Title: Ken's Foods, Inc. v. Steadfast Insurance Co.

State: massachusetts

Issuer: Massachusetts Supreme Court

Document:

NOTICE:  All slip opinions and orders are subject to formal 
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error or other formal error, please notify the Reporter of 
Decisions, Supreme Judicial Court, John Adams Courthouse, 1 
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SJC-13303 
 
KEN'S FOODS, INC.  vs.  STEADFAST INSURANCE COMPANY. 
 
 
 
Suffolk.     November 4, 2022. - January 6, 2023. 
 
Present:  Budd, C.J., Gaziano, Lowy, Cypher, Kafker, Wendlandt, 
& Georges, JJ. 
 
 
Environment, Environmental cleanup costs.  Insurance, Coverage, 
Amount of recovery for loss.  Common Law. 
 
 
 
Certification of a question of law to the Supreme Judicial 
Court by the United States Court of Appeals for the First 
Circuit. 
 
 
Lawrence G. Green (Gregory S. Paonessa also present) for 
the plaintiff. 
Jeffrey E. Dolan for the defendant. 
The following submitted briefs for amici curiae: 
Michael S. Levine, Nicholas D. Stellakis, & Janine A. 
Hanrahan for United Policyholders. 
Mary-Caitlin Ray for Complex Insurance Claims Litigation 
Association & others. 
 
 
KAFKER, J.  After a wastewater treatment system at its 
manufacturing facility malfunctioned, Ken's Foods, Inc. (Ken's 
Foods), sought recovery from Steadfast Insurance Company 
(Steadfast) for various costs it incurred, claiming coverage 
2 
 
under its pollution liability policy.  Ken's Foods's policy 
covered necessary cleanup costs, including "emergency expenses" 
incurred to avoid "actual imminent and substantial endangerment 
to the public health or welfare or the environment."  Steadfast 
paid the costs of cleaning up the illegal wastewater discharge.  
The policy also covered business interruption losses resulting 
from a covered pollution event, including mitigation expenses 
incurred to reduce the costs of the business interruption.  No 
such costs were paid here, as there was no business 
interruption. 
In dispute are costs Ken's Foods incurred that were not 
cleanup costs or costs necessary to avoid imminent endangerment 
to public health or welfare or the environment, but were 
necessary to avoid a business interruption.  These costs 
included a temporary wastewater treatment process that involved 
ongoing reprocessing of water from the stormwater pond and 
pretreatment before releasing the water, and agreed-upon fines 
for such releases, as they still exceeded acceptable levels, 
although they apparently did not rise to the level of a danger 
to public health or welfare or the environment.  These costs 
were less than the losses that Ken's Foods would have sustained 
if it had experienced a business interruption. 
On appeal from the United States District Court for the 
District of Massachusetts, the United States Court of Appeals 
3 
 
for the First Circuit certified the following question to this 
court:  "To what extent, if any, does Massachusetts recognize a 
common-law duty for insurers to cover costs incurred by an 
insured party to prevent imminent covered loss, even if those 
costs are not covered by the policy?"  Ken's Foods, Inc. v. 
Steadfast Ins. Co., 36 F.4th 37, 38-39 (1st Cir. 2022).  See 
S.J.C. Rule 1:03, as appearing in 382 Mass. 700 (1981) 
(requirements for certification). 
We conclude that the costs at issue are not recoverable.  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 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 environment, 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 mitigation provision also did not require 
incurring expenses necessary to prevent a business interruption.  
And finally, the costs appear to fall within the policy's 
exclusion for costs, charges, and expenses associated with 
4 
 
