Roc Nation LLC v. HCC Int'l Ins. Co.

• Decision Date: 04 March 2021
• Docket Number: 19 Civ. 554 (PAE)
• Citation: 523 F.Supp.3d 539
• Parties: ROC NATION LLC, Plaintiff and Counterclaim Defendant, v. HCC INTERNATIONAL INSURANCE COMPANY, PLC, Defendant and Counterclaim Plaintiff.
• Court: U.S. District Court — Southern District of New York

523 F.Supp.3d 539

ROC NATION LLC, Plaintiff and CounterclaimDefendant,

v.HCC INTERNATIONAL INSURANCE COMPANY, PLC, Defendant and CounterclaimPlaintiff.

19 Civ. 554 (PAE)

United States District Court, S.D. New York.

Signed March 4, 2021

Casey Devin Laffey, Christopher Paul Hoffman, Reed Smith LLP, New York, NY, Richard C. Giller, Pillsbury Winthrop Shaw Pittman LLP, Amber S. Finch, Reed Smith LLP, Los Angeles, CA, for Plaintiff and Counterclaim Defendant.

George J. Vogrin, Jr., Matthew Ellis Rayburn, Michael J. Frimet, Walter Dimas Santiago, Jr., Vogrin & Frimet, LLP, New York, NY, for Defendant and Counterclaim Plaintiff.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

This case is an insurance dispute between Roc Nation LLC("Roc Nation") and its insurer, HCC International Insurance Company, PLC("HCC").In 2016, Roc Nation acquired part of a talent-management agency, Career Artist Management ("CAM"), from Jordan Feldstein.Feldstein was CAM's founder and—largely through his representation of the band Maroon 5 and its lead singer, Adam Levine—its principal business generator.Given Feldstein's centrality to CAM, he and Roc Nation agreed, in the contract governing Roc Nation's partial acquisition of CAM, to obtain insurance protecting Roc Nation's investment should Feldstein die or become disabled.Roc Nation obtained such insurance from HCC, first in 2016, and then in a renewed policy, late in 2017.

Soon after the second policy went into effect, Feldstein died.HCC then engaged in a long investigation of Roc Nation's claim under the policy, during which time it paid out a small portion of what Roc Nation claimed it was due.In the end, however, the parties were far apart in how to interpret the policy terms bearing on Roc Nation's claim, and HCC denied the vast majority of that claim.This litigation ensued.

After lengthy and contentious discovery, Roc Nation and HCC now both move for summary judgment, as to two aspects of their dispute.

First, HCC argues that Roc Nation is precluded from any recovery because Roc Nation failed to cooperate with HCC's investigation of its claim.Roc Nation disagrees, arguing that the record shows it substantially complied with that investigation.

Second, the parties cross-move as to the construction of the central policy language.HCC argues that, after reforming the policy to cure "scrivener's errors," it unambiguously requires any payment to Roc Nation to be reduced by all future profits Roc Nation might secure that are in any way traceable to CAM or Feldstein's services.Those, according to HCC, include (1) sums generated after Feldstein's death by artists that left CAM to be managed by Roc Nation; and (2) sums Roc Nation received under a separate "termination agreement" with other artists who left CAM and did not transition to Roc Nation.Roc Nation opposes reformation of the contract.And it argues that—with or without HCC's proposed revisions—the policy supports that Roc Nation is entitled to recover from HCC its full investment in CAM, reduced only by dividends it had actually received from CAM by the time Feldstein died.

For the following reasons, the Court denies HCC's motion for summary judgment and grants Roc Nation's motion for partial summary judgment.HCC has not carried its burden of showing that Roc Nation's lack of cooperation requires preclusion of its claim, and Roc Nation's interpretation of the Policy—subject to a narrow limitation—is correct.

I.Background

A.Factual Background¹

1.The Parties

Roc Nation is a Delaware limited liability company with its principal place of business in New York and an office in California.FAC ¶ 6.All its members are citizens of Delaware, New York, New Jersey, or California.Id.It is a subsidiary of Live Nation Entertainment, Inc.("Live Nation").Counterclaim¶ 3.

HCC is a property and casualty insurance company domiciled in the United Kingdom.FAC ¶ 8.Between 2016 and 2018, it provided insurance coverage to Roc Nation under a "Critical Asset Protection Insurance" policy.JSF App'x, Ex. 37("Policy").

2.Jordan Feldstein and CAM

CAM is a talent-management company founded by Jordan Feldstein.JSF ¶ 1.Feldstein was an artist manager and represented various musical acts through CAM.Id.Among these were Maroon 5 and its lead singer, Adam Levine, a childhood friend of Feldstein's.Id.¶ 2.Feldstein had represented both Maroon 5 and Levine since the band's inception, but never had a written agreement with either act.Id.¶¶ 2–3.Maroon 5 and Levine were, by far, CAM's most successful acts, generating the vast majority of CAM's annual revenue.Id.¶ 4.

3.The Purchase Agreement

In April 2016, Feldstein approached Roc Nation about Roc Nation's potential investment in CAM.Id.¶ 5.Feldstein offered Roc Nation his shares of CAM in exchange for $22 million, based on projections that CAM would generate $44 million during the next five years.Id.¶¶ 5–7.

