Legal Definitions - consequential economic loss

Consequential economic loss refers to financial harm that is not a direct result of an initial damaging event, but rather an indirect or secondary consequence that flows from it. These are losses that occur as a ripple effect, often taking the form of lost profits, missed business opportunities, or additional expenses incurred because of the primary incident.

It is distinct from direct economic loss, which is the immediate cost of repairing physical damage, replacing a lost item, or the immediate value of something directly taken or destroyed. Consequential economic losses are typically harder to quantify and prove, as they are a step removed from the initial cause.

• Example 1: Business Interruption from Equipment Failure

  A bakery's main industrial oven breaks down due to a faulty component supplied by a vendor. The direct economic loss would be the cost to repair or replace the defective component and the oven itself. However, the consequential economic loss would include the significant profits the bakery lost from not being able to bake and sell bread and pastries during the week the oven was out of commission, as well as any penalties incurred for failing to fulfill catering orders.

• Example 2: Lost Revenue Due to Software Malfunction

  An online ticketing platform experiences a critical software bug that prevents customers from purchasing tickets for major concerts and sporting events for 48 hours. The direct economic loss might involve the immediate costs of hiring emergency IT specialists to fix the bug. The consequential economic loss, however, would be the substantial amount of revenue the platform lost from uncompleted ticket sales during the outage, along with potential long-term damage to its brand reputation leading to fewer future customers.

• Example 3: Construction Delays Caused by Substandard Materials

  A developer building a new apartment complex receives a shipment of structural steel that is later found to be substandard and unsuitable for use. The direct economic loss would be the cost of removing the defective steel and purchasing new, compliant materials. The consequential economic loss would encompass the financial penalties the developer might face for missing project completion deadlines, the increased interest payments on their construction loan due to the extended timeline, and the lost rental income from apartments that could not be occupied on schedule.