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FILED: NEW YORK COUNTY CLERK 02/27/2018 04:10 PM INDEX NO. 650532/2018
NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 02/27/2018
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
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BEAZLEY INSURANCE COMPANY, INC. :
:
Plaintiff, : Index No. 650532/2018
:
-against- : FIRST AMENDED
: VERIFIED COMPLAINT
TAKE-TWO INTERACTIVE SOFTWARE, :
INC. :
:
Defendant. :
:
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Beazley Insurance Company, Inc. ("Beazley"), as and for its First Amended Verified
("
Complaint against Defendant Take-Two Interactive Software, Inc. ("Take-Two"), based on
information and belief herein alleges:
NATURE OF THE ACTION
1. This action concerns an actual controversy between Beazley and Take-Two
regarding a contract of directors, officers and company liability insurance between Beazley and
1
Take-Two.
PARTIES, JURISDICTION, AND VENUE
2. Plaintiff Beazley, a Connecticut corporation with its principal place of business
located at 30 Batterson Park Road, Farmington, Connecticut 06032, is an insurance company and
issued the policy at issue in this case, Policy No. V121F3140301.
3. Defendant Take-Two is a publisher, developer, and distributor of video games,
including the Grand Theft Auto franchise. Take-Two is a Delaware corporation, with its
1 herein retain definition in
Capitalizedterms, not otherwise defined are intended to the found thePolicy.
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principal place of business at 622 Broadway, New York, New York 10012. Take-Two regularly
transacts business in the State of New York.
4. Rockstar Games, Inc. ("Rockstar") is a wholly-owned subsidiary of Take-Two,
with itsprincipal place of business located at 622 Broadway, New York, New York 10012.
North" Take-
5. Rockstar North, Ltd. ("Rockstar North") is a wholly-owned subsidiary of
Two, with its principal place of business located at 1 Greenside Row, Edinburgh, Scotland,
United Kingdom.
6. Upon information and belief, Leslie Benzies ("Benzies") is a citizen of the United
Kingdom and formerly served as President of Rockstar North.
7. Upon information and belief, Sam Houser is an individual residing in New York
State, and currently serves as President of Rockstar, with his place of business at Rockstar
located at 622 Broadway, New York, New York 10012.
8. Upon information and belief, Dan Houser is an individual residing in New York
State, and currently serves as Vice President of Creativity of Rockstar, with his place of business
at Rockstar located at 622 Broadway, New York, New York 10012.
9. This Court has jurisdiction over Take-Two pursuant to CPLR § 302, because
Take-Two regularly transacts business in the State of New York.
10. Venue is proper pursuant to CPLR § 503, because at least one of the parties in to
this action resides in the County of New York at the time this action was commenced.
INSURANCE POLICY ALLEGATIONS
11. Beazley issued Directors, Officers and Company Liability Insurance Policy
number V121F3140301 to Take-Two, reflecting a Claims first-made Policy Period of June 1,
"Policy"
2014 to June 1, 2015 (the "Policy").
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Company"
12. Take-Two is listed as the "Parent under the Policy. The Policy
provides coverage, subject to the terms therein, for the Parent Company, its Subsidiaries, and its
Directors and Officers (all,as defined in the Policy).
13. The Policy is a renewal of Policy Number V121F3130301, also issued by
Beazley, reflecting a Claims first-made Policy Period of June 1, 2013 to June 1, 2014.
14. Beazley also issued a renewal of the Policy, Policy Number V121F3150401,
reflecting a Claims first-made Policy Period of June 1, 2015 to June 1, 2016.
15. Rockstar is a Subsidiary, as defined by the Policy.
16. Rockstar North is a Subsidiary, as defined by the Policy.
17. Sam Houser and Dan Houser (collectively, the "Housers") are Directors and
Officers as defined by the Policy.
18. The Policy reflects an applicable $10,000,000 per Claim Limit of Liability and a
Retention of $5,000 for each claim under Insuring Clause I.A., $50,000 in the aggregate under
the same clause, $5 million retention for each Claim other than a Securities Claim under Insuring
Clause I.B., as well as $5 million retention for each Securities Claim under Insuring Clauses I.B.
and I.C. There is no applicable retention for Claims under Insuring Clause I.D. or I.E.