maintenance and process improvements, which expressly excluded 
from coverage the costs, charges, and expenses of maintenance 
and process improvements, even if such maintenance and process 
improvements were required by a government authority as a result 
of a cleanup.  In sum, the plain language of the insurance 
policy controls, and consequently, there is no basis to impose a 
common-law duty inconsistent with the coverages and exclusions 
contained in the policy.1 
Background.  We recite the facts as stated by the 
certifying court, supplemented by the parties' joint appendix.  
As the certifying court stated:  "Because summary judgment was 
entered against Ken's Foods, we 'view the entire record in the 
light most hospitable' to Ken's Foods, 'indulging all reasonable 
inferences in [its] favor.'"  Ken's Foods, Inc., 36 F.4th at 39 
n.1, quoting Quinn v. Boston, 325 F.3d 18, 23 (1st Cir. 2003). 
Ken's Foods operates a manufacturing facility in McDonough, 
Georgia.  On December 20, 2018, its wastewater treatment system 
malfunctioned.2  As a result, the facility's storm water pond 
overflowed and wastewater flowed into a Georgia tributary.  
 
1 We acknowledge the amicus briefs submitted by United 
Policyholders and by Complex Insurance Claims Litigation 
Association, American Property Casualty Insurance Association, 
and Massachusetts Insurance Federation. 
 
2 Specifically, the "continuous stirred tank reactor" in the 
new "anaerobic waste water treatment plant" experienced a 
"process failure" due to a design defect in the new system. 
5 
 
Ken's Foods cleaned up the wastewater pollution, incurring 
around $1 million in cleanup costs and containing the pollution 
source by February 2019. 
In addition, Ken's Foods took actions to allow it to 
continue operating the facility despite the faulty wastewater 
treatment system.  Ken's Foods implemented a temporary 
wastewater treatment process that involved ongoing reprocessing 
of water from the stormwater pond with newly installed 
equipment, and pretreatment before releasing the water.  As 
these releases still exceeded acceptable levels, Ken's Foods 
also agreed to pay a predetermined schedule of fines via a 
settlement with the county.  Ken's Foods alleges that it spent 
$2 million on these measures, which allowed it to avoid a 
suspension of operations that would have otherwise cost it over 
$10 million per month in expenses and lost profits. 
Ken's Foods sued Steadfast in the Federal District Court 
for approximately $3 million in unpaid insurance claims ($1 
million in cleanup costs and $2 million in business interruption 
prevention costs).  The parties cross-moved for summary judgment 
on the issue "whether Ken's Foods can recover from Steadfast the 
costs that it says it incurred to avoid suspending its 
operations after the pollution discharge."  The Federal District 
Court judge ruled that the costs incurred to prevent the 
business interruption were not recoverable, because no 
6 
 
Massachusetts cases were on point and because the judge 
construed this court's recent decision in Mount Vernon Fire Ins. 
Co. v. VisionAid, Inc., 477 Mass. 343, 349 (2017) (Mount 
Vernon), as standing for the proposition that "insurance 
contracts are bargained-for exchanges limited to their express 
terms and not generally supplemented by the common law."3 
After moving for reconsideration, which was denied, Ken's 
Foods appealed.  On appeal, the First Circuit determined that 
there was no controlling Massachusetts precedent and that sister 
jurisdictions are split on the issue.  Ken's Foods, Inc., 36 
F.4th at 41-43.  Consequently, it certified the question to this 
court. 
 
Discussion.  The interpretation of an insurance contract is 
a pure question of law.  Vermont Mut. Ins. Co. v. Poirier, 490 
Mass. 161, 164 (2022).  "We interpret the words of the standard 
policy in light of their plain meaning, . . . giving full effect 
to the document as a whole[,] . . . consider[ing] 'what an 
objectively reasonable insured, reading the relevant policy 
language, would expect to be covered' . . . [and] interpret[ing] 
the provision of the standard policy in a manner consistent with 
 
