Although the Sue & Labor Clause is commonly found in cargo and hull insurance policies—and has existed for more than 200 years—it’s not well understood. That might have something to do with the term’s antiquated origins. When the phrase was first coined in London in 1779, the word “sue” meant “to proceed” rather than to take action in court, while “labor” was (as it is now) commonly accepted to mean “work.”
A Brief Explanation
Essentially, the Sue & Labor clause requires that the insured protect damaged property from further loss once a loss has occurred, and ensures that the insurer reimburse the insured for any expenses related to doing so. (The Sue & Labor clause is sometimes referred to as the insured’s “Duties in the Event of a Loss” in property insurance policies.)
Should shipping boxes be damaged in transit, for example, the insured would be required to mitigate further damage by placing a tarp over the cargo, with the costs being covered by the insurer if the amount of insurance is equal to or greater than the value of the property. Another example would be if cargo has been damaged by an insured peril, such as a hurricane. The costs associated with reconditioning and repackaging the cargo so that it can be sold as intended would likely be a recoverable expense under Sue & Labor clause.
Real-Life Examples from Falvey Cargo
- In one instance, Falvey Cargo paid for alternative transportation to move a shipment of perishable cargo affected due to cargo flights being staggered as a result of Hurricane Irma. A charter flight was utilized which allowed the shipment to continue in transit.
- During multiple hurricanes, perishable goods were stuck in a warehouse, and the insured hired a service to go to the warehouse and refill the dry ice in the cartons to prevent a total loss of the goods.
When An Insured Is Covered (Or Not)
A Sue & Labor clause is considered supplementary to the insurance contract. When a policy contains such a clause, the insured is required to minimize damage to the covered loss or risk forfeiting coverage. On the flip side, in the case of a threatened loss, the insured cargo need not have been actually damaged for Sue & Labor costs to be reimbursed under the policy. When can an insured recover expenses under a Sue & Labor clause? That’s primarily determined whether the cause of the damage is covered under the policy and the expenses were reasonably incurred.
