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A federal appeals court is asking the Massachusetts Supreme Court to consider whether insurers must cover costs incurred to prevent an imminent covered loss, even if the costs themselves are not covered by the policy.
The incident sparking the question involves Marlborough, Massachusetts-based Ken’s Foods Inc., according to Tuesday’s ruling by the 1st U.S. Circuit Court of Appeals in Boston in Ken’s Foods Inc. v. Steadfast Insurance Co.
In December 2018 an accidental discharge at one of Ken’s Foods’ processing facilities caused wastewater to enter Georgia waterways. The company immediately addressed the issue to prevent further discharge and to clean up the pollution, which included fully cooperating with Georgia state officials, according to court documents.
Its efforts, which generated more than $2 million in costs, prevented a suspension of operations at the processing facility, the ruling said. Because of these efforts, Ken’s Foods never had to suspend the facility’s operations.
Without these moves, the company would have incurred losses in excess of the $10 million coverage provided by its comprehensive environmental policy with Zurich Insurance Group unit Steadfast, the ruling said.
Steadfast refused to pay for the prevention efforts on the basis it only covered business losses resulting from a complete suspension of operations. Ken’s Foods then filed suit in U.S. District Court in Boston, seeking nearly $3 million and treble damages.
The district court ruled in Steadfast’s favor, holding there is no indication that Massachusetts common law entitles Ken’s Foods to recover costs in this situation.
A three-judge appeals court panel decided the issue should be considered by the state’s high court. Citing an earlier case, the panel said it did not find a clear rule “that would resolve this appeal and obviate the need to certify this issue.”