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Roc Nation’s Cooperation with HCC’s Investigation

HCC first argued that its denial was justified because Roc Nation obstructed HCC’s investigation into the claim. Roc Nation maintained that it had substantially complied and had only opposed requests for immaterial or irrelevant information related to revenue generated by artists who had migrated from CAM to Roc Nation after Feldstein’s death. Roc Nation’s position was that post death revenue was not causally connected to Feldstein’s management services.

Under New York law, failure to cooperate with an investigation of a claim constitutes a “material breach of the contract of insurance and is a defense to a suit by the insured on the Policy.” Evans v. Int’s Ins. Co., 168 A.D.2d 374, 374 (1st Dep’t 1990). An insurer invoking this defense faces a heavy burden, and must show “that the attitude of the insured, after [its] cooperation was sought, was one of willful and avowed obstruction.” Thrasher v. U.S. Liab. Ins. Co., 19 N.Y.2d 159, 278 (1967). Refusing to provide material and relevant information, absent a “reasonable excuse,” can qualify as “willful and avowed obstruction.” Rosenthal v. Prudential Prop. Cas. Co., 928 F.2d 493, 494-95 (quoting Bulzomi v. N.Y. Cent. Mut. Fire Ins. Co., 92 A.D.2d 878, 878 (2d Dep’t 1983); DeLuca v. RLI Ins. Co., 187 A.D.3d 709, 721 (2d Dep’t 2020).

The court concluded that HCC had not met its burden and that Roc Nation had substantially complied. HCC’s disagreement with Roc Nation as to the relevance of post death revenue information “did not make noncompliance on those grounds unreasonable.” Accordingly, the court denied HCC’s motion for summary judgment.

Interpreting the Policy

On the merits, the parties’ motions centered on two questions: (1) whether scrivener’s errors made in the 2017 Policy warranted reformation, and (2) how to properly calculate Roc Nation’s loss under the Policy.

The court’s decision on the merits reinforces the importance of clear drafting and consistent use of definitions in policies. Indeed, the court stated that the Policy was “far from a model of draftsmanship,” and the Policy’s conflicting and ambiguous terms were the main issues in dispute.

Reformation of the Policy

The 2016 and 2017 Policies differed with respect to the term “Direct Ascertained Net Loss,” which defined the amount HCC was required to pay on a claim. The 2016 Policy, referred to the “Direct Ascertained Net Loss” whereas the 2017 Policy referred to the “Direct Net Ascertained Loss,” transposing the words “Ascertained” and “Net.” Further confusing matters, the term in the 2017 Policy was not defined. HCC argued that the Policy should state “Direct Ascertained Net Loss,” as provided and defined in the 2016 Policy, rather than “Direct Net Ascertained Loss.” HCC also argued that the definition of Direct Ascertained Net Loss in the 2017 Policy should end with the term “Insured Person” (Feldstein) rather than just “Insured” (Roc Nation).

A party seeking reformation has to show by clear and convincing evidence a mutual mistake or fraudulently induced unilateral mistake. Imrie v. Ratto, 145 A.D.3d 1358, 1360 (3d Dep’t 2016). The court concluded that HCC presented sufficient evidence of mutual mistake and reformed the 2017 Policy to conform to the 2016 Policy. All evidence suggested that the parties had intended the 2017 Policy to be a renewal of the 2016 Policy and that the differences were due to typographical errors and not intended by the parties.

Analysis of the Policy’s Loss Calculation Terms

Under the Policy, HCC agreed to pay Roc Nation the Direct Ascertained Net Loss, which, once reformed, is defined as “loss under the Specific Contract [the Purchase Agreement] after subtracting all revenues and other value generated as the result of and/or during the time services were performed” by Feldstein. The crux of the parties’ dispute was whether the Policy allowed HCC to deduct revenue Roc Nation received from CAM, or artists who were formerly affiliated with CAM, after Feldstein’s death from the Policy limit. HCC argued that the definition of Direct Ascertained Net Loss unambiguously allowed such deductions. Roc Nation posited that the definition alone was unclear, but that, in light of the entire integrated insurance contract (including the Purchase Agreement), HCC could not be allowed to deduct revenue received after Feldstein’s death. The Court held largely with Roc Nation, concluding that even after reforming the Policy, the Policy language standing alone did not yield a clear, unambiguous meaning. When considered in light of the Purchase Agreement, the ambiguity disappears and reveals that Roc Nation’s interpretation was correct.