3 The judge dismissed Ken's Foods's claims under G. L. 
c. 176D, § 3 (9), and G. L. c. 93A that Steadfast's denial of 
coverage was unreasonable or unfair.  The parties also agreed to 
dismiss all claims for nonmitigation losses; thus, the First 
Circuit appeal concerned only Ken's Foods's claim of coverage 
for the costs of preventing a business interruption. 
7 
 
the statutory and regulatory scheme that governs such policies."  
Mount Vernon, 477 Mass. at 348, quoting Golchin v. Liberty Mut. 
Ins. Co., 466 Mass. 156, 159-160 (2013). 
1.  Policy terms.  Two coverage provisions in Ken's Foods's 
insurance policy are most relevant here.  First, Coverage C 
obligated  Steadfast to pay "[r]easonable and necessary" 
"cleanup costs" associated with a "new pollution event" at an 
insured location during the policy period.  In addition to the 
costs of remediating contamination and legal claims arising from 
the pollution event, "cleanup costs" included "emergency 
expense[s]," that is, "costs, charges and expenses incurred to 
avoid an actual imminent and substantial endangerment to the 
public health or welfare or the environment."  Steadfast paid 
Ken's Foods at least $857,730.75 for expenses that met this 
definition.  It reimbursed the costs of removing wastewater that 
had escaped the retention pond and preventing more wastewater 
from overflowing, paid the fines resulting from the initial 
discharge, and retained counsel for employees who were subjected 
to a county enforcement action. 
Ken's Foods does not contend that the $2 million it spent 
to maintain operations could be covered as "reasonable and 
necessary" cleanup costs under this provision.  Indeed, the 
policy contained an express exclusion for 
8 
 
"Any costs, charges or expenses for maintenance, upgrade or 
improvement of, or installation of any control to, any 
property or processes on, at, within or under a 'covered 
location' even if such maintenance, upgrade, improvement or 
installation is required: 
 
"1.  By 'governmental authority'; or 
 
"2.  As a result of 'cleanup costs,' 'loss,' 'natural 
resource damages' or 'other loss' otherwise covered under 
the policy." 
 
Here, Ken's Foods incurred costs, charges, or expenses via fines 
and changes to its wastewater treatment process as required by 
the county authority to allow the company to continue 
operations.  Steadfast referenced this exclusion in its response 
to Ken's Foods's claims, and apparently Ken's Foods did not 
contest its applicability to the $2 million in expenditures 
during the claims resolution process, at least in regard to 
Coverage C. 
Rather, Ken's Foods claims that the $2 million in 
expenditures was recoverable as a mitigation cost to avoid the 
suspension of operations.  Under Coverage H, Steadfast was 
required to pay losses (including lost income and expenses to 
reduce lost income)4 resulting from a new pollution event that 
caused a "suspension of operations" at an insured location 
 
4 Steadfast was required to reimburse "loss of business 
income" and "expenses necessarily and reasonably incurred to 
reduce 'loss of business income' to the extent such expenses do 
not exceed the amount of 'loss of business income' that 
otherwise would have been payable." 
9 
 
during the policy period.  More specifically, a suspension of 
operations was defined as a "necessary partial or complete 
suspension of 'operations' at the 'covered location' as a direct 
result of a 'cleanup' required by a 'governmental authority'" 
(emphases added).  The policy further provided that Steadfast 
was only responsible for losses sustained four days after 
notification of a suspension and before Ken's Foods could resume 
operations. 
In the instant case, there was no suspension of operations.  
Ken's Foods was not ordered to discontinue operations, nor did 
it do so itself to avoid such an order.5  Rather, Ken's Foods 
avoided a "partial or complete suspension" by implementing 
process changes allowing for the pretreatment and release of 
wastewater, and negotiating pollution allowances and 
accompanying fines with the county authority.  These very 
measures showed that a partial or complete shutdown was not 
"necessary," albeit due to the creative response of Ken's Foods 
and the flexibility of government regulators.  Because there was 
never a suspension of operations, Steadfast was not responsible 
for the costs according to the express terms of Coverage H. 
 
