A “sue and labor clause” is typically found in a marine insurance policy and typically provides:1
And in case of any Loss or Misfortune, it shall be lawful and necessary for the Assured,… Factors, Servants and Assigns, to sue, labor and travel for, in and about the defense, safeguard and recovery of the vessel, or any part thereof, without prejudice to this insurance, to the charges whereof the underwriters or assured will contribute their proportion as provided below. And it is expressly declared and agreed that no acts of the Underwriters or Assured in recovering, saving, or preserving the Vessel shall be considered a waiver or acceptance of abandonment.
In the event of expenditure under the Sue and Labor clause, the Underwriters shall pay the proportion of such expenses that the amount insured hereunder bears to the Agreed Value, or that the amount insured hereunder, less loss and/or damage payable under this policy, bears to the actual value of the salved property; whichever proportion shall be less.
It requires an insured to protect damaged property from further loss once a loss has occurred.2 This clause is intended to encourage an insured to take measures to preserve the subject matter of the insurance policy.3 In exchange, the insurer must reimburse the insured for the expenses it incurs, since the insured has acted to benefit the insurer by averting or mitigating an otherwise recoverable loss.4
The court in the case of White Star S.S. Company v. North British & Mercantile Insurance Company,5 explained the rationale for the sue and labor clause:
The law is well settled that the sue and labor clause is a separate insurance and is supplementary to the contract of the underwriter to pay a particular sum in respect to damage sustained by the subject matter of the insurance. Its purpose is to encourage and bind the assured to take steps to prevent a threatened loss for which the underwriter would be liable if it occurred, and when a loss does occur to take steps to diminish the amount of the loss.
When a policy contains a sue and labor clause, an insurer may be able to argue that the insured has forfeited its coverage if it does not sue and labor to minimize the covered loss.6
Some courts take the view that a breach of the sue and labor clause bars all recovery under the policy, but others reach the opposite conclusion. In Rousse v. Home Insurance Company,7 the court held that the owner of a wooden crewboat was not barred from recovering from the insurer for a total loss of the boat for an asserted breach of the sue and labor clause. The insurer alleged that the owner failed to make all reasonable exertions to prevent the loss of the vessel when its engines stopped while it was in the Mississippi River. Water had entered the hull too rapidly for the bilge pumps to operate effectively, and the pilot, unable to start the engine, paddled to shore, moored the boat to a tree, and reported the difficulty to the owner. Later that afternoon the owner attempted but failed to bail out the boat, rent air tanks to raise the boat, and borrow money to meet the cost of salvaging operations. It was not until after these undertakings had failed that the owner informed the insurer he was unable to have the salvage performed.
Property insurance policies contain similar provisions to sue and labor clauses but they are usually included as one of the insured’s “Duties in the Event of Loss.” An example would be the temporary placement of a tarp over a damaged roof to mitigate further damage.
1 Buglass, Marine Insurance Claims: American Law and Practice App. G, 155 (Cornell Maritime Press 2d ed. 1972).
3 See generally Buglass, Marine Insurance and General Average in the United States 332–35 (2d ed. 1981).
4 See, e.g., Blasser Brothers v. Northern Pan–American Line, 628 F.2d 376 (5th Cir.1980) (sue and labor clause designed to reimburse insured for expenditures made primarily for benefit of insurer to reduce or eliminate covered loss).
5 White Star S.S. Co. v. North British & Mercantile Ins. Co., 48 F.Supp. 808 (E.D. Mich. 1943).
6 See, e.g., Integrated Container Service Inc. v. British Traders Insurance Co.,  1 Lloyd’s Rep. 154 (C.A.) (assured who fails to perform duty under sue and labor clause runs risk of subsequent claim being rejected).
7 Rousse v. Home Insurance Co., 78 So.2d 522 (La. 1955).