Even the most experienced advisers at times run into new scenarios which often lead to a dispute on how the claim should be handled. One of these grey areas concerns what is termed ‘consequential loss’ in the short-term insurance industry.
BusinessDirectory defines consequential loss as: “Indirect loss which accompanies an insured loss, such as loss of earnings resulting from a burnt down business that was insured against fire. Consequential losses are not covered by ordinary insurance policies, unless specifically included on payment of additional premium.”
In commercial insurance, it could happen when a fire takes place at a warehouse (the direct loss or damage) and the business, being unable to operate as a result, loses its revenue (the consequential loss). In a scenario like this, the business usually should have business interruption insurance in place to provide for the consequential loss.