United States Court of Appeals For the First Circuit

No. 21-1649

KEN'S FOODS, INC.,

Plaintiff, Appellant,

v.

STEADFAST INSURANCE CO.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Leo T. Sorokin, U.S. District Judge]

Before

Kayatta, Lipez, and Howard, Circuit Judges.

Lawrence G. Green, with whom Gregory S. Paonessa and Burns & Levinson LLP were on brief, for appellant. Jeffrey E. Dolan, with whom Mark W. Shaughnessy and Boyle Shaughnessy Law PC were on brief, for appellee.

June 7, 2022 KAYATTA, Circuit Judge. This case raises a significant

question of state law: Whether Massachusetts recognizes a common-

law duty for insurers to cover costs incurred by an insured party

to prevent imminent covered loss. Because the answer to this

question may be determinative of this case and because there does

not appear to be controlling precedent from the Massachusetts

Supreme Judicial Court on this question, we have decided to certify

the question to the SJC under its rules. See Mass. S.J.C. R. 1:03.

Our reasoning follows.

I.

We ask the SJC to opine on the following question of

law:

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?

II.

The facts of this case are simple.1 In December 2018,

an accidental discharge at one of Ken's Foods' processing

facilities caused wastewater to enter Georgia waterways. Ken's

Foods immediately addressed the "pollution event" to prevent

1Because 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." Quinn v. City of Boston,

(1st Cir. 2003) (quoting Griggs- Ryan v. Smith,

(1st Cir. 1990)).

- 2 - further discharge and to clean up the pollution, including by fully

cooperating with Georgia state officials. The source was contained

by February 2019.

Part of Ken's Foods' effort went to preventing a

suspension of operations at its Georgia processing facility.

According to Ken's Foods, its efforts to prevent a suspension of

operations included, first, stopping the actual pollution event.

Second, it negotiated "allowances" with the county to accept pre-

treated water that would otherwise have exceeded acceptable

levels. Ken's Foods explained that without these allowances, its

facility "would have been forced to stop all operations" or,

alternatively, it would have had to "contract third party services

for hauling and processing of waste water," which would have

involved fees much greater than the allowances negotiated with the

county. Finally, Ken's Foods continued to contain the

contamination through "ongoing pumping of contaminated water"

through its "temporary waste water treatment process," "before

releasing the water to the county for further treatment." That

temporary treatment was "installed to maintain plant operations

and to reduce environmental impact." All told, Ken's Foods

estimated that it incurred over $2 million in its efforts to

prevent a suspension of operations.

Due to its prevention efforts, Ken's Foods never had to

suspend operations at its Georgia facility. According to Ken's

- 3 - Foods, this facility manufactures its entire line of salad

dressings (in addition to other food products), producing an

average monthly profit of "at least" $9.6 million, and employs

approximately 350 full-time employees (who are collectively paid

$1.6 million per month). Thus, without its prevention efforts,

Ken's Foods would have incurred losses in excess of the $10 million

coverage provided by its comprehensive environmental policy with

Steadfast Insurance Co.

Ken's Foods filed a claim with Steadfast. The policy

covered both clean-up expenses as well as business losses resulting

from pollution events that cause a "suspension of operations."

The relevant portion of the "suspension of operations" coverage

provision reads:

We will pay "other loss" to the extent resulting from a "new pollution event" on, at, or under a "covered location" . . . , if that "new pollution event":

(a) Is first "discovered" during the "policy period"; and

(b) Directly causes a "suspension of operations" at such "covered location" during the "policy period"; . . . .

"Suspension of operations" is defined under the policy to mean

"the necessary partial or complete suspension of 'operations' at

the 'covered location' as a direct result of a 'cleanup' required

by 'governmental authority.'"

- 4 - The policy also discusses Ken's Foods' duties regarding

"mitigation":

In the event of a "suspension of operations", the "insured" must act in good faith to:

1. Take steps to mitigate "actual loss of business income["]; and

2. Diligently execute and complete "cleanup" to the extent such "cleanup" is within the "insured's" control; and

3. Resume "operations" at the "covered location" as soon as practicable.

In its claim to Steadfast, Ken's Foods requested, among

other things, reimbursement for the cost of its prevention efforts.

Steadfast refused to pay those costs. Although it paid for

expenses covered by the plain language of the policy, Steadfast

explained that the policy did not cover ex ante prevention efforts;

it only covered business losses resulting from a complete

suspension of operations.

