 19 military force”) is unsupportable. These Exclusions do not apply because (1) they 20 require conflict between two sovereign or quasi-sovereign entities, and (2) Hamas 21 is neither a sovereign nor quasi-sovereign. 22 23 24 25 26 27 Mitchell Silberberg & Knupp LLP 1. Exclusions 1 And 2 Both Require A Conflict Between Sovereigns Or Quasi-Sovereigns While the terms “war” and “warlike action by a military force” are not defined in the Policy, both (a) California’s general rules of contract interpretation and (b) specific principles of insurance policy interpretation mandate that the Exclusions be read to require a conflict between sovereigns or quasi-sovereigns. 28 9 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 15 of 30 Page ID #:4215 1 2 3 a. The established technical and special meaning of Exclusions 1 and 2 require a conflict between sovereigns or quasi-sovereigns Under California law, words in a contract that have a technical or special 4 meaning must be interpreted in accordance with that technical and special 5 meaning. Cal. Civ. Code § 1644 (contract terms used in a technical sense or 6 having a special meaning by usage should be interpreted as such); see also 7 Schleimer v. Strahl, 219 Cal. App. 2d 613, 615 (1963) (interpreting undefined 8 policy terms in a technical sense because to give a broader meaning to the words 9 used would amount to rewriting the contract); MacKinnon, 31 Cal. 4th at 651 10 (courts consider existing case law in interpreting policy exclusions). In the 11 insurance context, the terms used in Exclusions 1 and 2 (“war” and “warlike action 12 by a military force”) have a well-established technical and special meaning. 13 Specifically, in the insurance context, courts have repeatedly held these terms each 14 require the existence of a conflict between two sovereign or quasi-sovereign 15 entities. See Pan Am. World Airways v. Aetna Cas. & Surety Co., 505 F.2d 989, 16 1012 (2nd Cir. 1974) (“Pan Am”); Holiday Inns Inc. v. Aetna Ins. Co., 571 F. 17 Supp. 1460, 1464-65 (S.D.N.Y. 1983); Ennar Latex v. Atlantic Mut. Ins. Co., 1995 18 U.S. Dist. LEXIS 7386, at *12-16 (S.D.N.Y. May 30, 1995) (holding, on a motion 19 for summary judgment, that war risk policy exclusions did not preclude coverage); 20 see also Weiss v. Arab Bank, PLC, 2007 U.S. Dist. LEXIS 94029, at *14-20 21 (E.D.N.Y. Dec. 21, 2007) (Hamas is a terrorist group and cannot constitute a 22 “military force of any origin”). 23 In Pan Am, for example, the court determined that exclusions for “war” and 24 “warlike operations by a military force” did not exclude coverage for the hijacking 25 of a plane by a Palestinian terrorist organization the Popular Front for the 26 Liberation of Palestine (“PFLP”). 505 F.2d at 1015. The insurers argued the loss 27 was due to “war” or “warlike operations” because the PFLP was ostensibly waging Mitchell Silberberg & Knupp LLP 28 a “guerrilla war” against either or both Israel and the United States. Id. at 1013. 10 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 16 of 30 Page ID #:4216 1 The court examined the history of the war exclusions, including case law on 2 insurance meaning of “war” and international law, and determined that the 3 defining feature of war was hostilities between two sovereign or quasi-sovereign 4 governments. Id. at 1012-15. Because the hijackers were “the agents of a radical 5 political group, rather than a sovereign government,” and also lacked the 6 significant attributes of sovereignty necessary to qualify as a quasi-sovereign, the 7 war exclusions did not apply. Id. at 1015. 8 Similarly, in Holiday Inns the court considered whether exclusions for, 9 among other things, “war” and “warlike operations by a military force” precluded 10 coverage for the destruction of an insured’s hotel during widespread and months11 long violence and fighting between various religious factions in Beirut, Lebanon. 12 571 F. Supp. at 1467-72. The insured’s hotel was destroyed after being subjected 13 to weeks of shelling and artillery fire. Id. at 1471-72. The insured made a claim 14 under its insurance policy, which the insurer denied after invoking the policy’s war 15 exclusions. Id. at 1461. Following Pan Am, the court found the war exclusions did 16 not apply because the parties engaged in the conflict were not sovereign or quasi17 sovereign entities. Id. at 1501. While Syria, a sovereign country, did participate in 18 the fighting, its adversaries were not sovereign states; rather, various militant 19 factions fought to displace one another for supremacy in the region. Id. at 150120 03. The court therefore found the insurer was obligated to