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What is a Direct Loss?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 November 2016
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A direct loss is some type of property loss in which a consistent sequence of events led to the cause of the partial or complete destruction related to that property. This is in contrast to indirect loss, in which the chain of events helps set the stage for the loss, but did not contribute to it directly. The events leading up to a direct loss are sometimes referred to as the proximate cause, a term that helps to express the direct relationship of those events to the loss that is incurred.

Properly identifying the nature of a loss is often important when it comes to settling insurance claims. This is because a direct loss is more likely to be covered than an indirect loss. For example, if faulty wiring in a home causes a wall structure to catch fire, which in turn causes the draperies on a window to burn, and ultimately spread the fire to a nearby sofa, this is considered a direct loss. The problem with the wiring triggered a chain of events where an insured item was damaged or destroyed. There is a good chance that the insurance policy will cover the cost of repairing the wiring, rebuilding the wall, and replacing the sofa and drapes.

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In contrast, the policy may or may not cover any indirect loss resulting from this chain of events. Should the damage be severe enough to prevent the occupants from sleeping in the home until repairs are made, this would be considered an inconvenience, but not necessarily a type of loss that the provider considers to be directly within the scope of coverage. As a result, the provider may not cover costs of renting hotel room or some other accommodations while the repairs are made.

Understanding what is and is not considered a direct loss requires careful scrutiny of the terms and provisions found within an insurance contract. While some policies do cover some incidences of indirect loss along with of direct loss, the scope of that coverage may be very different. By taking the time to look closely at how a given insurance provider interprets direct versus indirect loss, and what type of coverage is provided for each type of loss, consumers can determine if that policy is sufficient for their needs. Should a consumer find that the terms are somewhat confusing or ambiguous, he or she may determine that the coverage offered is not sufficient, and proceed to consider policies offered by other providers.

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Discuss this Article

andee
Post 7

@Mykol - It will be interesting to see if your insurance premiums increase because of your direct loss claims.

We had a similar situation and were even reluctant to make a claim because of possible increased rates.

Our insurance agent told us, if everybody in the area had direct loss claims, our rates would probably increase whether we made a claim or not.

One advantage with a direct loss is you don't have to worry about proving how it happened. It is pretty clear what caused the damage and you shouldn't have to fight with your insurance company over it.

Mykol
Post 6

@julies - I have been concerned about our insurance coverage. We had water damage in our basement that we had to get fixed. Then a few months later there was a bad hail storm that went through our area.

There are 5 houses in our little area, and all of us had to have our roofs replaced because of hail damage. We also had a truck that was sitting outside and we had a claim for that for hail damage.

There were many people in our area who had multiple direct loss claims during this time. Since we had more than 3 claims in less than a year, I am concerned about renewing our policy, or how much our premiums will increase.

There were all direct losses that we had no control over, but I don't know if an insurance company always looks at things that way.

julies
Post 5

Many times suffering a direct loss is a major event, and the only positive thing about it is if you have insurance that will cover your losses.

We have some friends who have a big barn that is more like an extended living room. She is an artist and it is very creatively decorated, and they use if often for entertaining.

The first direct loss they had was when a strong windstorm came through and caused major damage. The insurance company paid for them to make the repairs.

A little over a year later, a neighbor was driving by and saw the barn was on fire. By the time the fire department got there, it was completely

gone.

This was the second direct loss they had to that barn and they were worried if insurance would cover it or not. They had a replacement policy, so they did get coverage and were able to replace everything that was in it.

The frustrating thing for them, is when their insurance policy was up for renewal, their insurance company dropped them. I guess there is a limit to the number of direct losses an insurance company will cover for one policy.

allenJo
Post 4

@everetra - Indirect losses are harder to quantify so I understand some hesitancy to pay those claims. What, after all, do you mean by emotional damage or sleepless nights? Maybe you couldn’t sleep before the accident.

These are subjective assessments so I understand why insurance companies would be a little skeptical. Frankly, I would leave those petitions off the claim.

I think they undermine the legitimacy of your claim and may raise a few eyebrows with the adjusters. As long as they cover the damage from direct loss I’m good with that. That’s why I pay my premiums.

everetra
Post 3

@nony - Fortunately I’ve never had to quarrel with my homeowner’s insurance company. We live in “tornado alley” and one year we had a massive storm that was attended by golf ball size hail.

That thing totally ruined my roof. That was clearly a direct loss and the insurance company didn’t hesitate to pay. The roofer even maxed out the claim to cover my deductible.

I don’t know if that was honest or not but I have since discovered that this is a fairly common practice. At any rate I got a nice, new roof and it helped me a lot when it came time to sell the house.

nony
Post 2

@hamje32 - Did he suffer indirect loss – like sleepless nights as the scene replayed over and over in his mind? I imagine that if he had kids it would have made it even more difficult. The children may have had nightmares too.

Whether the insurance company covers the emotional damage however is larelgy immaterial in my opinion. This is because juries can award those damages. If the guy who threw that cigarette butt got prosecuted the jury can award damages for both direct and indirect loss to the claimants. But you’re right; the really important thing is that the house was replaced and the family was safe.

hamje32
Post 1

Direct loss is obviously the more important need when you’ve suffered a catastrophe. A guy at my workplace suffered a very major direct loss. His whole house burned down. It wasn’t his fault.

Some guy in the neighborhood started a brush fire by accidentally tossing a lit cigarette butt out of his window. It was hot, dry weather, and the next thing you know a fire started which grew and began to engulf neighborhood houses.

My friend and family got out safely, but the firefighters couldn’t save his house by the time they got there. It was totaled. The insurance paid for a new home, and in the meantime they even paid to put him up in temporary housing.

Now that’s what I call a good insurance policy. There were no haggles. Of course it was hard to contest this claim, since he suffered from someone else’s misdeeds.

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