5 The policy also excluded coverage for a "[k]nowingly 
wrongful act" or "[d]eliberate non-compliance" with a government 
authority. 
10 
 
The mitigation of loss provision in Coverage H was also 
inapplicable, according to its express terms.  It, too, required 
a suspension of operations.  This provision required Ken's Foods 
to mitigate loss of business income, complete cleanup, and 
resume operations "as soon as practicable" "[i]n the event of a 
suspension of operations" (emphasis added).  Again, no such 
suspension occurred. 
The mitigation provision also did not require Ken's Foods 
to prevent an imminent suspension of operations or require 
reimbursement of such costs.  Grebow v. Mercury Ins. Co., 241 
Cal. App. 4th 564, 574, 578 (2015) ("mitigation clause is 
unambiguous" that it applies only after insured loss; "absent a 
provision that provides for reimbursement, the insurer has no 
obligation to reimburse an insured for costs to prevent an 
imminent insurable occurrence from occurring").6 
 
6 The parties dispute whether Ken's Foods could have 
purchased pollution insurance to recover for expenses incurred 
to avoid a business interruption.  Based on the record and 
arguments before us, it appears that commercial general 
liability policies may include expenses that an insured incurs 
to avoid a suspension of operations, but that pollution 
liability policies with coverage for the costs of preventing a 
business interruption may be unavailable.  The case law also 
suggests that this type of coverage may commonly appear in sue-
and-labor clauses in other types of insurance policies.  See 
Grebow, 241 Cal. App. 4th at 575 n.3, quoting Abraham, Peril and 
Fortuity in Property and Liability Insurance, 36 Tort & Ins. 
L.J. 777, 797 (2001) ("Sue and Labor clauses tend to cover the 
insured against the cost of preventing imminent loss, to the 
extent that such a loss would have been covered by the policy if 
it had occurred"). 
11 
 
2.  Common-law right.  Recognizing that the express terms 
of the insurance policy do not cover the claims, Ken's Foods 
argues that nevertheless there is a common-law right for 
reimbursement of the costs of preventing an imminent covered 
loss.  As discussed supra, in its certified question to this 
court, the First Circuit posed this issue as follows:  "To what 
extent, if any, does Massachusetts recognize a common-law duty 
for insurers to cover costs incurred by an insured party to 
prevent imminent covered loss, even if those costs are not 
covered by the policy?" (emphasis added). 
This is an issue that has not been addressed by this court 
and has divided other jurisdictions and commentators.  Compare 
McNeilab, Inc. v. North River Ins. Co., 645 F. Supp. 525, 529 
(D.N.J. 1986); Grebow, 241 Cal. App. 4th at 578 ("absent a 
provision that provides for reimbursement, the insurer has no 
obligation to reimburse an insured for costs to prevent an 
imminent insurable occurrence from occurring"); W.M. Schlosser 
Co. v. Insurance Co. of N. Am., 325 Md. 301, 311 (1992); and 
Note, Allocation of the Costs of Preventing an Insured Loss, 71 
Colum. L. Rev. 1309, 1316 (1971) ("Most courts . . . have not 
allowed an insured to recover prevention costs from the insurer 
without an express recovery provision"), with Demers Bros. 
Trucking, Inc. v. Certain Underwriters at Lloyd's, London, 600 
F. Supp. 2d 265, 274 (D. Mass. 2009) ("the common law also 
12 
 
recognizes the right of the insured to seek compensation from 
the insurer for the costs of mitigation"); Leebov v. United 
States Fid. & Guar. Co., 401 Pa. 477, 481 (1960) ("It is folly 
to argue that if a policy owner . . . makes a reasonable 
expenditure and prevents a catastrophe he must do so at his own 
cost and expense," when he would have been able to recover more 
from defendant if he had not made expenditure); S. Plitt, D. 
Maldonado, J.D. Rogers, & J.R. Plitt, Couch on Insurance 3d 
§ 168:11 (rev. ed. 2017) (recognizing insured's "duty to 
mitigate an insured loss" and "corresponding common-law right to 
recompense from the insurer for the cost of these efforts"); and 
id. at § 168:12 (costs are reimbursable if "incurred to prevent 
or minimize a covered loss, thus benefiting the insurer"). 
Although the certified question regarding a common-law duty 
is posed in general language, we decline to answer the question 
abstractly, as opposed to in reference to the specific policy 
language at issue, including the coverage provisions, the 
exclusions, and, finally, the term that the policy does not 
contain that we are essentially asked to incorporate.  We 
conclude that in the instant case, the plain, unambiguous 
language of the coverage provisions and exclusions are 
controlling.  A "common law doctrine cannot displace the clear 
provisions of the [p]olicy, . . . particularly when the [p]olicy 
directly addresses and circumscribes the applicability of the 
13 
 
