What type of loss is a consequential loss best described as?

A consequential loss is best described as an indirect loss. This type of loss occurs as a result of another event or loss, rather than being a direct result of an incident. For instance, if a business suffers property damage that temporarily halts operations, the loss of income due to the inability to operate is a consequential or indirect loss. This is distinct from direct losses, which are those that stem immediately and directly from a particular incident, such as the physical damage to property itself.

Understanding this distinction is important because it influences how insurance policies are structured and the types of coverage that may be applicable. Consequential losses often require specific endorsements or separate coverage, as they are not always included in standard property policies. Recognizing that these losses derive from primary losses helps policyholders better understand their risks and ensure they have the appropriate insurance to mitigate not just the immediate damages, but also the resulting financial impacts.