Ken's Foods sued in Massachusetts federal court, under

diversity jurisdiction, seeking nearly $3 million "due to be paid

by Steadfast under the Policy, together with interest, costs[,]

and reasonable attorney's fees." It also sought treble damages

under Chapters 93A and 176D of the Massachusetts General Laws,

which penalize insurance companies who unreasonably refuse to pay

valid claims.

- 5 - The parties agreed to submit cross-motions for summary

judgment on a single issue: "[W]hether Ken's Foods can recover

from Steadfast the costs that it says it incurred to avoid

suspending its operations after the pollution discharge." See

Ken's Foods, LLC v. Steadfast Ins. Co., No. CV 19-12492,

, at *1 (D. Mass. Aug. 5, 2020).2 At the summary judgment

hearing, Ken's Foods conceded that the policy on its face did not

cover the type of preventative costs Ken's Foods incurred here.

Ken's Foods argued that Massachusetts would nevertheless recognize

a common-law duty that requires insurers to reimburse expenses

incurred to prevent imminent covered loss.

The district court granted summary judgment for

Steadfast because it concluded that there is no indication that

Massachusetts common law entitles Ken's Foods to recover "costs

undertaken to avoid a suspension of operations [that] are not

covered by the applicable insurance policy." Ken's Foods,

, at *2. The court noted that a fellow federal jurist had

found that the Commonwealth would recognize this duty,

at *1

2Steadfast also moved for summary judgment on the Chapters 93A and 176D claims, which the district court granted because "there is nothing to suggest that Steadfast's denial of coverage . . . was 'unreasonable,' 'in bad faith,' or the result of 'ulterior motives.'" Ken's Foods,

, at *2 (quoting Clarendon Nat'l Ins. Co. v. Phila. Indem. Ins. Co.,

(1st Cir. 2020)). Ken's Foods does not appeal that ruling. The parties have settled every other claim (but the claim for prevention costs) during the course of litigation.

- 6 - (citing Demers Bros. Trucking v. Certain Underwriters at Lloyd's

of London,

, 274–75 (D. Mass. 2009)), but the

court in this case ultimately found that decision unpersuasive

because it only relied upon "decisions of state courts other than

those of the Commonwealth applying law other than Massachusetts

law [and] a single treatise," id. at *2. Ken's Foods appealed.

III.

Before us, as in the district court, Ken's Foods relies

solely on a common-law duty that would require Steadfast to cover

expenses incurred to prevent imminent covered loss. Although it

points to no Massachusetts case recognizing such a duty, Ken's

Foods posits that the SJC would recognize the duty because

(according to Ken's Foods) it is deeply rooted in the common law,

the policy arguments in favor of such a duty map on to policy

considerations the SJC has used to recognize similar common-law

duties, and several other states recognize the duty.

Steadfast disagrees. It contends, first, that

Massachusetts has categorically rejected applying any common-law

duty that puts obligations on insurers beyond the express terms of

the policy, citing Mount Vernon Fire Insurance Co. v. Visionaid,

Inc.,

, 209 (Mass. 2017). Steadfast then parries

Ken's Foods' policy arguments, arguing that this duty is not

actually widely recognized and urging the court to enforce the

- 7 - plain terms of the contract as agreed upon by two sophisticated

business entities.

1.

We disagree with Steadfast's first, overarching argument

that Massachusetts has already decided the issue at hand by

categorically rejecting the use of the common law to supplement

coverage provided by the plain terms of an insurance policy. In

Mount Vernon, as Steadfast points out, the SJC did say: "Where

the language of an insurance policy is clear and unambiguous, we

rely on that plain meaning, and do not consider policy arguments

in interpreting the plain language." 76 N.E.3d at 209. But that

prohibition on "consider[ing] policy" arguments was in a section

of the opinion "interpreting the plain language" of the insurance

policy itself. The SJC did not stop there. The court went on to

determine whether the common-law "in for one, in for all" rule

extended to requiring an insurer to file a counterclaim when

fulfilling its contractual duty to defend even though the policy

language itself did not assign such a duty to the insurer. See

id. at 210–12. In doing so, the court reaffirmed that common-law

principles can supplement insurance policies. In the SJC's words,

"the 'in for one, in for all' rule did expand the class of actions

that an insurer is obligated to defend." Id. at 211. Accordingly,

we do not find in Mount Vernon a clear rule against common-law

- 8 - supplementation that would resolve this appeal and obviate the

need to certify this issue.