“Where Policy language is ambiguous, the ambiguities must be construed in favor of the insured and against the insurer.” See Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 600 F.3d 190, 201 (2d Cir. 2010). Contract terms are considered ambiguous if they are “capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages, and terminology as generally understood in the particular trade or business.” Olin Corp. v. Am. Home Assur. Co., 704 F.3d 89, 99 (2d Cir. 2012). When interpreting an insurance policy, a court should examine the language “from the vantage point of the reasonable expectation and purposes of the ordinary person.” Haber v. St. Paul Guardian Ins. Co., 137 F.3d 691, 695 (2d Cir. 1988). The court should also consider extrinsic evidence to determine the parties’ actual intent before resorting to the contra-insurer rule and resolving an ambiguity in favor of the insured. McCostis v. Home Ins. Co. of Ind., 31, F.3d 110, 113 (2d Cir. 1994).

HCC’s position was that the definition of Direct Ascertained Net Loss as reformed is unambiguous and allows for the deduction of post-death revenue attributable to CAM. HCC emphasized the use of the disjunctive “and/or” in the phrase “as the result of and/or during the time services were performed by [Feldstein]” to argue that revenue need only be causally related to Feldstein’s services to qualify for deduction. On the other hand, Roc Nation argued that the definition alone did not supply an unambiguous method for calculating their loss. In the Purchase Agreement between CAM and Roc Nation, which was incorporated by reference into the Policy, Feldstein and Roc Nation had agreed to obtain insurance that would, in the event of Feldstein’s death, allow Roc Nation to recover the purchase price for CAM minus any dividends already received.

The court was unpersuaded by HCC’s arguments that the definition was unambiguous. First, the court rejected HCC’s contention that the term “generated” was “without question forward looking” because the term is more naturally read to carry a retrospective meaning. Second, the court rejected HCC’s position that the use of “and/or” in the definition sets no temporal limit, but only requires that revenue be tied in some way to Feldstein and the time when he was alive and working. According to the court, reading the term “and/or” in this way causes two interpretative problems. First the term, “during the time” in the same clause suggests a temporal limit. HCC’s interpretation renders meaningless the phrase “during the time … services were performed” and thus conflicts with New York contract law which requires surplusage to be avoided were at all possible. See Olin Corp. v. OneBeacon Am. Ins. Co., 864. F3d 130, 143 (2d Cir. 2017). Second, even if the definition of Direct Ascertained Net Loss was not subject to temporal limitations, HCC’s suggestion that “the Policy requires subtraction of all post-death revenue that Roc Nation received from CAM” contravenes the Policy’s causal limits which require that revenue subject to deduction from a claim amount be tied to Feldstein in some way.

Additionally, the court rejected HCC’s arguments that the Policy’s mitigation requirement would be meaningless if Roc Nation’s loss was defined to exclude only revenue generated prior to Feldstein’s death. At the time of Feldstein’s death, services rendered while alive would have generated actual revenue that had not yet been distributed to Roc Nation. The mitigation clause obligated Roc Nation to seek out such revenue instead of abandoning its efforts knowing that HCC would compensate it for those sums.

The court also rejected HCC’s argument that Roc Nation might secure a windfall from the Policy. Roc Nation paid to have its investment insured against the possibility that Feldstein would become unable to work. At the moment of Feldstein’s death, the impact of his passing on Roc Nation was unknown and the Policy assured Roc Nation that it would at least recoup its investment in CAM. The fact that Roc Nation was able to salvage some of the relationships with CAM artists “does not make its receipt of insurance coverage aimed at avoiding a loss on the money it spent to purchase its interest in CAM and unearned windfall.”

