Consequential Loss


DEFINITION of 'Consequential Loss'

The amount of loss incurred as a result of being unable to use business property or equipment. If the property/equipment is damaged through a natural disaster or accident, only certain types of insurance can cover the owner for lost business income.

Consequential loss is considered an indirect loss (as compared to losses from the direct damage). Direct damages would be covered under different types of insurance, such as property/casual or fire insurance, but the firm still incurs the costs of lost operations.

BREAKING DOWN 'Consequential Loss'

Say, for example, that a major storm causes some property damage to a storefront. The business owner's property/casualty insurance may cover the amount needed to replace the property, but what about the lost revenue while the store is closed? All of the owner's fixed costs such as rent continue, but there's no money coming in. These are consequential losses, and can be covered under business interruption insurance, of which there are several types.

Insurance to compensate for consequential losses can also cover situations where no direct damage is done to property, but loss of revenue occurs because of things like a power outage or breach of contract from a supplier or business partner.

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