pay for the loss because 21 the hostilities were not “war” or “warlike operations.” Id. 22 Thus, in the insurance context, courts interpret Exclusions 1 and 2 in a 23 technical sense and ascribe to them a special meaning, requiring a conflict between 24 sovereigns or quasi-sovereigns before either of the Exclusions can be applied. b. At a minimum, the parties’ opposing interpretations 25 are equally reasonable and therefore Universal’s interpretation must control 26 27 Mitchell Silberberg & Knupp LLP Even if the Court disregards the technical or special meaning of Exclusions 28 1 and 2, and instead chooses to consider the plain language of the Policy and weigh 11 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 17 of 30 Page ID #:4217 1 the respective contractual interpretations of Universal and Atlantic, Universal’s 2 interpretation still must control because Atlantic’s interpretation is “not the only 3 reasonable interpretation.” MacKinnon, 31 Cal. 4th at 655; Holiday Inns, 571 F. 4 Supp. at 1464. Here, Universal argues that, consistent with case law, international law, and 5 6 industry custom and practice, the terms “war” and “warlike action by a military 7 force” require a conflict between two sovereigns or quasi-sovereigns. Atlantic, on 8 the other hand, argues that the terms should be construed using some undefined 9 “common understanding” that does not take account of who is fighting. As set forth below, Atlantic’s interpretation is unreasonable and thus, by 10 11 definition, is not the only reasonable one. But even if Atlantic’s interpretation is 12 deemed reasonable, Universal’s interpretation is at a minimum also reasonable. 13 Therefore, it is Universal’s reasonable expectation that must control. (i) 14 15 Atlantic’s interpretation is not the only reasonable one (or reasonable at all) Atlantic cannot establish its interpretation is the only reasonable one because 16 17 Atlantic’s interpretation is not reasonable at all. Atlantic’s interpretation is not 18 reasonable for at least three reasons: First, Atlantic’s “common understanding” argument has already been rejected 19 20 by courts that have considered it. See Holiday Inns, 571 F. Supp. at 1464 (“In 21 commercial litigation arising out of insurance policies, words and phrases are 22 construed ‘for insurance purposes’ – a context quite different from those of politics or 2 23 journalism.”). Second, Atlantic cannot even articulate a consistent or coherent “common 24 25 understanding” definition of “war.” Atlantic’s witnesses have variously testified: 26 Mitchell Silberberg & Knupp LLP 2 Atlantic’s current “common understanding” position is also inconsistent with the position Atlantic took when it denied the Dig Claim. In its denial letter, Atlantic 27 cited case authorities holding that “war” requires hostilities between sovereign or quasi-sovereigns, and argued that there was a war here because Hamas is a quasi28 sovereign. SUF ¶ 57. 12 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 18 of 30 Page ID #:4218 1 (1) the word “war” has multiple meanings; (2) hostilities must be broad and 2 widespread to constitute war; and, (3) it is not possible to articulate what war is but 3 they “know it when they see it.” Id. ¶¶ 58-60. Atlantic’s inconsistency 4 demonstrates the inherent unreasonableness of Atlantic’s proffered interpretation. 5 Third, Atlantic’s interpretation, which gives no regard to who is fighting, 6 leads to absurd results. For example, one definition Atlantic has advanced is that 7 the determination of whether a conflict qualifies as a “war” should be made based 8 on the size and scope of the hostilities. SUF ¶ 61. That is not the applicable 9 standard. If size or scope of loss were sufficient to qualify hostilities as war, then 10 the 9/11 attacks, which resulted in 2,996 deaths and caused at least $10 billion in 11 property and infrastructure damage, ostensibly would have constituted war. See, 12 e.g., WSJ, Timeline: Terror Attacks Linked to Islamists Since 9/11, available at 13 http://graphics.wsj.com/terror-timeline-since-911/; How much did the September 14 11 terrorist attack cost America? Institute for the Analysis of Global Security, 15 available at http://www.iags.org/costof911.html.3 But the insurance industry did 16 not exclude 9/11 losses based on application of any war exclusions. SUF ¶ 62. In 17 short, without the limiting principle that the hostilities or conflict be between two 18 sovereigns or quasi-sovereigns, the Exclusion would extend far beyond its intended 19 scope and improperly lead to absurd results. Cf. MacKinnon, 31 Cal. 4th at 650 20 (rejecting insurer’s argument that dictionary meanings of “irritant” or “discharge” 21 should apply in pollution exclusion because such application would result in 22 absurdities and denial of coverage in situations that reasonably should be covered). 