2.

Nothing else resolves our uncertainty on Massachusetts

law as it bears on the issue before us. As explained above, there

are no SJC decisions on point. One federal district judge in

Massachusetts has concluded that the duty applies under

Massachusetts law, see Demers, 600 F. Supp. 2d at 274–75, but we

are not so sure.

When considering a difficult state law question on which

the highest court of the state has not spoken directly, "we are

free to make our own best guess as to Massachusetts law." Liberty

Mut. Ins. Co. v. Metro. Life Ins. Co.,

(1st Cir.

2001). In doing so, we have said that "the federal court may draw

upon a variety of sources that may reasonably be thought to

influence the state court's decisional calculus," including

(1) "analogous decisions of the state's highest court,"

(2) "decisions of the lower courts of that state," (3) "precedents

in other jurisdictions," (4) "the collected wisdom found in

learned treatises," and (5) "any relevant policy rationales."

Andrew Robinson Int'l, Inc. v. Hartford Fire Ins. Co.,

, 51–52 (1st Cir. 2008). Although this list is "not arranged in

- 9 - any rigid hierarchy,"

, we consider these sources in

turn.3

First, Mount Vernon provides a somewhat apt analogous

decision from the SJC. In explicating why it would not expand the

common-law "in for one, in for all" rule to cover counterclaims

rather than just defenses, the court explained that the expansion

would "misalign[] the interests of the party who stands to benefit

from the counterclaim (the insured) and the party who bears the

cost of prosecuting the counterclaim (the insurer)." Mount Vernon,

76 N.E.3d at 211.

In one sense, the duty here would align the interests of

the parties. Without a duty to compensate for actions that

prevented a covered loss, an insured may decide to just allow their

operations to be suspended to ensure it receives insurance proceeds

(here, $10 million) rather than eat the costs (here, $2 million)

to prevent the harm. See 12A Steven Plitt et al., Couch on

Insurance § 178:10 (3d ed. Dec. 2021 Update).

3 We pause here to note that the district court rejected Ken's Foods' argument for recognizing this common-law duty merely because no Massachusetts court had yet done so. That is too stringent a standard. The Demers court's approach -- relying on precedents in other jurisdictions and an influential treatise to make a guess -- is the correct one. See Andrew Robinson Int'l, 547 F.3d at 51–52. Had these sources generally and persuasively pointed in one direction here, we would not have hesitated to hold that Massachusetts would (or would not) recognize the duty.

- 10 - But that is not necessarily or always so. An insured

still has an interest in preventing a suspension of operations

even if its insurance covers losses but not prevention, especially

if the suspension would cost more than insurance would cover.

Ken's Foods alleged that, had it not prevented the suspension of

operations, it would have been out $10 million per month. It is

not obvious to us that Ken's Foods would have permitted that to

happen even if it were clear Steadfast had no obligation to

reimburse the cost of prevention measures up to the $10 million

coverage limit (per pollution event) under its policy. Even Ken's

Foods itself admitted below that it "would have wanted to avoid

firing any personnel and to meet its payroll obligations" and that

its losses from a suspension of operations would have "consumed

the Policy's entire limit of liability."

We turn next to lower court decisions. The parties have

pointed to no relevant Massachusetts intermediate appellate court

decisions (and we have located none on our own), but Steadfast

believes it has found "the most analogous Massachusetts authority"

in a trial-court decision. See Roche Bros. Supermarkets, LLC v.

Cont'l Cas. Co., No. 2017-cv-159,

(Mass. Super.

Ct. Mar. 16, 2018). Roche Bros. is not very helpful to our task,

however, because it focuses solely on whether the policy, by its

terms, required coverage of prevention costs. The court held that

a landlord who preemptively removed snow off several of its Boston

- 11 - apartment buildings in a heavy-snow year could not recover under

a policy provision that covered roof collapse. No one appears to

have argued that any background common-law duty applied. Moreover,

even if Massachusetts clearly recognized a common-law duty for

insurers to recompense prevention efforts that avoid imminent

covered loss, we are dubious that it would have applied in that

case as there is no indication the roofs were in any danger of

imminent collapse. The landlord's decision in that case to remove

snow seems to us to have been routine maintenance. For these

reasons, we find no assistance in Roche Bros.

