                 FOR PUBLICATION

   UNITED STATES COURT OF APPEALS
        FOR THE NINTH CIRCUIT


UNIVERSAL CABLE PRODUCTIONS,                 No.17-56672
LLC, a Delaware limited liability
company; NORTHERN                              D.C. No.
ENTERTAINMENT PRODUCTIONS,                 2:16 cv-04435 PA
LLC, a Delaware limited liability
company,
            Plaintiffs-Appellants,            OPINION

                v.

ATLANTIC SPECIALTY INSURANCE
COMPANY, a New York insurance
company,
            Defendant-Appellee.


       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 – whether Hamas’ 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, ordinary meaning – when that specialized
meaning has been developed from customary usage 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 8.3 Israel responded by launching a
campaign against Hamas, called “Operation Protective Edge.”

    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
security of 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. Lopez-
Valenzuela 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 proferentem provides
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.6 See 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 they may 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 quasi-
sovereign 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 essentially like 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 they may 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 ordinary meaning 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
CERCLA8 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 – whether Hamas’ 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.