19. Insuring Clause B of the Policy, as amended by the New York Free Trade Zone
Amendatory Endorsement, provides:
The Insurer shall pay on behalf of the Company all Loss which the Company is
required or permitted to pay as indemnification to any of the Directors and Officers
resulting from any Claim first made against the Directors and Officers during the
Policy Period for a Wrongful Act provided such Claim is reported in writing to the
Insurer or to a licensed agent of the Insurer in the state of New York as soon as
practicable but in no event later than sixty (60) days after the end of the Policy
Period or the last day of the Automatic Extension Period or Optional Extension
Period, ifpurchased.
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20. Insuring Clause C of the Policy, as amended by the New York Free Trade Zone
Amendatory Endorsement, provides:
The Insurer shall pay on behalf of the Company all Loss resulting from any
Securities Claim first made against the Company during the Policy Period for a
Wrongful Act provided such Securities Claim is reported in writing to the Insurer or
to a licensed agent of the Insurer in the state of New York as soon as practicable but
in no event later than sixty (60) days after the end of the Policy Period or the last day
of the Automatic Extension Period or Optional Extension Period, ifpurchased.
21. Clause II.K. of the Policy, as amended by Endorsement E05894, provides in
relevant part:
"Loss"
means the amounts which the Insureds become legally obligated to pay on
account of a Claim, including
1. damages, judgments, including pre and post-judgment interest, settlements
and Costs, Charges and Expenses, punitive, exemplary and multiplied
damages where the applicable law allows coverage for punitive, exemplary
or multiplied damages, incurred by any of the Insureds, but Loss (other
than Costs, Charges and Expenses) shall not include:
a) [inapplicable]
b) [inapplicable]
c) matters deemed uninsurable under the law pursuant to which this Policy
shall be construed;
d) any wages, salary or benefits owed pursuant to the terms of any
employment contract;
e) [inapplicable]
22. Clause V.B. of the Policy, as amended by Endorsement E05897, provides:
The Insureds shall not settle any Claim, select any defense counsel, incur any Costs,
Charges and Expenses, admit or assume any liability, stipulate to any judgment or
otherwise assume any contractual obligation without the Insurer's prior written
consent, which shall not be unreasonably withheld. The Insurer shall not be liable for
any settlement, Costs, Charges and Expenses, assumed obligation, admission or
stipulated judgment to which it has not consented or for which the Insureds are not
legally obligated. The Insureds shall not knowingly take any action which increases
the Insurer's exposure for Loss under this Policy. Notwithstanding any of the
Insurers'
foregoing, the consent shall not be required for a settlement where such
settlement is for an amount below $2,500,000 (inclusive of Costs, Charges and
Expenses), provided the Insureds shall give the Insurer details of the settlement
amounts and the date such settlement is confirmed by the court as soon as practicable
23. Clause VII.C. of the Policy provides in relevant part:
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If both Loss covered by this Policy and loss uncovered by this Policy are incurred,
either because the Claim includes both covered and uncovered claims or because it
includes both insured and uninsured parties, then the Insureds and the Insurer agree
to fairly and reasonably allocate such amount between covered Loss and uncovered
loss.
24. Clause IX of the Policy, as amended by Endorsement E05898 provides in
relevant part:
The Insureds agree to provide the Insurer with such information, assistance and
cooperation as the Insurer or their counsel may reasonably request, and they further
agree that they shall not take any action which in any way increases the Insurer's
exposure under this Policy. The failure of any of the Directors and Officers to give
the Insurers or their counsel the information, assistance and cooperation that they may
reasonably request shall not impair the rights of any other natural person under this
Policy.
25. Clause II.E. of the Policy, as amended by Endorsement E05896, provides:
Expenses"
"Costs, Charges and means reasonable and necessary legal fees and
expenses, including reasonable and necessary expert fees, to which the Insurer
consents and which are incurred by or on behalf of the Insureds in defending,
settling, appealing or investigating any Claim and the cost of appeal, attachment or
similar bonds, but shall not include: [.. .]
26. Clause II.U. of the Policy, as amended by Endorsement E03234, provides:
Claim"
"Securities means any Claim alleging a violation of the Securities Act of
1933, the Securities Exchange Act of 1934, rules or regulations of the Securities and
Exchange Commission under either or both Acts, any similar securities laws or
regulations of the United Kingdom, or any common law relating to any transaction
arising out of, involving, or relating to Securities issued by the Company, whether
on the open market or through a public or private offering.
