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官方开奖结果体彩网:compensate the owner for this lost business income.  

This type of insurance is also called business inte🌼rruption or business income insurance.

Understanding Consequential Loss

Business owners routinely obtain 澳洲幸运5官方开奖结果体彩网:casualty insurance to cover any damage to their facilities or equipment caused by🦹 theft, fire, flood, or other natural disasters. 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 consider🔯ed consequential losses. Coverage of consequential losses may include compensation for ongoing obligations such as salaries and fixed operational expenses.

Thus, insurers disting💦uish between two types of damage: primary or direct damage, such as destruction by fire, and indirect or consequential loss, such as a cessation of business 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官方开奖结果体彩网:inventory, while separate coverage reimbursed it for 💦the loss of business revenue that stemmed from the temporary closure of the store.

Losses relatin🥂g to income are consequential and require separate coverage. 

Insurance Policies for Consequential Losses

澳洲幸运5官方开奖结果体彩网:Business interruption insurance, also known as business income insurance, covers consequential losses. These policies compensate a business for loss of revenue after a catastrophic event,🎶 regardless of physical damage to the property or equipment𒊎.

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 thaဣt leads to a temporary cessation of business, such as a dispute with a supplier o𓄧r other third party.

Business♔ interruption insurance is peril-specific and often must be purchased separately.🍨

Special Considerations

Insurance companies 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官方开奖结果体彩网:liability insurance policies to prot🤡ect themselves from costs relating to accidents, injuries, or negligence.

The Bottom Line

Standard insurance policies ofteඣn contain 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 covꦺerage 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 expenses such as employee salaries, could cripple companies, making business interrupt൩ion insurance a must, regardless of how rarely floods, fires, or other freak events occur.