Sue and Labor Clauses: The Basis for Mitigating, Expediting and Other Policy Provisions



...for protecting property from vandalism and further fire damage.

Briefly, the facts are as follows: After pipes burst in a large commercial building, the sprinklers became inoperable. As fate would have it a fire occurred, causing extensive damage to the building. To protect the property from vandalism and further damage (because the sprinklers were inoperable), the insured hired the services of a private security company for several months. In doing so, the insured incurred expenses of approximately $79,000, which the insurer declined to pay even though that amount, when added to the amount paid by the insurer for damage to covered property, did not exceed the limits of insurance.

The Massachusetts court of appeals, in affirming the trial court’s decision in favor of the insured held that those expenses incurred were covered for the following reasons:

First, following loss, the policy required the insured “to take all reasonable steps to protect the Covered Property from further damage and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim.” “The most natural interpretation of this language,” the court said, “was that such expenses will be paid, perhaps subject to a consideration of their reasonableness and amount.”

Secondly, following the provision dealing with the requirement of the insured to take all reasonable steps, is the additional sentence stating that such expenses “will not increase the limit of insurance.” This sentence, the court said, obviously refers to “expenses” as the only monetary reference that could be included in the concept of increasing the limits of insurance. If such amounts were not to be paid, the court added, “there would be no need to state, in effect, that such amounts could only be paid if in doing so the limits of insurance would not be exceeded.”

The insurer, on the other hand, pointed out that the language relied on by the insured was under the provision titled, “Duties [of the insured] In the Event of Loss or Damage,” and appeared within the conditions section of the policy. (This loss condition is identical to...

“It is important to note that the mitigating expense provision is not to be confused with extra expense coverage or with the expense to reduce loss provisions of earnings forms, although there are similarities.”