23 But even if Atlantic’s interpretation of Exclusions 1 and 2 is reasonable, 24 which it is not, it is certainly not the only reasonable interpretation. The 25 interpretation advanced by Universal is inherently reasonable because it is 26 consistent with: (i) case law (supra, Section IV.B.1.a); (ii) the primary Merriam27 Mitchell Silberberg & Knupp LLP 3 The Court can take judicial notice of these documents. See Request for Judicial 28 Notice (“RJN”) filed concurrently herewith. 13 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 19 of 30 Page ID #:4219 1 Webster Dictionary definition of the term “war,” which requires “a state of usually 2 open and declared armed hostile conflict between states or nations.” Merriam3 Webster.com, https://www.merriam-webster.com/dictionary/war (emphasis 4 added); and (iii) the definition of a preeminent insurance law treatise: “War is ‘a 5 course of hostility’ between ‘states or state-like entities.’” 5-43 New Appleman 6 on Insurance Law Library Ed. § 43.02 (2016) (emphasis added). 7 In short, because Universal has proffered a reasonable interpretation of 8 Exclusions 1 and 2, and because of the strong policy favoring contractual 9 construction in favor of the insured, it is Universal’s interpretation and reasonable 10 expectations that must control. (ii) Universal reasonably expected losses caused by 11 Hamas’ terrorist acts would be covered 12 Universal’s interpretations of Exclusions 1 and 2 are consistent with 13 Universal’s reasonable expectation as an insured that losses caused by Hamas’ 14 attacks, such as the ones that occurred in Israel in July 2014, would be covered 15 given the absence of a terrorism exclusion in the Policy. SUF ¶¶ 13, 26-28. When 16 there are other exclusion clauses potentially available to the insurer that are 17 directly applicable to certain types of occurrences, but the insurer does not use 18 them to clearly exclude such occurrences, “this gives rise to the inference that the 19 parties intended not to so limit coverage.” Fireman’s Fund Ins. Co. v. Atl. 20 Richfield Co., 94 Cal. App. 4th 842, 852 (2001). 21 Safeco is particularly instructive on this point. In Safeco, the policy at issue 22 had an exclusion for “any illegal act.” 26 Cal. 4th at 763. The insurer argued that 23 the exclusion should be interpreted to bar coverage for any violation of criminal Mitchell Silberberg & Knupp LLP 24 law. Id. The court rejected the argument: 25 Had Safeco wanted to exclude criminal acts from coverage, it could have easily done so. Insurers 26 commonly insert an exclusion for criminal acts in their liability policies. ... Because Safeco chose not to have a 27 criminal act exclusion, instead opting for an illegal act exclusion, we cannot read into the policy what Safeco 28 has omitted. To do so would violate the fundamental 14 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 20 of 30 Page ID #:4220 1 2 principle that in interpreting contracts, including insurance contracts, courts are not to insert what has been omitted. 3 Id. at 763-64 (citations omitted). 4 The same analysis applies here. Had Atlantic wanted to exclude Hamas’ 5 terrorist acts from coverage, it could have easily requested the addition of a 6 terrorism exclusion to the Policy. Atlantic knows how to write a terrorism 7 exclusion (see SUF ¶ 64), but when underwriting the addition of Dig to the Policy, 8 Atlantic considered the risk of filming in Israel and decided it would cover the 9 production without requiring a terrorism exclusion, or otherwise informing 10 Universal that violence and attacks on civilian population by Palestinian terrorist 11 groups would be excluded from coverage (see id. ¶¶ 13, 21-28). Because Atlantic 12 “chose not to have a [terrorism] exclusion, … [the Court] cannot read [it] into the 13 policy.” Safeco, 26 Cal. 4th at 763-64. 14 Given that Atlantic did not add a terrorism exclusion, Universal reasonably 15 believed such violence would be covered by the Policy. See SUF ¶¶ 13, 26-28. 16 Universal’s expectation of coverage was particularly reasonable in light of the 17 aftermath of 9/11, when it became common in the insurance industry for policies to 18 have both a terrorism exclusion and a war exclusion, or at a minimum to address 19 with specificity whether “terrorism” is covered by the policy. Id. ¶ 63. In the 20 world of insurance, terrorism is not war, and war is not terrorism. “[A]n 21 underwriter cannot merge the two concepts and say that ‘an act of terrorism’ can 22 be also ‘an act of war.’” Id. ¶ 65. 