Consequential Loss — Insurance Claims Definition
Indirect financial loss that follows from direct physical damage, such as lost profits or extra expenses, often limited or excluded unless separately insured.
Consequential loss is economic harm that flows indirectly from a peril — for example lost rental income, spoiled inventory from power outage, or reputational harm. Standard property policies cover direct physical loss; consequential losses require business income, extra expense, spoilage, or utility interruption endorsements.
Contract law also uses the term; in claims, the key is whether the policy insures the indirect result or only the direct damage.
Examples
A factory burns; lost contracts with customers due to delayed shipments may be consequential and uncovered while the building repair itself is covered.
Common Mistakes
Insureds assume any financial setback after a fire is covered; without BI or similar coverage, consequential losses are not paid.