Another source we rely upon is the caselaw from other

jurisdictions. On this question, however, states have gone both

ways. The Pennsylvania Supreme Court provides the best case for

explaining why a duty on insurers exists and should be recognized:

If the plaintiff [insured] had not taken immediate and substantial measures to remedy the perilous situation, disastrous consequences might have befallen the adjoining and nearby properties. If that had happened, the defendant [insurer] would have been required to pay considerably more than is involved in the present lawsuit. It would be a strange kind of argument and an equivocal type of justice which would hold that the [insurer] would be compelled to pay out, let us say, the sum of $100,000 if the [insured] had not prevented what would have been inevitable, and yet not be called upon to pay the smaller sum which the [insured] actually expended to avoid a foreseeable disaster. . . . It is folly to argue that if a policy owner does nothing and thereby permits the piling up of mountainous claims at

- 12 - the eventual expense of the insurance carrier, he will be held harmless of all liability, but if he makes a reasonable expenditure and prevents a catastrophe he must do so at his own cost and expense.

Leebov v. U.S. Fid. & Guar. Co.,

(Pa. 1960). The

Maryland Court of Appeals, however, has explicitly rejected this

reasoning: "We are not persuaded by Leebov, or by any subsequent

case that has followed the Leebov rationale, that concepts of

fairness and equity justify the construction of an insurance policy

to provide coverage where none exists under the clear language of

the policy." W.M. Schlosser Co. v. Ins. Co. of N. Am.,

(Md. 1992) (footnote omitted). Maryland's rejection of

Leebov, however, was fundamentally based on a categorical decision

not to supplement the plain language of a policy at all. As we

explained above, Massachusetts law is not so categorical.

In Grebow v. Mercury Ins. Co., a California intermediate

appellate court rejected an argument for a "duty of the insurer to

reimburse the insured" for costs expended "to prevent an imminent

insurance loss," concluding that "[t]here is no implied obligation

to reimburse an insured for [such] costs."

,

268–70 (Cal. Ct. App. 2015). The Grebow court recognized that

"[t]his is an issue that has conflicting authorities,"

,

but ultimately did not find the policy arguments persuasive. The

court concluded that even if the insurer had no duty to cover

prevention costs, an insured would "prevent an insurable loss from

- 13 - occurring . . . because he or she would rather have the house and

property in it than insurance proceeds or reconstruction."

. Grebow also recognized that courts should hesitate before

"compel[ling] the insurer to give more than it promised and

[allowing] the insured to get more than it paid for."

at 270

(quoting Rosen v. State Farm Gen. Ins. Co.,

(Cal.

2003)).

State courts are often influenced by "the collected

wisdom found in learned treatises," so we look at those as well

when hazarding a guess about how a state court would decide an

issue. Andrew Robinson Int'l, 547 F.3d at 51–52. The Demers court

cited to Couch on Insurance, which is a leading treatise regarding

insurance law and to which the SJC has cited for decades. See,

e.g., Verveine Corp. v. Strathmore Ins. Co.,

, 1275

(Mass. 2022); Ruggerio Ambulance Serv., Inc. v. Nat'l Grange Ins.

Co.,

(Mass. 2000); Transam. Ins. Co. v. Norfolk

& Dedham Mut. Fire Ins. Co.,

, 688–90 (Mass. 1972).

Couch explains that

a common law duty on the part of the insured to mitigate covered losses, either by preventing them or minimizing their extent, and a corresponding common law right to recompense from the insurer for the cost of these efforts have been recognized even though the items involved may be ones as to which there is no express policy coverage.

- 14 - 12A Couch on Insurance § 178:10 (3d ed. 2021 Update) (emphasis

added); see also 11A Couch on Insurance § 168:11 (3d ed. Dec. 2021

Update) (same, in a section regarding the duty to mitigate). Couch

further explains that "[t]he rationale for this principle is common

sense: any other rule would provide the insured with the economic

incentive to allow the loss to occur, to the detriment of the

insurer, quite possibly the insured, and in a fair number of cases,

to the general public, as well." Id. § 178:10. Thus,

"[r]eimbursement is available if labor was to prevent a covered

loss." Id. "Where the insured takes such steps, it is clearly

for the benefit of the insurer thereby creating a duty to reimburse

the insured." Id. Couch also recognizes a "rather simple caveat

that the mitigation cost is recoverable so long as it is reasonable

and less than damages would have been without it." Id. Prevention

costs are not recoverable if the imminent loss "is outside the

coverage of the policy" such that "the costs incurred d[id] not,

in fact, inure to the insurer's benefit." Id. § 178:11.

