A federal appellate court asks the Massachusetts Supreme Court to consider whether insurance companies must cover costs incurred to prevent an imminent loss, even if the costs themselves are not covered by the insurance.
The incident that triggered the issue involves Marlborough, Massachusetts-based Ken’s Foods Inc., according to Tuesday’s decision by the first U.S. Court of Appeals in Boston in Ken’s Foods Inc. v. Steadfast Insurance Co.
In December 2018, an unintentional discharge at one of Ken’s Foods processing plants caused wastewater to enter Georgia’s waterways. The company immediately raised the issue to prevent further spills 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 break in operations at the processing plant, the ruling said. Because of these efforts, Ken̵7;s Foods never had to shut down the facility.
Without these measures, the company would have incurred losses in excess of the $ 10 million covered by its comprehensive environmental policy with the Zurich Insurance Group unit Steadfast, the ruling states.
Steadfast refused to pay for the preventive measures because it only covered business losses as a result of a complete cessation of operations. Ken’s Foods then sued Boston District Court in Boston, claiming nearly $ 3 million in triple damages.
The district court ruled in favor of Steadfast and ruled that there was no indication that Massachusetts common law gives Ken’s Foods the right to be reimbursed for costs in this situation.
An appellate court with three judges decided that the matter would be considered by the state’s highest court. Referring to an earlier case, the panel said it did not find a clear rule “which would resolve this appeal and eliminate the need to certify this issue.”