The court concluded that the definition of Direct Ascertained Net Loss was ambiguous. However, the Purchase Agreement, which was expressly incorporated into the Policy, provided a clear approach for calculating Roc Nation’s Loss. In it, Roc Nation and Feldstein agreed to obtain insurance that would cover “the aggregate purchase price paid at such Closing less any Recouped Purchase Price as of such date.” The Recouped Purchase Price was then defined as the “amount of distributions actually paid to Roc Nation by CAM.” After considering this language in the Purchase Agreement, the Court held that because the Policy provided for the subtraction of amounts “generated” by the date of Feldstein’s death, revenue (generated before death but not yet in the possession of Roc Nation) should be deducted from Roc Nation’s loss. The same is not true for revenue generated after Feldstein’s death because the Policy, when considered in connection with the Purchase Agreement, was not intended to exclude revenue traceable to Feldstein’s former clients generated after he died.

The court granted Roc Nation’s motion for partial summary judgment subject only to the limitation that it could not deduct pre-death revenue that was not yet collected from its loss. The Policy required HCC to pay Roc Nation its Direct Ascertained Net Loss, which is $12,529,222 minus any revenue generated by Feldstein while he was alive and performing services. After the court’s ruling, the parties reported to the court that they were attempting to reach a settlement.

Elliott A. Hallak is a member in Harris Beach, PLLC’s Albany, New York office. Elliot is a member of the firm’s Management Committee and co-leader of the firm’s Commercial Class Actions and Regional Financial Institutions teams. Elliot focuses his practice on a wide range of business and commercial litigation, including class action defense, business disputes and torts, financial institution litigation, insurance defense, and life insurance litigation.

Daniel LeCours is an associate in Harris Beach, PLLC’s Albany and Saratoga Springs, New York offices. Daniel is a member of the firm’s Business and Commercial Litigation Practice Group and focuses his practice on a wide range of litigation matters, including class action defense, business disputes and torts, financial institution litigation, construction litigation, insurance defense, and appellate practice.

Alexandra Douglass, is a law clerk at Harris Beach PLLC

Secondly, the mother had signed onto the instant motion on behalf of the minor, but because the mother was not herself an attorney, her signature agreeing to the motion was a nullity. Where a guardian of a minor is not an attorney, the guardian must be represented by an attorney to conduct the litigation, and where no party raises the issue of the minor’s representation, the court is required to raise the issue sua sponte.

Therefore, the court dismissed the motion without prejudice because the court lacked jurisdiction over the minor in the first instance and because the minor was not represented by an attorney in the instant motion.

Attorney misconduct – claimant’s attorneys who bribed a key witness to change his position violated N.Y. Judiciary Law §487 which imposes civil liability for treble damages for participating in a fraud on the court or another party. United States Life Ins. Co. v. Horowitz, 2021 N.Y. Slip Op. 01877, 2021 WL 1132847 (1st Dep't Mar. 25, 2021).

Defendants law firm and its partners (“Defendant Attorneys”) were required to defend against plaintiff life insurer’s claim against them under New York Judiciary Law §487, which imposes, in pertinent part, civil liability for treble damages on attorneys who commit or consent to the commission of deceit and collusion on the court or any party. The motion court dismissed the fraudulent-inducement causes of action against them because the Life Insurer unreasonably relied on a bribed witness’s reversal of his previous sworn statement but kept alive the cause of action against the Defendant Attorney for violating Judiciary Law §487 which ruling was affirmed on appeal.

