Consequential loss vs. damage: know the difference

It’s only a difference of two words – loss vs. damage – but it can be very confusing for your car insurance clients to understand. We clarify the differences between consequential loss and consequential damage with real-life examples, so it’s easy for you to explain policy exclusions to clients. Make sure they understand the specific exclusion (exception to sub-section A (a)) in terms of consequential loss and mechanical, electronic or electrical breakdown.

Consequential loss: what to watch out for

Help your clients to understand that this term refers to a financial type of loss. For example:

• Where a client wants to submit a claim for a decrease in the market value of his vehicle because the vehicle was involved in a serious accident, or
• Where a client wants to claim for vehicle hire (without including this optional cover) whilst the vehicle is being repaired.

These costs are seen as consequential loss and not covered in terms of the policy wording. Clients should be careful not to confuse consequential loss with consequential damage as the wording only refers to consequential loss.

What is consequential damage?

Think of it as a ripple effect. Consequential damage is included under comprehensive cover and is damage resulting from other damage. For example, if a car’s fan blade breaks off and damages the radiator to such an extent that the engine overheats, the damage to the radiator and engine is consequential damage.

In this example:

• The fan blade falls within the exclusion of mechanical breakage and will not be covered
• The consequential damage to the radiator and engine is covered and seen as consequential damage.

Understanding exclusion in terms of mechanical, electronic or electrical breakdown

This brings us to the next challenge: when are these types of breakdowns excluded? Mechanical, electronic and electrical breakdowns, failures or breakages are only excluded if they were brought about by some or other inherent defect in the vehicle itself.

If the mechanical breakage was caused by some or other external factor – for example where a petrol attendant inadvertently putting petrol instead of diesel in a vehicle’s fuel tank – the consequential mechanical breakage to the vehicle’s engine will be covered*.

If for example a computer box fails electronically and ignites – setting the vehicle alight causing it to burn out – the fire damage to the vehicle will not be excluded, but the electronic failure of the computer box will be excluded (if it could be determined during the investigation of the claim as the cause of the damage).

Another example would be where the prop shaft of a vehicle breaks due to mechanical breakdown and is flung underneath the vehicle damaging the floor panel and rear suspension. The damage to the prop shaft will be excluded but none of the resultant (consequential) damage will be excluded.

If you’re ever uncertain of the different types of loss or damage, get in touch with your relationship manager or contact us if you have any queries about Santam products. Visit the Intermediaries section of our blog for more advice on understanding policies, for example understanding policy cover for damage to tyres for agricultural vehicles.

*Please note that the claim should be referred to Legal for recovery actions should the conduct of the garage, which lead to the damage, be construed as negligent.