GENERAL ALLEGATIONS
27. Benzies and the Housers are the creators of the Grand Theft Auto video game
franchise which is marketed and sold by Take-Two and produced by Rockstar.
Plan"
28. Benzies and the Housers participated in a royalty plan (the "Royalty Plan") that
was sponsored and funded by Take-Two. The Royalty Plan, which has been in place since 2002,
and has been renewed several times, provides for royalty payments that can be paid to employees
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Committee"
of Rockstar. The Royalty Plan establishes an "Allocation that decides how to
allocate the annual royalties among the Rockstar employees.
29. On or about March 23, 2015, counsel for Benzies sent correspondence (the
Letter"
"Benzies Demand Letter") to Take-Two, Rockstar "and those acting on their behalf", regarding
Matter"
the distribution of royalties pursuant to the Royalty Plan (the "Benzies Matter").
30. The Benzies Demand Letter, which sought an immediate audit of all royalty
allocations and distributions under the Royalty Plan, alleged that Benzies had not received
royalty distributions under the Royalty Plan since April 28, 2014, and stated itappeared he had
been excluded from at least two distributions.
31. On or about April 2, 2015, counsel for Benzies sent a subsequent correspondence
to Take-Two, stating that Benzies was terminating his employment with Take-Two and its
Letter"
subsidiaries (the "April 2015 Letter"). Negotiations took place during the spring and summer of
2015.
32. Following unsuccessful severance negotiations, Benzies filed an action in the
Supreme Court for the State of New York, New York County on or about April 12, 2016 Index
"Complaint"
Number 0651920/2016 (the "Complaint").
33. Take-Two, Rockstar, Rockstar North, and the Housers (collectively, the "Assured
Defendants"
Defendants") are named defendants in the Complaint.
34. The Complaint alleges that Benzies was fraudulently induced by the Assured
Defendants to sign a royalty agreement which was not in his best interests, and the Assured
Defendants further conspired to have Benzies take a sabbatical from Rockstar while at the same
time divesting Benzies from his share of royalty distributions.
35. The Complaint further alleges that, upon returning from his sabbatical, Benzies
was constructively terminated from his employment by Take-Two.
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Complaint"
36. Benzies subsequently filed an amended complaint (the "Amended Complaint") on
or about February 13, 2017. The Amended Complaint and the Complaint (collective, the
Actions"
"Benzies Actions") assert similar allegations, with the Amended Complaint including an
additional cause of action for violation of New York Labor Law.
TENDER, COVERAGE INVESTIGATION,
AND COVERAGE DETERMINATION
37. Although Benzies directed correspondence to Take-Two in March and April 2015
regarding the Benzies Matter, Beazley was not provided notice of the Benzies Demand Letter or
the April 2015 Letter until on or about October 8, 2015.
38. Prior to tendering the Benzies Matter to Beazley on or about October 8, 2015,
("Lynch"
Take-Two retained Michael Lynch ("Lynch") of Kelley Drye & Warren LLP ("Kelley Drye") to
represent Take-Two in connection with the Benzies Matter.
39. Prior to tendering the Benzies Matter to Beazley on or about October 8, 2015,
Take-Two directed Lynch to initiate settlement discussions in connection with the Benzies
Matter.
40. On or about October 19, 2015, Beazley was notified, by way of a correspondence
from Lynch, of a mediation taking place in New York the following day, on October 20, 2015,
between Take-Two and Benzies. The letter demanded that Beazley attend the mediation with
authority to settle up to the full Limit of Liability of the Policy.
41. Beazley attended the October 20 mediation, but in the late afternoon of October
stay"
20, Beazley was advised by Lynch that there was "no need to and that Beazley should
leave the mediation.
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42. Beazley acknowledged the tender of the Benzies Matter under the Policy on or
about October 28, 2005, noting a mutual general reservation of rights under the Policy, at law,
and in equity.
43. On or about October 30, 2015, Lynch advised Beazley that the parties mediated
until two in the morning without reaching an agreement.
44. On or about November 13, 2015, Beazley received a correspondence from Lynch
that advised that at the end of the October 20, 2015 mediation, the parties had reached agreement
on a settlement figure in exchange for full releases. Lynch's November 13, 2015 correspondence
further requested immediate written consent from Beazley "to fund the proposed settlement up to
limits."
the policy
45. On or about November 23, 2015, Beazley issued correspondence which, among
other things, noted that "if a settlement was reached without Beazley's prior consent, a denial of
order."
coverage will be in
46. In response to Beazley's November 23, 2015 correspondence, Lynch advised that
the settlement was only as to the dollar amount, and that itwas not final or binding.
