Massachusetts High Court: Loss Prevention Cost Claim

According to the federal appeals court

between the parties. An insured may choose to simply allow its operations to be suspended in order to ensure that it receives insurance proceeds, in this case, $10 million, rather than bear the costs ($2 million by Ken’s Foods) to prevent the harm. This is because there is no obligation to pay for actions that prevented a covered loss. The court also emphasised that even if an insured’s insurance does not cover prevention expenses, the insured nevertheless has a stake in averting a suspension of operations, particularly if doing so would result in higher costs than the insurance would cover.

If a shutdown had occurred, according to Ken’s Foods, the company would have lost $10 million a month. The court, however, ruled that it is “not evident” that Ken’s Foods would have approved of such.

Even Ken’s Foods acknowledged that its losses from a suspension of operations would have exceeded the policy’s limit of liability because it “would have wished to avoid terminating any staff and to meet its payroll obligations.”

The district court’s decision to reject Ken’s Foods’ claim “merely because no Massachusetts court had previously done so” was overturned by the appeals court. That was described as “too strict a standard” by the appeals court.

Additionally, the court determined that precedents from other countries did not “generally and persuasively” provide advice in one direction.

As a result, the federal court sought advice from the state’s top court.