Legal Definitions - economic loss

Economic loss refers to financial harm that can be calculated in monetary terms, often sought as compensation in a legal dispute. It encompasses various types of financial setbacks, but typically does not include compensation for physical injury or emotional distress.

• Example 1 (Business Interruption): A small bakery had to temporarily close its doors for three days because a critical piece of equipment, a commercial oven, unexpectedly broke down. The money the bakery would have earned from selling bread and pastries during those three days, which they now lost, represents an economic loss.

  Explanation: This illustrates economic loss because it's a quantifiable financial setback (lost revenue) directly resulting from an operational problem.

• Example 2 (Employment Dispute): An employee was wrongfully terminated from their position and remained unemployed for several months before securing a new job. The wages, benefits, and bonuses they missed out on during their period of unemployment constitute an economic loss.

  Explanation: This demonstrates economic loss as it's a clear monetary sum (lost income) that the individual did not receive due to an adverse event.

Direct economic loss is the immediate and straightforward financial cost or difference in value that arises directly from a problem, often related to a product or service not meeting its promised quality or condition. It is essentially the "loss of the bargain" – the difference between what was expected and what was actually received.

• Example 1 (Defective Product): A homeowner purchased a new washing machine that was advertised to have a specific capacity and advanced features. Upon delivery, they discovered the machine had a smaller capacity and lacked several promised features. The direct economic loss would be the difference in value between the washing machine as advertised and the less capable machine that was actually delivered.

  Explanation: This is a direct economic loss because it's the immediate financial impact of not receiving the product as warranted – the difference in its inherent value due to the quality discrepancy.

• Example 2 (Service Contract): A business hired a web developer to create a new e-commerce website for $15,000, with specific functionalities outlined in the contract. The developer delivered a website that was incomplete and missing several key features essential for online sales. The direct economic loss would be the amount it would cost to fix the immediate defects or the reduction in the website's value due to the unfulfilled promises, representing the difference between the promised quality and the actual quality received.

  Explanation: This illustrates direct economic loss as it's the immediate financial impact of the service not meeting the agreed-upon standard, directly affecting the value of the completed work.

Consequential economic loss refers to financial losses that are an indirect result of an initial problem or defect, occurring as a "consequence" rather than being the immediate cost of the problem itself. These are often "downstream" effects that flow from the initial issue.

• Example 1 (Business Disruption): A manufacturing plant experienced a significant delay in production because a newly installed, defective machine repeatedly broke down, requiring extensive repairs. While the cost of repairing the machine itself is a direct loss, the consequential economic loss would include the profits the plant lost due to the reduced output and missed customer orders during the downtime.

  Explanation: This is consequential economic loss because the lost profits are not the direct cost of the defective machine or its repair, but rather a financial consequence of the business disruption caused by the machine's failure.

• Example 2 (Professional Negligence): A financial advisor provided negligent advice to a client, leading the client to invest in a highly unsuitable and risky venture. The direct economic loss might be the fees paid to the advisor for the faulty advice. However, the consequential economic loss would be the significant decline in the client's investment portfolio value and the lost opportunity to invest in more profitable ventures, which occurred as a result of following the bad advice.

  Explanation: This demonstrates consequential economic loss because the decline in investment value and lost opportunities are indirect financial impacts that occurred *because of* the negligent advice, not the direct cost of the advisor's services themselves.