Another insurance treatise the SJC has looked to --

including in Mount Vernon -- is Windt's Insurance Claims and

Disputes. But Windt simply mentions this issue and cites cases

that go both ways. See 3 A.D. Windt, Insurance Claims & Disputes

§ 11:1 nn.2, 36–37 & accompanying text (6th ed. Mar. 2022 Update).

Finally, we consider relevant policy rationales, but we

don't have much to add to the above. The primary policy arguments

- 15 - on both sides have been covered throughout our discussion of the

fonts of law we have surveyed. As is evident, there are policy

rationales for and against recognizing a duty on insurers to cover

prevention costs, and we see no overwhelming clue as to which tack

the SJC would take if confronted with this question directly.

IV.

"[U]ncertainty or difficulty regarding state law" --

though "generally not sufficient to justify traditional

abstention" -- "may be enough to counsel certification where that

procedure is available." Pyle v. S. Hadley Sch. Comm.,

(1st Cir. 1995). And certification is "particularly

appropriate" where, like here, "the answers to these questions may

hinge on policy judgments best left to the Massachusetts court and

will certainly have implications beyond these parties." In re

Engage, Inc.,

(1st Cir. 2008). Since "[t]his is

also not a case in which the 'policy arguments line up solely

behind one solution,'"

at 57 (quoting Bos. Gas Co. v. Century

Indem. Co.,

(1st Cir. 2008)), we believe

certification is the best path forward.

There is one aspect of this case, however, that gives us

significant pause. Ken's Foods opted to file this suit, raising

purely state-law claims, in federal court. It could have asked

the Massachusetts state courts to settle this dispute, but it chose

not to do so. We have explained that a party "who chooses the

- 16 - federal courts in diversity actions is in a peculiarly poor

position to seek certification," Cantwell v. Univ. of Mass.,

(1st Cir. 1977), especially where there is

"uncertainty as to whether Massachusetts courts would recognize

[the] cause of action," Tersigni v. Wyeth,

, 369 n.6

(1st Cir. 2016). Moreover, Ken's Foods waited until after it lost

at summary judgment to request that the district court certify the

issue. As Steadfast aptly described, Ken's Foods in essence

treated the district court as "a no-lose trial run," in which it

could have accepted a favorable result, while leaving open its

ability to claim that a different court should have decided the

issue now that it lost. We do "not look favorably, either on

trying to take two bites at the cherry by applying to the state

court after failing to persuade the federal court, or on

duplicating judicial effort." Cantwell,

. Waiting

until you lose before asking for certification "is almost always

fatal unless the court sees strong policy reasons to insist on

certification itself." In re Fuller,

, 244 (1st Cir.

2011).

We reiterate that Ken's Foods' strategy is not good

practice, and we continue to discourage it. See Bos. Car Co. v.

Acura Auto. Div., Am. Honda Motor Co.,

, 817 n.3 (1st

Cir. 1992) ("[T]he practice of requesting certification after an

adverse judgment has been entered should be discouraged." (quoting

- 17 - Perkins v. Clark Equip. Co.,

(8th Cir. 1987))).

If Ken's Foods wanted the SJC to decide this suit, it should have

asked the Massachusetts court directly, or at least sooner.

That said, we have concluded that this is the rare case

in which, even in these circumstances, we "see[] strong policy

reasons to insist on certification [our]self." In re Fuller, 642

F.3d at 244. The traditional tools we use to hypothesize state

law point in both directions, and certification is not clearly to

Ken's Foods benefit, as we very well might have tipped in its favor

had we not opted to certify. Importantly, whether Massachusetts

common law recognizes an extra-contractual duty for insurers

raises important questions concerning a significant, regulated

industry. Moreover, we can see the question arising in future

cases, and having an answer to the question from the SJC would

eliminate an incentive for forum shopping. See Real Est. Bar Ass'n

for Mass., Inc. v. Nat'l Real Est. Info. Servs.,

(1st Cir. 2010) (finding certification "especially appropriate"

where the question "raises serious policy concerns regarding the

practice of law that will certainly impact future case"). Finally,

at the conclusion of the appeal, we anticipate that all costs will

be taxed to Ken's Foods.

V.

Given the foregoing, the clerk of this court shall

forward to the SJC (under official seal) our opinion, as well as

- 18 - the parties' appellate briefs and appendices. We retain

jurisdiction, with costs to be awarded in favor of Steadfast at

the conclusion of this appeal unless we subsequently order

otherwise.

- 19 -