47. By way of a responsive correspondence dated on or about January 20, 2016,
Beazley requested additional information about the purported settlement.
48. On or about February 26, 2016, Beazley was informed of an additional mediation
session between Take-Two and Benzies, scheduled for March 3, 2016.
49. Upon attending the March 3, 2016 mediation, Beazley was segregated in a
separate room and was provided no information about the discussions being held between
Benzies and Take-Two. Beazley was specifically excluded from all mediation discussions at the
March 3, 2016 mediation, and Beazley's reasonable attempts to participate in the mediation
discussions at the March 3, 2016 mediation were rejected.
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50. In response to Beazley's request for information about the mediation session,
Lynch wrote to Beazley on or about March 7, 2016, to convey that final terms of the settlement
were not reached, and advised that if the insurers wanted information about the matter, they
needed to execute a confidentiality agreement.
51. On or about March 18, 2016, Lynch advised Beazley that there was a third
mediation scheduled for April 15, 2016.
52. On or about April 13, 2016, Lynch advised Beazley that the mediation process
had been terminated.
53. On or about April 12, 2016, Benzies filed the Complaint.
54. Without the consent of Beazley, Take-Two retained the law firm of Dontzin,
Nagy, & Fleissig LLP ("Dontzin") to represent Rockstar, Rockstar North and the Housers in
connection with the Complaint.
55. On or about April 22, 2016 Beazley issued correspondence to Lynch expressing
Beazley's coverage determinations for the Complaint, noting that coverage is unavailable for
Take-Two, Rockstar, and Rockstar North, as the allegations in the Complaint do not constitute a
Securities Claim against Take-Two or its Subsidiaries.
56. In its April 22, 2016 correspondence, Beazley further advised Lynch that Beazley
reserved the right to deny coverage for any defense counsel retained without Beazley's consent.
57. On or about September 23, 2016, without the consent of Beazley, Dontzin was
replaced with the law firm of Dechert LLP ("Dechert") as the defense counsel for the Housers,
Rockstar, and Rockstar North.
58. Upon information and belief, Housers are and continue to be represented by
Dechert relative to the Benzies Actions.
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59. Upon information and belief, Kelley Drye has never represented the Housers
relative to the Benzies Actions.
60. On or about December 22, 2016, the Court dismissed several causes of action
"duplicative"
within the Complaint which were found to be of the breach of contract claims.
61. On or about February 13, 2017, Benzies filed the Amended Complaint that
reasserted all of the claims previously asserted in the Complaint, and added additional claims
based on the alleged withholding of royalty allocations.
62. On or about June 15, 2017, the Court again dismissed the non-contract related
causes of action, with the exception of a cause of action for constructive termination.
FIRST CAUSE OF ACTION
Declaration That Insuring Clause C of the Policy is not
Triggered by the Benzies Actions, Precluding Coverage for
Take-Two, Rockstar, and Rockstar North
63. Beazley realleges and restates each of the preceding paragraphs as if fully set
forth herein.
64. Insuring Clause C of the Policy only potentially provides entity coverage for a
Securities Claim.
65. The allegations asserted in the Benzies Actions do not constitute a Securities
Claim, as defined by the Policy.
66. Accordingly, Beazley seeks a declaration that Beazley does not owe any coverage
obligations under the Policy to Take-Two, Rock Star, and Rockstar North, because the Benzies
Actions do not trigger Insuring Clause C of the Policy.
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SECOND CAUSE OF ACTION
Declaration that the Fees and Costs Incurred by Kelley Drye
are Not Covered by the Policy
67. Beazley realleges and restates each of the preceding paragraphs as if fully set
forth herein.
68. Under the Policy, Beazley is obligated to pay for "reasonable and necessary legal
"
fees and expenses to which the Insurer consents . ..
69. Beazley's payment obligation relative to Take-Two and itssubsidiaries can only
Company."
be triggered by a Securities Claim made "against the
70. The allegations asserted in the Benzies Actions do not constitute Securities
Claims.
71. Upon information and belief, Take-Two is and continues to be represented by
Kelley Drye.
