The Sue and Labour clause is described/included in the Marine Insurance Act (MIA), Institute Time Hull and International Hull Clauses.
The purpose of the clause is to indemnify the assured in case he incurs expenditure when averting or minimizing a loss, which would otherwise be recoverable under the insurance policy. Its significance is that it is supplementary to the policy, which means that the assured may recover such expenses in addition to a claim for total loss, thereby extending his measure of indemnity, beyond the insured value of his vessel.
Measures taken to avert or minimize a loss
The above description of sue and labour, which is included in the MIA and the various hull clauses, has frequently offered uncertainty, in particular when compared to general average.
In Royal Boskalis Westminster v Mountain (1997) the following principles were laid down by Lord Justice Stuart-Smith of the Court of Appeal: 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’ action, (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 and (5) that it was reasonable to take the steps.
In contrast, the basic principle of GA is the following “That which has been sacrificed for the benefit of all shall be made good by the contribution of all”. This sacrifice must be extraordinary, intentional or voluntary, there must be peril and the action must be for the common safety of the maritime adventure.
The comments of Stuart-Smith LJ make apparent that sue and labour is a matter of insurance, whereby a duty is placed upon an assured to practically minimize the exposure of his insurer. In contrast, general average, though insurable, is a matter of law of the seas and not of marine insurance.
Another difference between sue and labour and general average is that the former is for the benefit of the underwriter of the subject matter insured, whereas the latter is for the benefit of the property involved in the common maritime adventure. Consequently, general average is borne by all the property that participates in the maritime adventure, such as ship, cargo, freight and/or bunkers. To the contrary, the duty arising from the sue and labour clause is vested in only one party, the assured shipowners.