23 In the post 9/11 world, insureds reasonably expect the two risks will be 24 treated separately, and underwritten and evaluated by an insurer separately. Id. ¶ 25 66. To conflate the two, as Atlantic is doing here, means that an insured who pays 26 for terrorism insurance is not getting the benefit of its bargain if coverage is 27 precluded by the war exclusions. Atlantic should not be permitted to frustrate its Mitchell Silberberg & Knupp LLP 28 insured’s reasonable expectations by effectively revising the underwriting decision 15 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 21 of 30 Page ID #:4221 1 long after the fact in order to avoid paying out for coverage of the Claim. In short, Universal’s interpretations of Exclusions 1 and 2 are inherently 2 3 reasonable and are consistent with the parties’ negotiating history and the 4 reasonable expectations of the insured. Therefore, as a matter of law, Universal’s 5 interpretations must control. Under those interpretations, there can be no finding 6 that the Dig losses were caused by “war” or “warlike action” unless Atlantic can 7 establish that each participant in the conflict was a sovereign or quasi-sovereign. As set forth below, Atlantic cannot establish that Hamas is either of these things. 2. Exclusions 1 And 2 Do Not Apply Because There Was No 9 Conflict Between Sovereigns Or Quasi-Sovereigns 8 10 As a matter of law Atlantic cannot establish Hamas is a sovereign or quasi- 11 sovereign for two reasons: (a) under the political question doctrine, the court must 12 defer to the U.S. government’s designation of Hamas as a terrorist organization, 13 and not grant Hamas (or Gaza) status as a sovereign or quasi-sovereign; and, (b) 14 Hamas lacks the requisite attributes of sovereignty or quasi-sovereignty. a. The political question doctrine mandates deference to 15 the U.S. government’s determination that Hamas is not a sovereign or quasi-sovereign 16 The U.S. government’s designation of Hamas as a terrorist group, and the 17 18 fact that it has not recognized Hamas as a sovereign or quasi-sovereign or Gaza as 19 a sovereign territorial nation, implicate matters of foreign policy. As the United 20 States Supreme Court has explained, the executive branch’s determinations on 21 matters of foreign policy are binding on the courts: Who is the sovereign, de jure or de facto [i.e., quasi22 sovereign], of a territory is not a judicial, but is a political question, the determination of which by the legislative 23 and executive departments of any government conclusively binds the judges, as well as all other 24 officers, citizens and subjects of that government. This principle has always been upheld by this court, and has 25 been affirmed under a great variety of circumstances. 26 Oetjen v. Cent. Leather Co., 246 U.S. 297, 302 (1918) (emphasis added).4 27 Mitchell Silberberg & Knupp LLP 4 This Court may properly take judicial notice of the U.S. government’s determinations to Hamas’ status. United States v. Abdi, 498 F. Supp. 2d 1048, 28 1079 (S.D. Ohioas2007); and see RJN filed concurrently herewith. 16 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 22 of 30 Page ID #:4222 1 This principle applies in insurance contract disputes. In Ennar Latex, for 2 example, the insured suffered a loss when its cargo was seized off the coast of 3 Liberia by ECOMOG (the armed forces of the Economic Community of West 4 African States). 1995 U.S. Dist. LEXIS 7386, at *1-2. The policy excluded 5 coverage for loss due to seizures by a government. Id. at *2-3. The insurer argued 6 there was no coverage because ECOMOG purportedly acted on behalf of the 7 Liberian government and, therefore, the exclusion applied. Id. The insured, 8 however, contended that there was coverage because ECOMOG was not the then9 government of Liberia. Id. at *11-12. The court ruled in favor of the insured 10 because a ruling for the insurance carrier would have required the court to make a 11 determination “whether the ECOMOG is the [de facto] Liberian government for 12 purposes of this exclusion.” Id. at *13. As the court explained: “It is not for this 13 Court to recognize a de facto [i.e., quasi] government; rather, that is the role of 14 the executive branch.” Id. at *14 (emphasis added). 