What is Consequential Damages? Plain English Explanation
Definition
Consequential damages (also called indirect damages) are losses that result as a secondary consequence of a breach, not directly from the breach itself. They include lost profits, lost business opportunities, and damage to reputation.
Why It Matters in Contracts
Most commercial contracts include clauses that exclude consequential damages. This means if the other party breaches and you lose profits as a result, you cannot recover those lost profits. Only direct damages (the cost of the service itself) are recoverable.
Real-World Example
A hosting provider goes down for a week, violating their SLA. Your e-commerce store loses $50,000 in sales. The contract excludes consequential damages, so you can only recover the hosting fees you paid, not the lost revenue.
What to Watch For
- 🔴Mutual exclusion of consequential damages (both sides waive)
- 🔴One-sided exclusion (they exclude consequential damages but you do not)
- 🔴Broad definition of what counts as "consequential" or "indirect"
- 🔴Exclusion that covers gross negligence or willful misconduct
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Disclaimer: This glossary entry is for educational purposes only and does not constitute legal advice. Consult a qualified attorney for guidance on your specific situation.