72. Upon information and belief, Kelley Drye has never represented the Housers or
any other Directors and Officers.
73. Beazley seeks a declaration that any fees and costs incurred by Kelley Drye in
connection with the Benzies Matter or the Benzies Actions are not subject to coverage under the
Policy.
THIRD CAUSE OF ACTION
Declaration in the Alternative that, ifKelley Drye are Found to
also Represent the Housers, and not Otherwise Excluded from
Coverage, an Allocation of Kelley Drye's Fees and Costs is
Required
74. Beazley realleges and restates each of the preceding paragraphs as if fully set
forth herein.
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75. Clause VII.C. of the Policy provides that "[i]f both Loss covered by this Policy
and loss uncovered by this Policy are incurred...then the Insureds and the Insurer agree to fairly
loss."
and reasonably allocate such amount between covered Loss and uncovered
76. Upon information and belief, Take-Two is and continues to be represented by
Kelley Drye.
77. The Housers are Directors and Officers, and Beazley has not denied coverage to
the Housers.
78. To the extent that Kelley Drye has incurred fees and costs related to the defense
of the Housers, such costs would only constitute a portion of the total fees and costs incurred by
Kelley Drye.
79. Neither Kelley Drye nor the Housers have provided Beazley with any documents
or information upon which Beazley could reasonably conclude that any fees and costs incurred
by Kelley Drye are related to the defense of the Housers.
80. Beazley seeks a declaration that, if Kelley Drye incurred fees and costs related to
the defense of the Housers, such fees and costs are subject to an allocation, pursuant to Clause
VII.C. of the Policy.
FOURTH CAUSE OF ACTION
Declaration in the Alternative that the Fees and Costs Incurred
by Dontzin and Dechert, if not Otherwise Excluded from
Coverage, are Subject to an Allocation Under the Policy
81. Beazley realleges and restates each of the preceding paragraphs as if fully set
forth herein.
82. Clause VII.C. of the Policy provides that "[i]f both Loss covered by this Policy
and loss uncovered by this Policy are incurred...then the Insureds and the Insurer agree to fairly
loss."
and reasonably allocate such amount between covered Loss and uncovered
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83. Coverage under the Policy is only potentially available related to the defense of
the Housers.
84. To the extent that Dontzin and/or Dechert incurred fees and costs related to the
defense of Take-Two, Rockstar, or Rockstar North, such fees and costs would not be subject to
coverage under the Policy.
85. Neither Dontzin, Dechert, nor the Housers have provided Beazley with any
documents or information upon which Beazley could reasonably conclude what portion, if any,
of the fees and costs incurred by Dontzin or Dechert are related to the defense of the Housers
86. Accordingly, Beazley seeks a declaration that, if Dontzin and/or Dechert incurred
both covered and non-covered fees and costs in this matter, such fees and costs are subject to an
allocation pursuant to Clause VII.C. of the Policy.
FIFTH CAUSE OF ACTION
Declaration that any Damages in Connection with the Benzies
Actions Constitute Wages, Salary, or Benefits and are Not Loss
Under the Policy
87. Beazley realleges and restates each of the preceding paragraphs as if fully set
forth herein.
88. Pursuant to Clause II.K. of the Policy, as amended by Endorsement E05894, the
definition of Loss does not include "any wages, salary or benefits owed pursuant to the terms of
contract."
any employment
Benzies'
89. Upon information and belief, Benzies Employment Agreement with Take-Two
specifically incorporated the Royalty Agreement when referencing compensation, and provides
"certain"
that Benzies is entitled to royalties.
90. In the Benzies Actions, Benzies seeks to recover those amounts owed to him
pursuant to the Royalty Agreement.
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91. Any Damages arising out of the Benzies Actions are premised on the terms of the
Benzies'
Royalty Agreement which was expressly incorporated into Employment Agreement,
and constitute "wages, salary or benefits owed pursuant to the terms of any employment
contract."
92. Accordingly, Beazley seeks a declaration that Beazley does not owe any
obligations under the Policy for any damages, whether by settlement or judgment, arising from
the Benzies Actions, as such damages constitute wages, salary or benefits, and are not Loss
under the Policy.
SIXTH CAUSE OF ACTION
Benzies'
Declaration that Damages Arising From Breach of
Contract Claims Are Not Loss Under the Policy
93. Beazley realleges and restates each of the preceding paragraphs as if fu