15 Here, the Court should not recognize Hamas as either a sovereign or quasi- 16 sovereign because the U.S. government has refused to do so. SUF ¶ 67. On the 17 contrary, the U.S. government has determined that Hamas is a terrorist 18 organization, and does not recognize Gaza as a sovereign territorial nation. Id. ¶¶ 19 20, 68, 69. At no point since Hamas was established in 1987 has the U.S. 20 government ever considered adding Hamas to the list of state sponsors of terrorism 21 because Hamas is not a state or a sovereign entity. Id. ¶ 71. Rather, from the 22 standpoint of the U.S. government’s foreign relations, Hamas is a Palestinian non23 state actor. Id. ¶ 70. 24 The U.S. government’s determinations that Hamas is a terrorist group, not a 25 sovereign or quasi-sovereign government, and that Gaza is not a sovereign 26 territorial nation, implicate matters of foreign policy. “[S]ince designating Hamas 27 a Foreign Terrorist Organization in the 1990’s, it has been the policy of every Mitchell Silberberg & Knupp LLP 28 American administration not to engage in meetings or dialogue with officials of 17 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 23 of 30 Page ID #:4223 1 Hamas, let alone any formal diplomatic relations[,]” because of Hamas’ use of 2 violence and terrorism and rejectionist position with regard to Israel’s right to 3 exist. Id. ¶ 72. Were this Court to find that Hamas is a sovereign or quasi4 sovereign, it would damage U.S. interests and policies in the Middle East by 5 conferring on Hamas a legitimacy that would be contrary to the foreign policy 6 position of the U.S. government. 7 In short, the Court should defer to the U.S. executive branch’s foreign policy 8 determinations that Hamas is a terrorist organization, and not a sovereign or quasi9 sovereign, and find as a matter of law that Exclusions 1 and 2 do not apply. b. As a matter of law, Hamas lacks sufficient attributes 10 of sovereignty to be a sovereign or quasi-sovereign 11 Even if the Court does not defer to the U.S. government’s position as to the 12 status of Hamas and Gaza, it still should find, as a matter of law, that Hamas lacks 13 the requisite sovereignty or quasi-sovereignty necessary for Atlantic to invoke 14 Exclusions 1 and 2. 15 A sovereign is a recognized state. Pan Am, 505 F.2d at 1012. Atlantic 16 admits that Hamas/Gaza is not a recognized state. SUF ¶ 68 (Hamas/Gaza “is not 17 a recognized nation, at least by most of the world;” contrasting Hamas with Israel, 18 a “legitimate sovereign”); see also id. ¶ 70 (Hamas is a “non-state actor”). Thus, 19 the question is whether Hamas is a quasi-sovereign. 20 To qualify as a quasi-sovereign, a group must have significant attributes of 21 sovereignty. Holiday Inns, 571 F. Supp. at 1499-1500. The main attributes of 22 sovereignty are: (1) formal recognition by other sovereigns; (2) the right to control 23 borders; (3) sovereign or diplomatic immunity; and, (4) control as the government 24 of meaningful territory. Id.; see also, e.g., Ungar v. PLO, 402 F.3d 274, 283, 29125 92 (1st Cir. 2005). As detailed below, Hamas does not possess any of the main 26 attributes of sovereignty: 27 Mitchell Silberberg & Knupp LLP 28 18 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 24 of 30 Page ID #:4224 1 Recognition by other Sovereigns. A significant attribute of sovereignty 2 that Hamas lacks is formal recognition by other sovereigns. See Restatement 3 (Third) of Foreign Relations Law of the United States § 201 (1987). The United 4 States refuses to recognize Hamas as anything other than a terrorist group, and 5 does not engage in any meetings or dialogue with Hamas, “let alone any formal 6 diplomatic relations.” SUF ¶¶ 20, 72, 73 (“U.S. policy will not recognize Gaza as 7 a sovereign or quasi-sovereign territory. And it will not recognize Hamas as being 8 a legitimate authority in Gaza.”). The same is true of the European Union, Canada, 9 Australia, Israel, and other countries. Id. ¶ 77. 10 The Right to Control Borders. The right to control borders, airspace, and 11 immigration are also significant attributes of sovereignty, which Hamas does not 12 possess. See Ungar, 402 F.3d at 291-92; United States v. Damra, 621 F.3d 474, 13 486 (6th Cir. 2010) (describing the “power to regulate immigration” as “an 14 attribute of sovereignty essential to the preservation of any nation ….”). It is 15 undisputed that Hamas does not have the right to control the borders, ports, or 16 airspace of Gaza. SUF ¶ 75. See also Ungar, 402 F.3d at 291-92 (the Oslo Accord 17 Interim Agreement, art. XII, 36 I.L.M. at 562, retained to Israel the undiminished 18 ability to defend and control the territorial borders, as opposed to the Palestinian 19 Authority). And Hamas also does not have the power to regulate who comes in or 20 out of Gaza. See id. 21 Sovereign / Diplomatic Immunity. Another important attribute of 22 sovereignty that Hamas lacks is sovereign/diplomatic