What would be an example of consequential loss in a business?

Consequential loss refers to the financial losses that occur as a result of an event, rather than from direct damage to property. In a business context, this often includes losses that stem from the interruption of operations.

When a business temporarily closes, it may have to forgo sales and suffer a reduction in profits as a direct result of that closure. This financial impact is considered a consequential loss because it arises not from physical damage itself, but from the cascading effects of that damage or disruption. For instance, if a fire damages a business's operating facilities, it may be unable to generate revenue, leading to reduced profits.

In contrast, other options present types of direct damage or costs directly associated with physical assets. Loss of inventory due to fire damage, repair costs after a theft, and direct property damage from storms all represent tangible damage to property rather than the financial impacts that arise from that damage. Consequently, these situations do not fit the definition of consequential loss as clearly as the reduction in profits due to temporary closure does.