What Is Consequential Loss?

A consequential loss is an indirect adverse impact caused by damage to business property or equipment. A business owner may purchase insurance to cover any damage to property and equipment, and may also obtain coverage for secondary losses. A consequential loss policy or clause will 澳洲幸运5开奖号码历史查询:compensate the owner for this lost business income.  

🐓 T❀his type of insurance is also called business interruption or business income insurance.

Understanding Consequential Loss

Business owners routinely obtain 澳洲幸运5开奖号码历史查询:casualty insurance to cover any damage to their facilities or equipment🎃 caused by theft, fire, flood, or other natural di🐻sasters. However, these direct coverage policies do not compensate the owner for income that is lost due to the business's inability to use that property or equipment. 

Indirect losses that are the result of physical damage and adversely affect normal business operations may be considered consequential 🍒losses. Coverage of consequential losses may include compensation for ongoing obligations such as salaries and fixed operational expenses.

Thus, insurers di💝stinguish between two types of damage: primary or direct damage, such as destruction by fire, and indirect or consequential loss, such as a cessation of busi🌸ness due to the fire.

Example of Consequential Loss Coverage

Let's say a tornado destroyed a Portland, Michigan, Goodwill store several years ago. The organization's property insurance covered the damage to the physical structure and the loss of the store’s 澳洲幸运5开奖号码历史查询:inventory, while separate coverage reimbursed it for the loss of business revenue t🌳hat stemmed from the temporary closure of the store.

Losses re๊lating to income are consequential and require 𓆏separate coverage. 

Insurance Policies for Consequential Losses

澳洲幸运5开奖号码历史查询:Business interruption insurance, also known as business income insurance, covers consequential losses. These policies compensate a business for loss of revenue after a catastrophi🧜c event, regardless of physical damage to the property or equipment.

Interruption insurance coverage will typically begin from the time of the adverse event and continue until the business is able to return to its normal operation.

Business interruption insurance can cover a loss of revenue due to events such as an extended power outage, a flood, or a mudslide. Business interruption insurance can also protect against loss of income during a breach of contract dispute that leads to a te🌳mporary cessation of business🦩, such as a dispute with a supplier or other third party.

Business interr𝄹uption insurance is peril-specific and of✅ten must be purchased separately.

Special Considerations

Insurance cꦗompanies are on the lookout for claims that indicate inflated expectations. For example, a bakery closed temporarily for repairs after a fire might put in a claim for reimbursement of a reasonable level of lost sales, but not for losses that wildly exceed its usual numbers.

Moreover, even though insurance may be available for a variety of situations, only certain types are required. Many businesses may hold general 澳洲幸运5开奖号码历史查询:liability insurance policies to 𓆉protect themselves from costs relating to accidents, injuries, or negligence.

The Bottom Line

Standard insurance policies often cont🉐ain clauses limiting liability for “indirect or consequential” loss or damage, primarily because such losses can be extremely large and costly to cover. Business owners should be aware of this and consider adding additional coverage against consequential loss to make sure they are fully protected.

The impact of having to close for what could be weeks or even months shouldn’t be underestimated. Such a loss of business income, coupled with ongoing expens𓂃es such as employee salaries, could cripple companies, making business interruption insurance a must, regardless of how rarely floods, fires, or other freak events occur.