What is the Sue and Labour Clause?

02 July 2018

In this regular feature we take a look at common clauses found in Energy Insurance that are often not well understood and try to look at what their intentions are, and what they cover or exclude. In this article we look at the ‘Sue and Labour’ Clause.

The Sue and Labour clause first appeared in marine insurance policies written in London over 200 years ago and was designed to allow the Insured to take measures to avert or minimise insured loses without prejudice to his rights to claims under the policy.

In the standard SG [Ships and Goods] form of 1779 (in use until the 1980s) there was a clause that read:

“……and in case of any Loss or Misfortune, it shall be lawful to the Assured, their Factors, Servants and Assigns, to sue, labour, and travel for, in and about the Defence, Safeguard and Recovery of the said Goods and Merchandises and Ship, &c, or any part thereof, without Prejudice to this Insurance; to the Charges whereof we, the Assurers, will contribute, each one according to the Rate and Quantity of his sum herein assured. And it is especially declared and agreed that no acts of the Insurer or Insured in recovering, saving, or preserving the property insured, shall be considered as a waiver of acceptance of abandonment…”

As for the origins of the terms Sue and Labour, it is thought that ‘sue’ means ‘to proceed’ (as opposed to its modern usage of taking an action in court) whilst ‘labour’ is assumed to be its common definition of ‘work’. The word ‘travel’ in this context is thought to be from the word ‘travail’ (a laborious effort).

In 1906 the Marine Insurance Act (still in place today) set out legal principles (in section 78) where the policy contains a Sue and Labour clause which are:

1) Where the policy contains a suing and labouring clause, the engagement thereby entered into is deemed to be supplementary to the contract of insurance, and the assured may recover from the insurer any expenses properly incurred pursuant to the clause, notwithstanding that the insurer may have paid for a total loss, or that the subject-matter may have been warranted free from particular average, either wholly or under a certain percentage.

2) General average losses and contributions and salvage charges, as defined by this Act, are not recoverable under the suing and labouring clause.

3) Expenses incurred for the purpose of averting or diminishing any loss not covered by the policy are not recoverable under the suing and labouring clause.

4) It is the duty of the assured and his agents, in all cases, to take such measures as maybe reasonable for the purpose of averting or minimising a loss.

Although the principles in the Marine Insurance Act (MIA 1906) still apply, in the 1980s the London Market did away with the SG form, and its replacement (the Institute Time Clauses Hulls or ITCH) restated the Sue and Labour clauses in modern language retitled ‘Duty of Assured’ (Sue and Labour) – presumably keeping reference to Sue and Labour to tie it back to the MIA 1906 principles.

However many Offshore Energy policies (and some Onshore Energy policies) still use the term Sue and Labour (as used in the 1972 London Standard Platform Form, the 1972 London Standard Drilling Barge Form and more recently the 2001 WELCAR Offshore Construction form, still in common use today).

Over the years many cases have come before the English courts to decide what costs may be recoverable under a Sue and Labour clause. The most significant being the 1990 decision in the ‘Royal Boskalis’ case where the Court of Appeal determined that the insured is entitled to recover under the Sue and Labour clause if he can show:

1) that he or his agent has taken ‘unusual and extraordinary ‘steps of exertion

2) that the object of this action was to preserve the insured property from loss by an insured peril

3) that the insured peril was operative or obviously imminent,

4) that the loss, if it had occurred, would have been of a type recoverable under the policy

5) that it was reasonable to take the steps.

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If you require any further information, please contact John Cooper, Managing Director on +44 (0)20 7466 6510 or email john_cooper@jltgroup.com.

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