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



As clear as imminent might mean, it can still be the focus of argument. In fact, this was one of the points of disagreement in the case of Washington Mutual Bank v. Commonwealth Insurance Company, et al., 133 Wash. App. 1031 (Ct. App. Wash. 2006), which involved a commercial building owned by Washington Mutual (WaMu) and insured for $12.5 million by three insurers with substantially identical language.

In anticipation of its building being renovated, WaMu retained the services of an engineering firm to evaluate the property. In a report WaMu received, the engineering firm concluded that the property was unsafe and should be evacuated. WaMu hired another engineering firm for a second opinion. Because the second opinion could not be conducted as promptly as WaMu had wished, the building had to be evacuated. It turned out that first opinion was incorrect. As a result, WaMu filed suit against the engineering firm and settled out of court.

WaMu then filed an action against its property insurers to obtain coverage for the economic losses associated with the evacuation. The trial court ruled for the insurers and WaMu appealed.

One of the disputes was over the sue and labor clause that applied to both imminent loss and actual loss. Since there was no direct physical loss or damage, and a covered loss did not have to actually occur in order to invoke coverage, the question was whether any such loss was imminent. Addressing this question, the WaMu argued that absent a definition of “imminent” in the policy, the insured’s subjective determination of imminence is the touchstone to determine coverage. WaMu thus argued that because the parties agreed that WaMu acted reasonably, its losses are covered by the sue and labor provision.

The insurers argued, however, that the loss or damage must have had to be “imminent in fact,” rather than reasonably perceived to be imminent.

The court agreed with the insurers, stating that a reasonable but incorrect perception of imminence of covered loss does not suffice as a basis for coverage under the sue and labor provision. To obtain...

“The primary purpose for a sue and labor clause is for the benefit of the insurer, even though the insured benefits from being reimbursed for costs and expenses incurred in reducing or eliminating loss.”