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Mass. high court rules Zurich off hook for preventive costs not covered by policy


Insurers do not have to cover costs incurred to prevent an imminent covered loss if the costs themselves are not covered by the policy, Massachusetts’ high court ruled Friday, responding to a question posed by a federal appeals court, and ruling in a Zurich Insurance Group unit’s favor.

In December 2018, an accidental discharge at a processing plant operated by Marlborough, Massachusetts-based Ken’s Foods Inc. caused wastewater to enter Georgia waterways, according to court papers in Ken’s Foods Inc. v. Steadfast Insurance Co.

The company immediately addressed the issue to prevent further discharge and to clean up the pollution, which included fully cooperating with Georgia officials, according to court papers.

Its efforts, which generated more than $2 million in costs, prevented a suspension of operations at the processing facility.

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.

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 sued Steadfast in U.S. District Court in Boston, seeking nearly $3 million and treble damages.

The district court ruled in Steadfast’s favor, holding there was no indication that Massachusetts common law entitles Ken’s Foods to recover costs in this situation.

In June, a three-judge panel of the 1st U.S. Circuit Court of Appeals in Boston held the issue should be considered by the state high court. 

The Supreme Judicial Court of Massachusetts unanimously agreed with the district court that Steadfast does not have to cover these costs.

“A pollution liability insurance policy is a contract between two private parties that should be interpreted according to its plain terms, which reflect the benefit of the bargain struck by the parties including their allocation of risk,” the ruling said.

“The costs at issue here fit within neither of the relevant coverages in the insurance policy. They were not cleanup costs or costs necessary to prevent imminent endangerment to public health or welfare or the equipment and they were not the result of a business interruption, as business was never suspended.

“Nor were they mitigation necessary to reduce the costs of business interruption, as again, there was no business interruption whatsoever,” the ruling said. 

“In sum, the plain language of the insurance policy controls, and consequently, there is no basis to impose common-law duty inconsistent with the coverages and exclusions stoned in the policy.

Attorneys in the case had no comment, or did not respond to a request for comment.