immunity. See Hans v. 23 Louisiana, 134 U.S. 1, 13 (1890). Other Palestinian groups, including the PLO and 24 the Palestinian Authority are not entitled to sovereign or diplomatic immunity 25 “because there does not exist a state of Palestine which meets the legal criteria for 26 statehood applicable to the Court’s adjudication of the issue.” Knox v. PLO, 306 F. 27 Supp. 2d 424, 430-31 (S.D.N.Y. 2004) (denying motion to dismiss based on Mitchell Silberberg & Knupp LLP 28 alleged sovereign immunity of the PLO and PA); United States v. PLO, 695 F. 19 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 25 of 30 Page ID #:4225 1 Supp. 1456, 1459 (S.D.N.Y. 1988) (no diplomatic immunity). Similarly, Hamas 2 and Gaza are not entitled to sovereign or diplomatic immunity because they are not 3 recognized as a government or state, respectively, by the U.S. government. SUF 4 ¶¶ 67-70, 73. 5 Control of meaningful territory. Another element of sovereignty that 6 Hamas lacks is control of territory against the will of the territory’s de jure 7 government. Holiday Inns, 571 F. Supp. at 1500. In Pan Am, for example, the 8 court held that the PFLP, a terrorist organization that controlled land and a facility 9 in Jordan, was not a quasi-sovereign because the PFLP controlled the land at the 10 sufferance of the Jordanian government. 505 F.2d at 1012. Similarly, here, Hamas 11 did not wrest control of Gaza from Israel; instead, in 2005 Israel voluntarily 12 withdrew from Gaza (SUF ¶ 74), and Hamas now controls Gaza at the sufferance 13 of Israel. 14 Additionally, courts have previously rejected the argument that the 15 overarching Palestinian Authority, which is comprised of multiple factions, has 16 sufficient “control” to establish the Palestinian Authority’s sovereignty. See 17 Ungar, 402 F. 3d at 291-92 (While the Palestinian Authority is “vested [with] 18 some autonomy... the authority so transferred [pursuant to the Oslo accord] was 19 limited and, during and after that transition, Israel explicitly reserved control over 20 all matters not transferred. Several of these reserved powers are incompatible with 21 the notion that the [Palestinian Authority] had independent governmental control 22 over the defined territory.”) (citations omitted). If the overarching Palestinian 23 Authority does not have sufficient control over the West Bank and Gaza to satisfy 24 this factor of sovereignty, then Hamas, which has only some control over only 25 Gaza, by definition cannot satisfy it either. 26 In sum, as a matter of law, Hamas lacks sufficient attributes of sovereignty 27 for Atlantic to invoke Exclusions 1 and 2. Thus, neither applies here. Mitchell Silberberg & Knupp LLP 28 20 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 26 of 30 Page ID #:4226 1 C. Exclusion 3 Does Not Apply To The Claim 2 Courts have also interpreted Exclusion 3 (“insurrection, rebellion, 3 revolution, etc.”) in a technical sense and ascribed to it a special meaning in the 4 insurance context. In order to establish the existence of an “insurrection, rebellion, 5 revolution, [or] usurped power” under Exclusion 3, Atlantic must prove: (1) 6 Hamas had the intent to “overthrow the established government [of Israel] and 7 assume at least de facto governmental control;” or, (2) Hamas is part of a larger 8 “group or movement” that has a cohesive purpose to overthrow the established 9 government of Israel. Holiday Inns, 571 F. Supp. at 1487-88; Pan Am, 505 F.2d at 10 1017-19. Atlantic cannot do either. 11 First, Atlantic cannot show that Hamas’ specific purpose and intent was to 12 effectuate regime change in Israel or to seize control over Israel’s government. 13 Hamas does not seek to take over the Israeli government. Instead, Hamas rejects 14 the very right of Israel to exist. SUF ¶ 81. Hamas’ stated intent, as expressed in its 15 founding charter published in 1988, is to destroy Israel, establish a separate Islamic 16 fundamentalist Palestinian state, and raise “the banner of Allah over every inch of 17 Palestine.” Id. ¶ 80. See Holiday Inns, 571 F. Supp. at 1477-78 (citing various 18 factions’ stated aims as proof of intent); Pan Am, 505 F.2d at 1018 (similar). In 19 that vein, the purpose of Hamas’ rocket attacks in July 2014 was not to unseat the 20 Prime Minister of Israel or take over the Israeli Knesset, but rather to (i) retaliate 21 for the Israeli allegations that Hamas was responsible for the kidnapping/murder of 22 the three Israeli teens earlier in the summer, and (ii) terrorize, injure, and/or kill 23 Israel’s civilian population. See SUF ¶ 82. 