Massachusetts High Court: Loss Prevention Cost Claim is Controlled by Policy Terms, Not Common Law

The Massachusetts top court ruled in a pollution liability case that an insurer does not have a common law obligation to pay the costs expended by a company in an endeavour to avert an impending insured loss.


The producer of salad dressing Ken’s Foods requested reimbursement from Zurich subsidiary Steadfast Insurance for the expenses incurred in avoiding the closure of a processing facility in Georgia as a result of a pollution occurrence. Even though its policy stated otherwise, Ken’s Food had argued that its insurer had a common law obligation.

The First Circuit Court of Appeals, a federal court, agreed to hear the case on appeal but asked the state’s top court to comment on whether Massachusetts recognises such a common-law duty, even if such expenses are not covered by the policy.

The Massachusetts Supreme Judicial Court declined to provide an abstract response and instead limited its response to the relevant policy language: “We determine that the costs at issue are not recoverable. An agreement between two private parties, such as a pollution liability insurance policy, should be construed in accordance with its simple provisions, which represent the advantages of the agreement reached by the parties, including their risk-sharing arrangement. The costs in question here don’t fall within any of

The court emphasised that the disagreement is between “intelligent commercial parties” who are able to allocate their own contractual risks and are accountable for doing so. The court reasoned that rewriting the insurance contract and reallocating the risks agreed to by the parties would be necessary to provide for recovery in these situations.

The business’s $10 million total environmental insurance coverage included coverage for both clean-up costs and economic losses brought on by pollution incidents that result in a “suspension of operations.”

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