At 22.30 hours on 30 Jul, 1942, the Robert E. Lee (Master William C. Heath) was hit by one torpedo from U-166, steaming at 16 knots about 25 miles southeast of the entrance to the Mississippi River. Lookouts had spotted the torpedo wake about 200 yards away before it struck just aft of the engine room. The explosion destroyed the #3 hold, vented through the B and C decks and wrecked the engines, the radio compartment and the steering gear. The vessel had been bound for Tampa, but no pilot was available so she was diverted to New Orleans under escort by the American submarine chaser USS PC-566, which now began dropping depth charges at a sonar contact, sinking the U-boat.
The badly damaged Robert E. Lee first listed to port then to starboard and finally sank by the stern about 15 minutes after the torpedo hit. One officer, nine crewmen and 15 passengers were lost. The survivors of the eight officers, 122 crewmen, six armed guards (the ship was armed with one 3in gun) and 268 passengers on board abandoned ship in six lifeboats, eight rafts and five floats and were soon picked up by USS PC-566, USS SC-519 and the tug Underwriter and landed in Venice, Louisiana.

The passengers aboard the Robert E. Lee were mostly survivors of previously torpedoed ships on their way to the USA. Among the rescued were all 28 men from the Andrea Brøvig and 44 men from the Stanvac Palembang, while one man from the latter died in the sinking.