doctrine."  ALPS Prop. & Cas. Ins. Co. v. Keller, Reynolds, 
Drake, Johnson & Gillespie, P.C., 2021 MT 46, ¶ 20. 
In determining the obligations arising out of an insurance 
policy, including any supplementary common-law duties, we begin 
with the recognition that an insurance policy, particularly in a 
voluntary line of insurance, is a contract between two private 
parties.  The parties are therefore entitled to the "benefit of 
their stated bargain," including their allocation of risk.  
Rawan v. Continental Cas. Co., 483 Mass. 654, 666 (2019), 
quoting Great Divide Ins. Co. v. Lexington Ins. Co., 478 Mass. 
264, 268 (2017).  See Mount Vernon, 477 Mass. at 349.  In the 
instant case, the contracting parties are also sophisticated 
business entities.  When dealing with "sophisticated commercial 
parties," we have been especially hesitant to reconsider 
"contractual risk allocation."  H1 Lincoln, Inc., v. South 
Washington St., LLC, 489 Mass. 1, 26 (2022).  See Rawan, supra. 
In evaluating the allocation of risk and the obligations of 
the respective parties, the plain language of the particular 
insurance policy directs our analysis.  Mount Vernon, 477 Mass. 
at 348.  Our decision in Mount Vernon is instructive in this 
regard.  In that case, which also involved a certified question, 
we were asked to decide whether an insurance policy provision 
setting out a "duty to defend" included a duty to bring 
affirmative counterclaims as well.  We concluded that the duty 
14 
 
to defend did not include a duty to bring affirmative claims.  
Id. at 354.  We emphasized that such a reading was inconsistent 
with the plain language of the provision.  Id. at 351. 
In so concluding, we also addressed previous decisions of 
the court applying the "in for one, in for all" rule, which 
"requires that, where an insurer is obligated to defend an 
insured on one of the counts alleged against it, the insurer 
must defend the insured on all counts, including those that are 
not covered."  Id. at 351.  We rejected application of that rule 
to affirmative counterclaims, stating that "[w]hile the 'in for 
one, in for all' rule did expand the class of actions that an 
insurer is obligated to defend, it did not change the meaning of 
the word 'defend.'"  Id. at 352.  Where the language of the 
insurance policy is plain and not ambiguous, this court has 
declined to extend coverage to matters not covered by the 
policy.7 
As discussed in detail supra, the preventative costs at 
issue are outside the scope of the plain, express terms of the 
reimbursement and mitigation provisions.  Steadfast was only 
 
7 The dissent in Mount Vernon also emphasized the importance 
of plain language and the requirement of ambiguity to go beyond 
a plain language interpretation.  It just concluded that there 
was ambiguity in the contested language, and that such ambiguity 
should be read in favor of the insured, as provided elsewhere in 
our insurance jurisprudence.  Mount Vernon, 477 Mass. at 355 
(Gants, C.J., dissenting), citing Boston Symphony Orch., Inc. v. 
Commercial Union Ins. Co., 406 Mass. 7, 12 (1989). 
15 
 
required to pay costs of a "necessary" suspension of operations, 
not one that could be avoided through preventative measures, as 
was done here; an unnecessary suspension would not have been 
covered.  The policy also required reimbursement of only those 
mitigation costs incurred after a suspension of operations, 
showing that increased costs of operation were not intended to 
be covered. 
The policy's maintenance exclusion further supports the 
conclusion that the parties did not intend to insure the costs 
at issue.  The policy expressly excluded coverage for costs, 
charges, and expenses of maintenance, upgrades, or "improvement 
of . . . processes," "even if such maintenance, upgrade, 
improvement or installation is required . . . [b]y 'governmental 
authority;' or . . . [a]s a result of 'cleanup costs' . . . or 
'other loss' otherwise covered under the policy."  The 
alternative wastewater treatment process that Ken's Foods 
developed to continue operations, and the accompanying costs, 
charges, and expenses it incurred, appear to fall within this 
express exclusion.  For all these reasons, the $2 million in 
expenses to prevent a suspension of operations was for Ken's 
Foods to bear.8 
 
