Consequential damages are indirect losses resulting from someone else’s actions, often compensated in civil litigation. They arise in contract disputes, insurance claims, and personal injury cases. Consequential damages can include lost income, repair or replacement of property, and medical expenses. Insurance policies and contracts may waive consequential damages due to their high cost.
Consequential damages is a legal term that refers to an injury or loss suffered by someone as an indirect result of another person’s action. In civil litigation, damages are paid as a way to financially compensate a plaintiff for a tangible loss. Losses may include, but are not limited to, medical expenses, loss of wages or damage to property.
Consequential damages are also sometimes referred to as special damages. They are one of two types of damage: the other is direct damage. Consequential damages arise in contract disputes, insurance claims and personal injury cases. In lawsuits, the effects of these indirect damages are described, assessed and awarded financial compensation. Many insurance policies and contracts include a waiver of consequential damages due to the costly claims these damages can generate.
In a contract dispute, consequential damages could be the amount of lost income a business suffers because a contractor did not complete a renovation on time. Consequential damage in this case must be something that was foreseeable at the time the contract was signed, and also something that can be measured with a monetary value. Consequential damages may be incurred if a breach of contract results in loss of earnings or profits, requires repair or replacement of property, or results in the loss of an irreplaceable piece of property.
Insurance companies cover other types of consequential damages when damages are included as a policy clause. An example might involve a homeowner who takes out an insurance policy that covers storms and other natural disasters, and their policy also has a clause that includes coverage for consequential damages. Then, gale-force winds knock a tree onto his property, causing it to crash through the roof of the garage. The hole in the roof is direct storm damage; but if the fallen tree also cut power lines to the garage, which in turn caused 25 pounds of sirloin steak to go bad in an electric freezer, the cost of that bad meat would have been covered as consequential damage from the storm.
Another type of consequential damages is seen in personal injury cases and involves damage or injury to a person that occurs as a result of someone else’s initial act. If a person installs a fountain in a backyard that overflows water into the neighbor’s backyard down the hill, that flooding could be considered consequential damage. Similarly, if someone trips over an extension cord on a Christmas light display and breaks their leg, that injured leg could also be considered consequential damages.
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