Direct and indirect losses distinguish between the immediate and delayed losses as a result of a disaster. Direct losses refer to the physical or structural impact caused by the disaster such as the destruction of infrastructure caused by the force of high winds, flooding or ground shaking.
Which is the best example of an indirect loss?
- Introduction. Construction contracts often contain a provision excluding liability for indirect and consequential loss, but the distinction between direct loss and indirect/consequential loss can be a confusing one.
- Direct and indirect losses. ...
- The McCain Case. ...
Will a loss of profit always be an indirect loss?
No, the starting point is that a loss of profit may be either a direct or indirect loss. Whether the loss is direct or indirect will depend on the facts of each case. It will be a direct loss if, at the time the contract was entered into, it was likely to result from the breach in question. It will be indirect if there are special circumstances known to the contract breaker at the time of the contract such that a breach would be liable to cause more loss.
What is indirect and consequential loss?
own words and context, generally indirect or consequential loss and damage is likely to be loss or damage which falls within the second limb of Hadley v Baxendale. It is loss which is in some way less direct or more remote than loss or damage which remains recoverable under the first limb.
What is the difference between direct and indirect damages?
Indirect damages are those that do not occur as the direct result of the accident but, rather, because of other damages that the victim incurred. For example, lost wages, loss of earning capacity, and loss of household productivity are just a few examples of indirect damages.
What is the difference between direct loss and consequential loss?
Generally, the direct loss would be the difference between the contract price and the market price of those goods or services. This is the “normal loss”. The consequential losses are any other losses beyond this measure that are caused by the breach and not too remote.
What is a direct loss example?
Direct Loss Example If a tornado strikes a town and takes the roof off the building, a direct loss would include damage to the structure, as well as to equipment, furniture, inventory or other items inside. Fire and smoke damage would count as a direct loss. So would theft, or a car crashing through the front window.
What does direct loss mean?
Direct Loss — loss incurred due to direct damage to property, as opposed to time element or other indirect losses. Also used sometimes by captives to identify losses under policies directly insured by the captive, as opposed to losses assumed from a front company.
What is considered an indirect loss in insurance?
Indirect Damage Loss — loss resulting from direct damage to property—for example, income and expense loss resulting from inability to use damaged property.
Which of the following is an example of indirect loss?
Indirect Losses means loss of profits, loss of use, loss of production, increased operating costs, loss of business, loss of business opportunity, loss of reputation or goodwill or any other consequential or indirect loss of any nature, whether arising in tort or on any other basis.
What are the 2 types of losses in insurance?
Loss — (1) The basis of a claim for damages under the terms of a policy. (2) Loss of assets resulting from a pure risk.
Are indirect losses recoverable?
The loss of such a contract would not be recoverable unless both parties knew that the contract might be lost in the event of such a breach. These are “indirect losses”or “consequential losses” (the terms “indirect” and “consequential” loss are used interchangeably).
What is direct loss and expense?
Direct losses are those that 'flow naturally' from the breach of contract. There is disparity between contract types about whether items such as head office overheads can be included in claims for loss and expense, and some court rulings have allowed such claims.
What is the difference between consequential and indirect damages?
Consequential damages are also referred to as special damages or indirect damages. Such indirect damages are damages that do not necessarily flow from the breach of contract but are secondary in nature or indirect to breach.
Which of the following is an example of direct loss in insurance?
Direct Loss For eg: loss to your building or contents due to fire, smoke, shock damage from an earthquake or wind damage from a hurricane, etc. If a tornado strikes and it takes the roof off the building, a direct loss would include damage to the structure, as well as to equipment and other items inside.
Limitation of damages in practice
Most contracts deal with the general principle that a party will not be able to recover all its losses by imposing a limit on liability. The International Federation of Consulting Engineers (FIDIC) provides model contracts that companies base their contracts on. Its Conditions of Contract Clause 17.6 says:
Drafting tips for exclusion clauses
An exclusion clause outlines what a company is specifically refusing liability for in a contract. When drafting an exclusion clause, you need to be very careful to ensure that the clause accurately captures the type of loss that you intend to exclude.
Do contractual exclusions of indirect loss always offer the protections that contractors might think they do?
In addition, contractual exclusions of indirect loss do not always offer the protections that contractors might think they do. A recent case from the English Technology and Construction Court illustrates some of the problems and provides useful lessons for limiting a contractor's liability. Direct and indirect losses.
Is direct loss foreseeable?
Direct loss is loss arising naturally, according to the usual course of things, from the breach of contract itself, and is therefore foreseeable and recoverable. Indirect loss is loss that arises from a special circumstance of the case and is recoverable if it may reasonably be supposed to have been in the contemplation ...
Is indirect loss always consequential?
This High Court judgment follows a long line of case law showing that an exclusion of indirect losses does not always serve to limit liability in the way that a party might envisage. There is certainly a common misconception that loss of profits and other financial losses will always be consequential losses.
