P&CNationalmedium
A covered fire destroys a restaurant's kitchen, forcing closure for six weeks. The income the restaurant would have earned during the closure period is classified as which kind of loss?
ADirect loss, the physical damage caused immediately by the peril
BEnsuing loss, a separate covered loss that follows after an originally excluded cause
CPair-and-set loss, reflecting reduced value of a damaged matched set
Indirect (consequential) loss, the time-element result of the closure
Why this is the answer
Direct loss is the physical damage caused by the peril itself — here, the burned kitchen. Indirect or consequential loss is the financial consequence that follows from being unable to use the damaged property — lost net income and continuing expenses during restoration. Indirect loss is also called a 'time-element' loss because it accrues over the period of restoration. Business Income (CP 00 30) and Extra Expense (CP 00 50) forms cover indirect loss.
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