On September 14, 2016, Feldstein agreed to sell his 49% ownership interest in CAM to Roc Nation in increments over the next several years.Id.¶ 8;seeJSF App'x, Ex. 7("Purchase Agreement").At the time of signing, Feldstein sold his 32.667% vested interest in CAM to Roc Nation for $14,614,399.JSF ¶ 8.The Purchase Agreement provided Roc Nation with the option to buy Feldstein's remaining 16.33% share in CAM, subject to certain conditions, for two later installments of $5,307,210 and $1,999,766.Id.¶ 9;Purchase Agreement§ 2.1(b)(ii), (c)(i).

The Purchase Agreement also required Feldstein to work with Roc Nation to obtain a "key man insurance policy payable to [Roc Nation] upon the death or disability of [Feldstein] in an amount not less than the aggregate purchase price paid at such Closing less any Recouped Purchase Price as of such date."Purchase Agreement§ 5.2.It defined "Recouped Purchase Price" as the "amount of distributions actually paid to [Roc Nation] by [CAM] in accordance with the Restated Operating Agreement with respect to the membership interests acquired pursuant to this Agreement."Id.§ 1.1;seeJSF App'x, Ex. 9("Restated Operating Agreement")§ 7.1.1(requiring CAM to disburse distributions to its shareholders, such as CAM, annually).

4.The 2016 Policy

In August 2016, Roc Nation approached its retail insurance broker, Hal Blackman, to insure the lives of both Feldstein and Levine.JSF ¶ 12.Blackman sought to obtain a "key man life insurance" policy for Feldstein through a wholesale insurance broker, but failed.Id.¶¶ 13–14.Blackman testified that he was unable to obtain an "off the rack" life-insurance policy given Feldstein's medical history.HCC 56.1 ¶ 6.Blackman then sought out "alternative markets" through Alive Risk, another wholesale insurance broker, which in turn contacted Bretton Woods, a London market broker, to seek a quote for coverage.HCC 56.1 ¶ 7;JSF ¶ 15.Bretton Woods obtained a quote from HCC. JSF ¶ 15.On September 14, 2016, HCC bound policy slips for two insurance policies issued to Roc Nation: one for Feldstein and one for Levine.Id.¶ 16;seeJSF App'x, Ex. 13("2016 Policy").

The 2016 Policy, which covered Feldstein, was termed "Critical Asset Protection Insurance."See2016 Policy.It provided the following "Cover" from September 14, 2016, through September 14, 2017:

The Insurer will pay the Direct Ascertained Net Loss , up to the Limit of Indemnity , suffered by the Insured directly resulting from the non performance of the insured contract due to the Insured Person's Failure to Survive during the Period of Insurance .

In no event shall the Insurer be liable to pay more than the Limit of Indemnity .

Id. at 8.The "Limit of Indemnity" was $14.5 million, slightly less than Roc Nation's investment in CAM at that point.Id. at 2.And "Direct Ascertained Net Loss" was defined as

the amount remaining that the Insured is obliged to pay to satisfy [its] financial obligation or incurs as a loss under the insured contract after subtracting all revenue and other value generated as the result of and/or during the time services were performed by the Insured Person .

Id. at 7."Insured Person" meant Feldstein, while "Insured" referred to Roc Nation.Id. at 2.

On October 7, 2016, HCC received a copy of the Purchase Agreement and Restated Operating Agreement.JSF ¶ 18.The same day, HCC's underwriter, David Keoshgerian, reviewed those documents and discussed them with Philip Hall, the Managing Director of the Tokio Marine HCC Specialty Group ("TMHCC").Id.¶¶ 19–20.After noting he had reviewed the Purchase Agreement "in some detail," Hall stated, "[u]ltimately it seems clear to me that we are covering the limit as stipulated within Section 5.2(Key Man Insurance) being ‘the aggregate purchase price paid at such closing less any Recouped Purchase Price as of such date’, being a maximum of $14.5m within the policy."Id.¶ 20.But, he noted, he could not find a definition for "Recouped Purchase Price," and asked for clarification given that "it's really important to button down this element at inception, rather than getting into a muddle at point of loss."Id.

5.The Policy

On September 14, 2017, the 2016 Policy expired.On October 3, 2017, Blackman emailed Alive Risk asking if the policy had been renewed, and was told that it had not been.Id.¶ 24.He then asked Alive Risk to explore renewal.Id.The next day, Bretton Woods wrote to Keoshgerian at HCC about renewing the 2016 Policy.Id.¶ 25.Keoshgerian requested justification for the sum insured, noting that he wasn't sure it "was ever nailed down" in 2016. Id.¶ 26.

On December 5, 2017, Bretton Woods responded, seeking "the same coverage as last year if possible," and noting that Roc Nation knew that HCC needed justification for the $14.5 million sum insured.Id.¶ 27;JSF App'x, Ex. 21at 8–9.

On December 6, 2017, Roc Nation clarified to Blackman that, instead of the $14.5 million limit from the 2016 Policy, it now sought only $12,529,922 in coverage, but that it would likely "need to increase the...