April 24, 2001
"Sue and Labor" Clause -- the Target of Y2K Insurance Coverage Challenges -- Not Separate Grant of Coverage
United States District Court, Southern District of Florida

In a recent decision addressing the applicability of a “Sue and Labor” clause, the United States District Court for the Southern District of Florida held that the clause was not a separate grant of coverage, and that, in order for remediation expenses to be covered, the loss must be imminent and the damage being avoided must be the type of damage which would be otherwise covered under the policy.  In Swire Pacific Holdings, Inc. v. Zurich Insurance Company, the insured sought coverage under a builders risk policy for repairs it made to a high rise condominium building after a municipal design review board refused to grant a certificate of occupancy in the absence of such repairs.  The court found that no coverage existed because certain exclusions, including a design defect exclusion, applied. The insured then argued that coverage was provided under the Sue and Labor clause in the policy, which provided that “In case of loss or damage, it shall be lawful and necessary for the INSURED…to sue, labor and travel for, in and about the defense, safeguard and recovery of the insured property hereunder or any part thereof without prejudice to this insurance…The expenses so incurred shall be borne by the INSURED and the Company proportionately to the extent of their respective interests.”  The court concluded that there was no coverage because 1)  The Sue and Labor Clause is not a separate insuring agreement; and 2) the Sue and Labor Clause does not provide coverage for otherwise excluded perils.  The court held that:

“When determining whether the insured’s actions are benefiting the insurer (and thus should be covered under the Sue and Labor Clause), a court looks not to whether the insured’s actions may potentially benefit the insurer in some way, but rather, whether the actions correlate to an excluded loss (in which case the sue and labor expenses do not benefit the insurer by reducing or eliminating the loss for which the insurer would be liable).”

Summary by Stephen Goldman;
Zurich claim handled by FICC Member Daiina Kojelis, represented by FICC Member Janet Brown

The Federation

-- Anonymous, May 08, 2001