This case involves Ken’s Foods, Inc. in a dispute with its insurer. Ken’s Foods is the maker and distributor of Ken’s Salad Dressings. I have to say I love their dressings and marinades. I am a frequent purchaser and am always trying their latest offerings, although I have my standbys. Some of us even remember their salad days when they were more known for their steak. Ken’s Steak House on Route 9 in Framingham is still open by the way. One of the last of the old guard. The Hilltop could have taken a lesson or two from Ken’s on the salad dressing angle.
In this case, Ken’s sought recovery from its insurer under its pollution liability policy after a wastewater treatment plant at its manufacturing facility malfunctioned. The policy covered the costs of cleaning up the pollution, emergency expenses to avoid “actual imminent and substantial endangerment to the public health or welfare or the environment” and business interruption losses resulting for a covered pollution event”. In this case the insurer paid the cleanup costs.
However, Ken’s sought to recover the costs that were necessary to avoid a business interruption. These costs included a temporary wastewater treatment process that involved ongoing reprocessing of water from the stormwater and pre-treatment before releasing the water, and agreed upon fines for such releases, as they still exceeded acceptable levels, although they were not a danger to the health or the environment. If Ken’s did not take these steps and incur these costs, it would have suffered a business interruption. Since the temporary wastewater system was far less costly than a business interruption and a business interruption was covered under the insurance policy, Ken’s requested the insurer to pay those interim costs. The insurer refused claiming that its policy only covered a loss caused by a business interruption and not costs incurred to prevent a business interruption.
Kens’ sued seeking in Federal Court arguing that even though the policy did not cover the loss, that the common law should impose a common law duty for insurers to cover costs by an insured to prevent an imminent covered loss. Ken’s lost and then appeal to the First Circuit Court of Appeals, which certified the question to the Massachusetts Supreme Judicial Court.
The Massachusetts Supreme Judicial Court held there is no such duty. The plain unambiguous language of the insurance policy controls. Ken’s argued that it is unfair that it is under a duty under the policy to mitigate its losses and prevent a business interruption but not be paid for the mitigation cost. The Supreme Court retorted that the policy is a bargained for exchange and any perceived unfairness presented by the decision is left for the parties to negotiate at the bargaining table. In doing so the Court recognized that the common law doctrine might be applicable where the insurance policy is ambiguous, and the cost sought is not specifically excluded.
The Ken’s Decision is likely instructive in the Condominium setting. Condominiums often take measures to avoid a catastrophic covered loss, such as a building collapse and then seek reimbursement of these preventative costs from the insurer. Unfortunately, the Ken’s case may dictate the outcome in the future. Condominiums and insureds in general need to better understand their coverages, policies, and exclusions. Unfortunately, most insureds, including condominiums focus all too intently on the policy premium. Careful review of your policy, coverages, limits and exclusions by a lawyer and a risk advisor can be the best dressing of all.