the labor but also for a new water heater.
If you have any documentation then look up what it says about labor.
$1,300 to install (actually replace) a water heater is laughable. The plumbing is already there and they would carry the new heater in and hook up to the existing plumbing and be on their way. Actually they would carry the damaged one away but you could do that.
I would not trust what they are telling you.