As an example of a consequential loss, a manufacturing firm is completely shut down by a devastating flood. This indirectly leads to a loss of revenue that is likely to continue until the vendor does deliver the products promised, or the client obtains similar products from a new vendor. The opposite of consequential damage is direct damage. Let’s take a deeper look at each. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. This direct damage would be covered under flood or fire insurance, allowing the business to repair the interior and exterior of the damaged building or buildings. Ouch! Further, Article 2 of the Uniform Commercial Code (which governs the sale of goods and has been adopted in all states except Louisiana) provides that personal injury or property damage proximately resulting from any breach of warranty is a consequential damage. Plainly, there is something wrong here since such losses would normally be limb one losses and not examples of consequential loss at all. However, the sec… Many businesses find that even if the business interruption coverage is only used once every couple of decades, that one instance more than offsets the cost of the premiums paid over the years. If I had a small business, paying for insurance every month or every year would seem like an unnecessary expense. Unfortunately, he did not have any insurance for consequential loss. A number of situations can lead to consequential loss. Let’s take a deeper look at each. Frequently, though, potential liability for consequential damages will be curbed via a liquidated damages clause in the contract. So at the end of the day, he could not get back any of his losses. My best friend has an IT store and a couple of years ago, there was a power cut that not only caused damage to his equipment, but he lost some earnings because he could not operate. Loss of profits and loss of use are two of the most frequently included. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. Photographs are for dramatization purposes only and may include models. Example of a Consequential Loss. Direct loss is the natural result of the breach in the usual course of things. Of course, no one would want to go through the court process if they don't have to. Generally, consequential loss (also called indirect loss) is the non-dominant loss from a breach of contract. It’s only a difference of two words – loss vs. damage – but it can be very confusing for your car insurance clients to understand. In the event that there are problems with a development, it is possible that losses will be incurred by the injured party. While insurance to cover incidences of consequential loss can be somewhat expensive, the coverage can provide a great deal of comfort to business owners. Cobar sought to rely on a contractual provision entitling Cobar to terminate the contract for breach if, in Cobar's opinion, the breach was material and incapable of remedy. This is the million (sometimes multimillion) dollar question. The first car accident cannot be blamed for directly causing the injuries to those in the second car accident. Consequential Loss (Definition, Examples) | What is Included? Loss of profits and loss of use are two of the most frequently included. variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, It is typically on a party’s list of most important clauses that may require approvals at board level if certain requirements are not met. Big businesses tend to have many investors and additional investments in stock bonds for example, that a small business is unlikely to have. Other options available: When actual, consequential damages are in play, damages could quickly spiral out of control. Under the common law of negligence, losses that are purely economic (such as loss of profit) are generally not … Another situation in which consequential loss may develop is in the case of a breach of contract. A consequential loss clause provides protection to a business or owner should they experience loss of income, resulting from things such as theft, fire, floods and other natural disasters. Lost profit, lost rents, and lost business opportunities are examples of consequential damages that could be incurred as a result of a direct physical loss to property. Since the overheads started to accrue as soon as the explosion occurred, they were considered direct damages and not consequential losses. When dealing with direct damages, these are paid to a plaintiff to reimburse the individual for something the defendant was responsible for doing but failed to do. For example, if a tornado damages a flower shop, the owners would most likely lose revenue due to the fact that the building needs repairs. While insurance to cover incidences of consequential loss can be somewhat expensive, the coverage can provide a great deal of comfort to business owners. This is because what constitutes consequential loss depends on the context of the contract. 2. Clauses that exclude or limit the recovery of consequential or indirect damages are common in construction, services and other commercial contracts. Amazon Doesn't Want You to Know About This Plugin. The company's property insurance will reimburse it for damage to the facility and equipment; however, the consequential losses stemming from being out of operation during the recovery period will not be covered by the property insurance. The terms of the Uniform Commercial Code (UCC) consider consequential damages injuries resulting from a seller's breach of contract. Dictionary Thesaurus Examples ... No liability can be accepted for any direct or consequential loss arising from the use of, or reliance upon, this information. The Court upheld the Seller's interpretation. Example types of losses Consequential loss exclusion clauses often also contain lists of types of losses that are often drafted as if they are examples of consequential loss. 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