24 Second, Atlantic also cannot establish that Hamas is part of a larger group 25 that seeks to overthrow the Israeli government. Hamas is part of: (i) the larger 26 Muslim Brotherhood movement, whose goal is to have all Muslims governed 27 exclusively by Sharia law and live under the banner of Allah; and, (ii) the Mitchell Silberberg & Knupp LLP 28 overarching Palestinian Authority, who recognized the State of Israel and thus does 21 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 27 of 30 Page ID #:4227 1 not seek to overthrow the government of Israel. See id. ¶ 78. In short, Hamas is 2 one of several different Palestinian factions that fundamentally disagree about how 3 to achieve their objective to establish a state of Palestine. Id. ¶ 79. This is 4 virtually identical to the situation in Holiday Inns, where multiple groups were 5 involved in the conflict that caused the damage to the hotel. 571 F. Supp. 1489-90. 6 Because the various groups “would often be sharply at odds with one another … 7 on the larger question of the part Lebanon should play in the modern world,” the 8 court found that there was no cohesive purpose among the groups to overthrow the 9 government of Lebanon, and therefore that the “insurrection” exclusion did not 10 apply. Id. 11 Additionally, as with Exclusions 1 and 2, as a matter of law, Universal’s 12 interpretation of Exclusion 3 must control because Atlantic cannot meet its burden 13 of showing that its interpretation is the only reasonable one. MacKinnon, 31 Cal. 14 4th at 655; Holiday Inns, 571 F. Supp. at 1464. Atlantic cannot possibly satisfy 15 this standard when its own senior claims supervisor, who was charged with 16 overseeing the Claim, has testified that Exclusion 3 did not apply. SUF ¶ 83 (“the 17 third [exclusion] I don’t think is applicable”). 18 19 20 Thus, Exclusion 3 does not preclude coverage of Universal’s Claim. D. Exclusion 4 Does Not Apply To The Claim Exclusion 4 applies only if the loss at issue is caused by a “weapon of war 21 including atomic fission or radioactive force. . . .” SUF ¶ 12. On its face, the 22 Exclusion only applies if the weapon of war at issue uses or employs atomic 23 fission or radioactive force. No such weapon was used by Hamas or Israel. 24 To circumvent this inconvenient truth, Atlantic argues for an alternative 25 interpretation that is neither reasonable nor plausible. Specifically, Atlantic 26 contends that Exclusion 4 should be interpreted to encompass all “weapons,” 27 including the rockets used by Hamas. Atlantic’s interpretation is contrary to: (i) Mitchell Silberberg & Knupp LLP 28 rules of policy interpretation; (ii) rules of grammar; (iii) basic logic; and (iv) the 22 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 28 of 30 Page ID #:4228 1 testimony of Atlantic’s own witness. 2 Atlantic’s interpretation of Exclusion 4 violates basic rules of policy 3 interpretation because it is inconsistent with other sections of the Policy. 4 MacKinnon, 31 Cal. 4th at 648 (“language in a [policy] must be interpreted as a 5 whole”); State Farm Mut. Auto. Ins. Co. v. Mrozek, 29 Cal. App. 3d 113, 117 6 (1972) (a “contract should reasonably receive such interpretation as will make it 7 reasonable and avoid absurdities”). Immediately following Exclusion 4 in the 8 Policy is another exclusion (number 5) that relates to Exclusion 4 and makes it 9 clear that both exclusions are tied to loss causes by atomic, radioactive, or nuclear 10 force, whatever the source is: “Nuclear reaction or radiation, or radioactive 11 contamination from any other cause.” SUF ¶ 84 (Policy, General Conditions, 12 § III.5 (emphasis added)). Thus, Exclusion 4 precludes coverage for loss from any 13 “weapon of war” employing or using atomic fission or radioactive force, and 14 Exclusion 5 precludes coverage for loss “from any other cause” of nuclear or 15 radioactive nature. This is the only reasonable interpretation of the Exclusion. 16 Atlantic’s interpretation of Exclusion 4 also makes no grammatical sense. 17 The lack of a comma in the provision as written—a singular “weapon of war 18 including atomic fission or radioactive force”—means that, rather than an 19 exclusion providing “atomic fission or radioactive force” as examples of possible 20 weapon(s) of war, this exclusion must be read as a whole, without inserting a 21 nonexistent comma, so that “including” applies as a requirement in order to bring 22 the weapon of war within the exclusion. See Anderson v. State Farm Mut. Auto. 23 Ins., 270 Cal. App. 2d 346, 349 (1969) (declining to read a comma into a policy 24 term that could have changed its meaning in favor of the insurer); accord Shell Oil 25 Co. v. Nat’l Union Fire Ins. Co., 44 Cal. App. 4th 1633, 1641-42 (1996). 