8 Ken's Foods argues that the lack of this duty creates an 
asymmetry:  if the company had not taken preventative measures, 
Steadfast would have argued that it had failed to mitigate under 
the policy.  However, this is an asymmetry created by the text 
16 
 
In sum, Ken's Foods seeks reimbursement that is not allowed 
by the plain, express terms of the policy, in both the coverage 
provisions and the exclusions.  Here, we are also dealing with 
"sophisticated commercial parties" capable of, and responsible 
for, their own contractual risk allocation.  H1 Lincoln, Inc., 
489 Mass. at 26.  See Rawan, 483 Mass. at 666.  Given the 
express allocation of risk and the sophisticated parties that 
contracted to allocate this risk, we decline to imply a common-
law duty to fill in the gap in coverage.9 
 
of the contract itself.  See Mount Vernon, 477 Mass. at 349, 
quoting 11 R.A. Lord, Williston on Contracts § 31:5, at 455 (4th 
ed. 2012) ("[T]he question whether a bargain is smart or 
foolish, or economically efficient or disastrous, is not 
ordinarily a legitimate subject of judicial inquiry").  The 
policy only allowed recovery for a "necessary" suspension of 
operations.  As explained supra, if the suspension of business 
could have been avoided by incurring certain expenses, and was 
thus unnecessary, the recovery of business interruption losses 
would not be allowed.  Asymmetrical duties are not evidence that 
we have misinterpreted the policy.  Indeed, during the first 
four days of a suspension, Ken's Foods is under a duty to 
mitigate its losses even though there is no corresponding right 
to reimbursement. 
 
9 In reaching this decision, this court is not adopting a 
minority rule, as Ken's Foods suggests.  Although some courts 
appear more willing to allow recovery of costs incurred to 
prevent a covered loss, they do not do so in the face of plain 
language in insurance policies to the contrary.  See Demers 
Bros. Trucking, Inc., 600 F. Supp. 2d at 274 (allowing recovery 
of mitigation costs where there was no "insurance policy 
provision to the contrary").  Likewise, we do not interpret the 
Couch on Insurance treatise to suggest a different approach.  
Although the treatise sets out the parameters of particular 
common-law duties, including the duty of an insured to prevent 
imminent covered loss and the duty of an insurer to reimburse 
those costs, such common-law duties are effectuated and 
17 
 
Conclusion.  We answer the certified question as follows.  
There is no common-law duty for insurers to cover costs incurred 
by an insured party to prevent imminent covered loss, when the 
plain, unambiguous terms of the insurance policy at issue speak 
directly to the question of mitigation and reimbursement and do 
not provide coverage, and the costs are otherwise excluded by 
other provisions of the policy.  To provide for recovery in 
these circumstances would be to rewrite the insurance contract 
and reallocate the risks negotiated by the parties. 
The Reporter of Decisions is directed to furnish attested 
copies of this opinion to the clerk of this court.  The clerk in 
turn will transmit one copy, under the seal of the court, to the 
clerk of the United States Court of Appeals for the First 
Circuit, as the answer to the question certified, and will also 
transmit a copy to each party. 
 
delimited by the language used in a particular policy.  See ALPS 
Prop. & Cas. Ins. Co., 2021 MT 46, ¶ 20.  The common law 
summarized by Couch on Insurance may provide a default in the 
absence of a particular contract term, but only where the policy 
permits the implication.  See Restatement (Second) of Contracts 
§ 5 comment b (1981) (common law supplies "implied terms of an 
agreement," which "may be varied by agreement of the parties").  
Here, the policy's express provisions requiring mitigation and 
reimbursement do not apply to the costs at issue and an express 
exclusion does.