Roc Nation LLC v. HCC International Insurance Company, PLC

Background

Roc Nation acquired part of Career Artist Management (CAM) from Jordan Feldstein in 2016. The purchase agreement required Roc Nation and Feldstein to obtain insurance protecting Roc Nation’s investment if Feldstein died or became disabled. HCC issued a 2016 policy and then a renewed policy effective December 15, 2017. Feldstein died on December 22, 2017.

The renewed policy provided coverage up to $12,529,222 for Roc Nation’s “Direct Ascertained Net Loss.” The policy defined that loss as the amount Roc Nation owed or lost under the purchase agreement after subtracting revenue and other value generated as a result of, or during the time of, Feldstein’s services. The policy also incorporated the purchase agreement, which described the intended insurance amount as the purchase price paid for Feldstein’s CAM shares minus amounts actually distributed to Roc Nation by CAM.

HCC investigated Roc Nation’s claim and paid $1,176,595 as an undisputed amount, but later denied the claim in full. HCC argued that Roc Nation had not cooperated with the investigation and that the policy required deductions for all later revenue traceable in any way to CAM or Feldstein. HCC identified, among other things, revenue from artists who moved from CAM to Roc Nation and money connected to a termination agreement involving artists who left CAM and did not move to Roc Nation. Roc Nation argued that it had substantially cooperated and that the policy required deductions only for amounts it had received from CAM, or amounts generated before Feldstein’s death.

Motions and issues

Both parties moved for summary judgment, which asks whether the undisputed evidence requires judgment as a matter of law without a trial. HCC sought summary judgment on its noncooperation defense and on its interpretation of the policy. Roc Nation sought partial summary judgment on those issues.

The court considered two principal questions:

1. Whether Roc Nation’s responses to HCC’s investigation were so inadequate that its insurance claim was barred. 2. How the policy calculated Roc Nation’s covered loss, including whether post-death revenue had to be deducted.

Cooperation with the investigation

Under New York law, an insurer asserting noncooperation must show that it diligently sought the insured’s cooperation, used reasonable efforts to obtain it, and that the insured willfully and openly obstructed the investigation. The court explained that substantial compliance satisfies the insured’s cooperation duty, although an insured cannot simply choose which relevant information to provide.

The court held that Roc Nation complied with the overwhelming majority of HCC’s requests. Roc Nation provided financial statements, balance sheets, ledger information, distribution records, lists of artists, revenue forecasts, revenue breakdowns, and the termination agreement after obtaining permission to disclose it. Of 53 requests or questions, HCC conceded that Roc Nation satisfied all but seven. For six of the remaining requests, Roc Nation objected that the information was irrelevant under its reasonable interpretation of the policy; for another, it said the supporting data could not be located after the person who prepared the analysis left Roc Nation.

The court found Roc Nation’s cooperation imperfect but concluded that HCC did not meet its heavy burden of showing willful and unexcused obstruction. The court also rejected HCC’s argument concerning information from Feldstein’s estate, finding that HCC’s evidence was inadmissible hearsay and did not show that Roc Nation had obstructed the investigation.

Reformation of the policy

HCC sought reformation, meaning correction of a written contract to reflect the parties’ actual agreement, for two wording differences between the 2016 and 2017 policies. HCC asked the court to replace “Direct Net Ascertained loss” with “Direct Ascertained Net Loss” and to replace “Insured” with “Insured Person” at the end of the loss definition.

The court granted HCC’s requested correction in interpreting the policy. It found clear and convincing evidence of a mutual mistake: both parties intended the 2017 policy to renew the 2016 policy on the same substantive terms, the wording differences were attributable to copying and ordering errors, and the policy elsewhere used the corrected terminology.

Meaning of the coverage

The court rejected HCC’s contention that the policy unambiguously required deduction of every later payment connected in any way to CAM or Feldstein. The court found the loss definition ambiguous when read alone. In particular, the words “generated” and “and/or,” along with the phrase “during the time services were performed,” did not clearly establish that all post-death revenue had to be deducted.

The court read the policy together with the incorporated purchase agreement. That agreement focused on protecting Roc Nation’s investment in CAM, reduced by amounts actually distributed to Roc Nation at the time of Feldstein’s death. The court held that this integrated agreement supported Roc Nation’s interpretation that future-generated revenue generally did not reduce its covered loss.

The court adopted one limitation to Roc Nation’s position. Amounts generated by Feldstein while he was alive and performing services could be deducted even if they had not yet been paid to Roc Nation by December 22, 2017. By contrast, revenue generated after Feldstein’s death—including revenue from artists who continued working with Roc Nation after his death and revenue from the termination agreement—could not offset Roc Nation’s recovery under the policy.

Disposition

The court granted Roc Nation’s motion for partial summary judgment and denied HCC’s motion for summary judgment. The court held that the policy required HCC to pay Roc Nation’s Direct Ascertained Net Loss, meaning the $12,529,222 policy amount less amounts generated by Feldstein while he was alive and performing services. The court directed the parties to submit a joint letter about the next steps and directed the clerk to terminate the two pending motions.