The motion court’s opinion in United States Life Ins. Co. in the City of N.Y. v. Horowitz (Sup. Ct. N.Y. Co. 2020) provides the facts. Plaintiff Life Insurer had issued a $3,000,000 term life insurance policy on the life of one Ricky Nicholas (“Ostensible Insured”) based on a fraudulent application which represented that the Ostensible Insured earned $459,000 a year, had a net worth of $1,500,000, and was in “grt health” [sic]. Unbeknownst to the Life Insurer, someone other than the Ostensible Insured sat for the paramedic examination. The Life Insurer subsequently honored fraudulent requests to change the beneficiary and the owner of the policy to defendant Goldberg, who was the apparent mastermind of this scheme.

The Ostensible Insured died after the contestable period, and two years after that, Goldberg filed a claim for the policy proceeds along with the death certificate for the Ostensible Insured. The Life Insurer interviewed the son of the Ostensible Insured who stated that the Ostensible Insured had not completed or signed the application, had not sat for the paramedical exam, had had a heart surgery shortly before the date of the application, had not requested or signed the changes in ownership and beneficiary, and had never made more than $30,000 per year. The Life Insurer denied Goldberg’s claim.

Goldberg, represented by Defendant Attorneys, sued the Life Insurer for the policy proceeds. Goldberg then orchestrated a substantial bribe to the son of the Ostensible Insured which was paid through Defendant Attorneys. Shortly thereafter, the son of the Ostensible Insured made a video in which the son contradicted everything he had previously stated to the Life Insurer. Goldberg sent the video to the Life Insurer. With no further investigation into or discovery related to the son’s unexplained reversal of his position, the Life Insurer settled Goldberg’s claim and sued Goldberg and the Defendant Attorneys alleging three causes of action against all defendants for fraudulently inducing the Life Insurer to settle with Goldberg based on the bribe to the son and one cause of action against the Defendant Attorneys under Judiciary Law §487 for participating in bribing the son. All defendants moved to dismiss the complaint.

The motion court held that the terms of the release did not bar the Life Insurer’s fraudulent-inducement claims but that the fraudulent-inducement claims nevertheless failed because the Life Insurer had unreasonably relied on the bribed video. The motion court, however, upheld the Judiciary Law §487 claim against the Defendant Attorneys. Defendant Attorneys appealed that ruling which the Appellate Division affirmed, holding that Judiciary Law §487 requires only that Defendant Attorneys have committed a fraud but does not require the injured party to have relied on it.

Eileen E. Buholtz is a member of Connors, Corcoran & Buholtz, PLLC. She concentrates her practice in general-liability and personal-lines insurance defense cases and in estate litigation in New York. She wrote the chapter “Ethical Considerations” in the treatise Preparing for and Trying the Civil Lawsuit published by the New York State Bar Association. She chairs the Insurance Coverage Committee of the Torts, Insurance, and Compensation Law Section of the New York State Bar Association.

Illustrations Provided with Life Insurance Policies

211 CMR 28 is a regulation regarding illustrations which must be provided to potential life insurance customers. The Code discusses which policies should be illustrated, what the illustrations must contain and may not contain, who the illustrations must be provided to, and various rules regarding marketing of the illustrations for certain the life insurance policies. It further discusses the standards for the formatting of the illustrations, and explains that a narrative summary and a numeric summary must be included within the illustration. See, e.g.,211 CMR 28.07. The Code also delineates the provisions for delivery of the illustrations as well as record retention requirements. It further includes instructions regarding the annual report, and delivery to certain policyholders, and the required illustration contents. 211 CMR 28.11 delineates the various annual certifications, and delivery of information about them to the Commissioner of the Division of Insurance.

For this article, the most pertinent section of this Code is 211 CMR 28.12: “Penalties.” This section states, “In addition to any other penalties provided by the laws of this state, an insurer or insurance producer that violates a requirement of 211 CMR 28.00 shall be guilty of a violation of the provisions of M.G.L. 176D.” (The verbiage “guilty” here suggests criminal liability, but MGL 176D generally is a civil statute where a violation can result in the Commissioner issuing cease and desist orders, fines, etc. See M.G.L. c. 175, §§5 & 10.  Criminal prosecution can result from perjury in a Commissioner’s investigation. Id. §13.)

