Under which condition can a policyholder claim for an indirect loss?

A policyholder can claim for an indirect loss when there is also a direct loss claimed because indirect losses, also known as consequential losses, typically arise as a result of a direct loss. For instance, if a fire damages a home, the direct loss would be the physical destruction of the property, while the indirect loss might include lost rental income or additional living expenses while the property is being repaired.

Insurers commonly require a direct loss to be substantiated before compensating for any indirect losses, as the latter is contingent upon the initial damages caused by the event covered by the policy. This reflects the fundamental structure of many property and casualty insurance policies, where the primary purpose is to cover direct damages, and any effects that follow are considered secondary or indirect losses.

Recognizing the necessity of a direct loss validates the chain of claims, ensuring that the coverage applies correctly and equitably, thereby preventing potential abuse of the policy by making claims for losses that are unrelated to any insured event.