In property insurance, what does "consequential loss" refer to?

Consequential loss refers to a secondary effect that arises from a direct loss. In the context of property insurance, this concept is essential because it addresses the financial repercussions that occur as a result of an event that damages or destroys property. For instance, if a fire destroys a business's inventory, the immediate loss is the value of the inventory itself. However, the business might also suffer a consequential loss if it cannot operate during the recovery period, resulting in lost revenue.

This distinction highlights how insurance can protect not just against immediate damages but also against the longer-term financial impacts that follow from those damages. Understanding consequential loss is crucial for both insurers and policyholders to determine coverage and potential claims accurately.

While negligence, decreased property value, and foreseen losses may be relevant in other insurance contexts, they do not encapsulate the specific nature of consequential losses, which are inherently tied to the idea of secondary effects stemming from direct damage.