Buyer’s Guide and Policy Summary Requirements for Life Insurance

211 CMR 31.00 concerns solicitation of life insurance policies. It contains a number of requirements associated with any solicitation, negotiation, or procurement of certain life insurance products occurring within Massachusetts; some insurance areas are excluded. 211CMR 31.03. Among other terms, for example, it mandates that an insurer shall provide a Buyer’s Guide to all prospective purchasers prior to accepting the applicant’s initial premium or premium deposit. 211 CMR 31.05 (1)(a).

Additionally, the insurer is required to provide a policy summary to prospective purchasers where the insurer has identified the policy form as one that will not be marketed with an illustration. There are certain requirements as to what the policy summary must contain as well.

There are also obligations for existing policies. See 211 CMR 31.05 (2). If a policy owner requests it, the insurer is required to furnish either policy data or an in force illustration. 211 CMR 31.08 states that “failure of an insurer to provide or deliver a Buyer’s Guide, an in force illustration, a policy summary or policy data as provided in 211 CMR 31.05 shall constitute an omission which misrepresents the benefits, advantages, conditions or terms of an insurance policy.” This, in turn, makes it a violation of MGL Chapter 176D, Section (3)(1)(a).

Form and Contents of Individual Accident and Sickness Insurance

211 CMR 42.00 regulates the form and contents of individual accident and sickness insurance. It includes requirements for disclosure, policy applications, policy types, replacements, and disclosures, among other areas. Importantly, Section 42.09 (2) states that “Any rider or endorsement forms used to reduce or eliminate coverage at date of policy issue shall be ineffective without signed acceptance by the policyholder.” (emphasis added).

This Code, notably, has no express penalties for failure to comply with its provisions. Even so, complications can arise. For example, a plaintiff’s lawyer can easily cite to lack of signature to a rider, which can arguably negate a rider that eliminates or reduces coverage.

Danger of Multiple Damages and License Suspension

Pursuant to Chapter 176D, a company can be subject to punitive damages up to 25 percent of the total amount of compensatory damages, a fine of $1,000 for each violation, and a cease and desist order. See Mass. Gen. Laws Chapter 176D, §7. Additionally, a license may be suspended, or in the case of repeated violations, revoked altogether. Id. Furthermore, MGL Chapter 93A(9) states that if a company violates clause (9) of section three of Chapter 176D, it could subject the company to the multiple damages and attorney’s fees provided under Chapter 93A, Section (9). Those statutes work hand in hand.

The Good News

Liability Is Not Automatic for a Violation

Even though some of the above Codes provide damages for violating them, this does not give automatic rise to liability under Chapters 176D or 93A. Not every violation of a statute automatically constitutes an automatic violation of Chapter 93A. Berenson v. National Financial Services, LLC, 403 F. Supp.2d 133, 148–49 (D. Mass. 2005). If a company denies a claim, and a court finds that the company is incorrect, there is no per se violation of Chapter 93A. “Liability under c.176D and 93A does not attach merely because an insurer concludes that it has no liability under an insurance policy and that conclusion is ultimately determined to have been erroneous.” Pediatricians, Inc. v. Provident Life & Accident Insurance Company, 965 F.2d 1164, 1173 (1st Cir. 1992); 429 F.Supp.2d 202, 207 (D. Mass. 2006); Guity v. Commerce Ins. Co., 36 Mass.App.Ct. 339, 343 (1994).

Infallibility Is Not Required

Clerical errors by insurance companies do not, by themselves, constitute a violation of Chapter 93A. See Salisbury v. Monumental Life Insurance Company, 1 F. Supp.2d 97, 103 (D. Mass. 1998). Infallibility is not required: “So long as it acts in good faith, the insurer is not held to standards of omniscience or perfection; it has leeway to use, and should consistently employ, its honest business judgment.” Peckham v. Continental Casualty Ins. Co., 895 F.2d. 830, 835 (1st Cir. 1990). “Under Massachusetts law, the denial of a claim under an insurance policy, following an inadequate claims investigation, would not warrant liability unless the claimant were harmed by that investigation.” Gurnack v. John Hancock Mutual Life Insurance Co., 406 Mass. 748, 753 n. 5 (1990). Even where an insurer’s handling of a claim “was offhand, not studied as it should have been in the light of the decisional law” there is no automatic violation of Chapter 93A. Shamban v. Worcester Insurance Company, 47 Mass. App. Ct. 10, 16 (1999).