26 In other words, Atlantic’s interpretation only works by re-writing the 27 Exclusion to say “any weapon of war including [, but not limited to, weapons Mitchell Silberberg & Knupp LLP 28 employing or using] atomic fission or radioactive force.” That is not permitted. 23 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 29 of 30 Page ID #:4229 1 See Safeco, 26 Cal. 4th at 763-64 (“[T]he fundamental principle … in interpreting 2 contracts, including insurance contracts, [is] not to insert what has been omitted”). 3 Atlantic’s interpretation also makes no logical sense because neither “atomic 4 fission” nor “radioactive force” is, by itself, a “weapon.” Instead, “atomic fission” 5 and “radioactive force” are processes by which a nuclear reaction powering a 6 “weapon” can be created. See Encyclopædia Britannica Online, 7 https://www.britannica.com/technology/atomic-bomb (“Atomic bomb” is a 8 weapon powered by the “fission of the nuclei of such heavy elements as plutonium 9 or uranium”); U.S. Nuclear Regulatory Commission (“USNRC”), Glossary, 10 Glossary, Radioactivity, available at https://www.nrc.gov/reading-rm/basic11 ref/glossary/radioactivity.html.5 Indeed, these processes can be used for peaceful 12 purposes, such as generating electricity in atomic or nuclear plants. See USNRC, 13 Glossary, Atomic Energy, available at https://www.nrc.gov/reading-rm/basic14 ref/glossary/atomic-energy.html. Thus, the Exclusion for a “weapon of war 15 including atomic fission or radioactive force” can mean only one thing: a 16 “weapon” that uses or includes in that “weapon” either atomic fission or 17 radioactive force (e.g., an atomic bomb). 18 Atlantic’s interpretation of Exclusion 4 also notably contradicts the 19 interpretation offered by Atlantic’s own witness, Peter Williams, the former 20 President of One Beacon Entertainment who helped negotiate the Policy. Williams 21 testified that Exclusion 4 did not apply to the Claim because no weapons 22 employing atomic fission or radioactive force were used. SUF ¶ 85. 23 Finally, even assuming that Exclusion 4 covers any “weapon of war,” not 24 just weapons using atomic fission or radioactive force, the Exclusion still does not 25 apply here because Hamas did not use weapons of war. Instead, Hamas used 26 weapons of terror. Atlantic has conceded Hamas’ actions fall outside of 27 Mitchell Silberberg & Knupp LLP 5 The Court can take judicial notice of the Encyclopedia Brittannica and USNRC 28 definitions. See RJN filed concurrently herewith. 24 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT Case 2:16-cv-04435-PA-MRW Document 61-1 Filed 04/24/17 Page 30 of 30 Page ID #:4230 1 “established norms of warfare:” “the rockets are being fired into civilian areas, 2 which may violate established norms of warfare and armed conflict under 3 international law.” Id. ¶ 87. And indeed, they do: Hamas’ indiscriminate firings 4 of rockets that lack directional controls to ensure they are hitting military (and not 5 civilian) targets constitute acts of terrorism, and therefore those rockets cannot be 6 considered “weapon[s] of war.” See id. ¶ 88. In sum, Atlantic’s interpretation is unreasonable, impermissibly broad, and 7 8 in contravention of the coverage purchased, because it would lead to the absurd 9 result that losses caused by any type of shooting, bombing, or other violence on a 10 set would be excluded, so long as “a” weapon had been used. See MacKinnon, 31 11 Cal. 4th at 650 (rejecting insurer’s argument that broad interpretation of an 12 exclusion should apply, as it would result in absurdities and denial of coverage in 13 situations that reasonably should be covered). In contrast, Universal’s interpretation is reasonable and comports with a 14 15 grammatical reading of the language, and therefore Universal’s interpretation must 16 be applied as a matter of law. See Jacober, 10 Cal. 3d at 202-03 (court must find 17 coverage if there is any “reasonable interpretation under which recovery would be 18 permitted”). Thus, Exclusion 4 does not preclude coverage here. 19 V. CONCLUSION 20 Based on all of the foregoing, none of the War Exclusions apply here to 21 preclude coverage of the Claim, and Universal’s Motion should be granted. 22 Respectfully submitted, 23 DATED: April 24, 2017 MITCHELL SILBERBERG & KNUPP LLP 24 25 26 27 Mitchell Silberberg & Knupp LLP By: /s/ Lucia E. Coyoca Lucia E. Coyoca Attorneys for Plaintiffs Universal Cable Productions LLC and Northern Entertainment Productions LLC 28 25 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF UNIVERSAL’S MOTION FOR PARTIAL SUMMARY JUDGMENT