Does an exclusion or limitation of indirect and consequential losses exclude loss of profits?
It is important to note, however, that an exclusion or limitation of "indirect and consequential losses" will not, under English law, serve to exclude loss of profits where that loss is regarded as direct. So, for example, wording that excludes liability for " all special, indirect and consequential losses, including loss of profit…".
What are indirect losses in insurance?
Indirect losses, often referred to in business insurance policies as "consequential losses," are not inflicted by the peril itself but describe losses suffered as a result or consequence of the direct loss. Business interruption is the most obvious example. If a tornado destroys the roof of a store, not only are there rebuilding costs, but the business cannot operate until the damage is fixed. Income lost during the rebuilding -- and after it, if customers stick with the alternatives they find in the meantime -- represents an indirect loss.
What is direct loss coverage?
In insurance, "direct loss coverage" refers to damage immediately inflicted by a disaster, accident or other event, known in insurance language as "perils.”.
What is loss in insurance?
In insurance terms, a loss is a reduction of a property's value, damage or loss of assets resulting from a risk, disaster or accident. There are different types of loss in insurance:
Does business casualty insurance cover direct loss?
Business casualty insurance policies almost always include direct loss insurance. But consequential losses can be more damaging to a company. Businesses may be able to recover from the loss of a roof, but losing several months' worth of income could put a business owner out of business. That's why it's critical to review insurance policies to understand if the policy includes indirect loss insurance and, if not, to secure business-interruption insurance. It is also advised to discuss with a broker what constitutes a physical loss, if the policy requires it, and make arrangements to provide the specific coverages needed.
Is a physical loss considered a direct loss?
Insurance policies commonly require that a loss be "physical" to be covered as a direct loss. As policies don't specifically define the word "physical," it's been left to courts to sort out what does and doesn't qualify as a direct physical loss, and surprisingly, there is little consensus on the issue.
Can consequential loss be more damaging?
But consequential losses can be more damaging to a company. Businesses may be able to recover from the loss of a roof, but losing several months' worth of income could put a business owner out of business. That's why it's critical to review insurance policies to understand if the policy includes indirect loss insurance and, if not, ...
What are disaster losses?
The effect of a disaster on people, buildings and society is referred to as the impact. Losses (the result of being deprived of something) are a measure (quantified or not) of the damage or destruction caused by a disaster. The impact of a disaster can, however, be much farther reaching.
Why do direct and indirect losses matter?
While it is difficult to calculate a global value, evidence at the country level indicates that indirect losses can surpass the direct costs, particularly if economic resilience is low.
How do we measure direct and indirect losses?
Accounting for disaster losses is a first step towards taking responsibility for, and assessing, disaster risk. Historical losses allow us to develop trends, specifically on the hazards that occur frequently, and ask questions like:
What can we do?
A sound understanding of the drivers and causes of losses as well as their societal, environmental and economic implications enables communities to move from a reactionary to a proactive approach of managing hazards and disaster risks. Understanding these processes helps to underpin strategies and activities for reducing disaster risk.
What is consequential loss in contract law?
Consequential or indirect loss in contract law means an unusual sort of loss that arises from a special circumstance of the case, and not in the usual course of things. This loss suffered cannot be predicted, and consequently, it is recoverable only if the party knew or should have known of the circumstance of the loss when they made the contract.
What is the difference between a direct and indirect loss?
To be able to assess potential losses, which may arise from a breach of contract, it is important to understand the distinction between direct and indirect or consequential loss.
Case Law Examples of consequential loss
The case law examples bellow illustrate how the courts interpreted the meaning of consequential loss and how they distinguish between direct and indirect/consequential loss. They also serve as a benchmark in understanding how critical it is when drafting a contract:
What are examples of consequential damages?
Under contract law when there is a breach of contract, the injured party is entitled to compensation for losses as a result of that breach. To determine an entitlement to damages arising from another party’s breach of contract, the injured party must demonstrate that the loss:
What is a consequential loss exclusion clause? And why is it important?
A consequential loss exclusion clause is a contractual clause that limits liability by seeking to protect the parties from disproportionate and unbudgeted exposure to losses if something goes wrong. Its aim is to safeguard the parties from special types of losses that have been made known to the party in breach.
How an exclusion clause should be drafted?
The aim of an exclusion clause in a contract is to exclude a party’s liability for certain type of losses. For this reason, a well drafted exclusion clause is crucial in any contract, as it will provide clarity. A badly drafted exclusion clause is left to the court to interpret its meaning.
How to bring a consequential loss claim if required
If you decide to bring a consequential loss claim, you must follow the Civil Procedure Rules (CPR). The CPR sets forth information about the pre-action protocols, Alternative Dispute Resolution (ADR) options and the procedures to follow if you decide to file a litigation claim.