In fact, even if a company acts in an unprofessional manner, “rude or unseemly” actions do “not serve as a predicate for a bad faith claim.” See Ryan v. Royal Insurance Company of America, 916 F.2d 731, 744 (1st Cir. 1990). Furthermore, there is no violation of Chapter 93A with “mere negligence,” even where a company “blundered badly in its reading of the legal landscape” or even if a company misreads its own policy. Boyle v. Zurich American Insurance Company, 472 Mass. 469, 662 (2015). In fact, a violation of Chapter 93A involving multiple damages requires “conduct involving dishonesty, fraud, deceit or misrepresentation” which is “willful or knowing.” Id. It has been held that bad faith is ‘not simply bad judgment.’ It is not merely negligence. It imports a dishonest purpose or some moral obliquity. It implies conscious doing of wrong. It means a breach of a known duty through some motive of interest or ill will.” Parker v. D’Avolio, 40 Mass.App.Ct. 394, 402–03 (1996).

An Insurance Company Can Investigate with a Goal of Denying a Claim

Simply launching an investigation to determine if the company should deny benefits is similarly not a violation of Chapter 93A. As one court stated, “The fact that Unum may have looked for reasons to terminate Kamerer's benefits is not evidence of bias or unfair claims processing. Seeking a reason to deny or terminate benefits is just the sort of behavior that would be rationally expected of an insurance carrier with a legitimate interest in limiting its costs to those required under its various policies. This also serves a legitimate public interest in minimizing fraud, and helps to ensure a fair and economical insurance marketplace in which overall costs (which are, after all, incurred by the insureds in the long run) are held down.” Kamerer v. Unum Life Ins. Co. of Am., 251 F. Supp. 3d 349, 352-353 (D. Mass. 2017). In other words, there is nothing sinister or inherently inappropriate about simply looking to see if a claim should be denied.

Violation of a Code Must Result in Damages

Furthermore, even if a company does violate one of the Codes that include a damages provision, to support a violation of Chapter 93A, a claimant must show that the claimant suffered damages to recover. Lord v. Commercial Union Ins. Co., 60 Mass. App. Ct. 309, 321 (2004). The claimant must be adversely affected by the violation. Van Dyke v. St. Paul Fire & Marine Ins. Co., 388 Mass. 671, 678 (1983). Therefore, forgetting to provide an illustration or otherwise forgetting a piece of information will not automatically result in a viable claim resulting in double or treble damages, as the individual must first prove that they were adversely affected in a manner that resulted in damages. In other words, even though it suggests an automatic violation, there actually may be no recovery if no damages were sustained.

Conclusion

Given above caselaw, it is unlikely that, by themselves, Code violations will result in an award of damages. Of course, in addition to private lawsuits, the Division of Insurance may intervene for these violations and order a correction and perhaps a fine. Ultimately, however, being aware of them and complying with them will help avoid encouraging plaintiffs’ lawyers from unduly relying on them and advising their clients that there are solid grounds to pursue meritless or weak claims under the Massachusetts Consumer Protection Act.

Stephen A. Roach is the founder and manager of Roach, Ioannidis & Megaloudis, LLC in Boston. For over 32 years, he has been representing life, health and disability insurance companies in all Massachusetts federal and state courts and is a long-time DRI member. He concentrates exclusively in civil litigation and is admitted to practice before the U.S. Supreme Court. For four years he was the chair of the Insurance Committee of the Massachusetts Bar Association, and for 26 years has been appointed to continue to serve on the Committee.