A loss that results from direct damage to property. Such loss can occur when property becomes too hot, too cold, too wet, or too dry because an insured peril caused direct damage either to the premises or some remote facility that controls its environment. Consequential loss is usually specifically excluded by the Standard Fire and Allied Perils or any other Basic Standard Policy. See Also: “Business interruption” and “Change in condition.”
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Also known as indirect loss, consequential loss involves a loss that is the consequence of a direct loss. For example, a fire may destroy a business (direct loss) and the business then loses profits because it is not able to operate (consequential loss). Other examples are loss of use under the homeowners policy and extra expense coverage for various business policies. Consequential loss may not be included in a policy covering direct loss unless the particular type of consequential loss is stipulated and an additional premium is paid.
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An indirect consequence of direct loss to property. Business income may be lost when a store burns down, or frozen goods may spoil when windstorm causes an interruption of power. Consequential or indirect loss is not generally insured by policies covering direct damage (i.e., by fire or wind as in these examples), but insurance is readily obtainable separately for most such consequential exposures—business income coverage being among the most common coverage.
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US: Financial loss occurring as the consequence of some other loss. Often called an indirect loss.
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UK: The term, unless defined in a contract, follows the rule for contractual damages and embraces losses flowing directly from the breach, e.g. late delivery that increases costs. Consequential losses are generally regarded as the more remote consequences that were not reasonably foreseeable by the parties. Contracts that define consequential are more likely to limit a person’s rights than a claus that simply excludes liability for consequential loss without definition. In insurance the term is used to refer to expenses such as the cost of temporary relocation, while fire damaged property is being repaired. The term ‘consequential loss insurance’ has been replaced by ‘business interruption insurance’. Consequential loss is not covered under material damage insurances.