Generally, for there to be a liability for “financial loss” in negligence, there must be a special relationship. A special relationship can be formed within the law of contract. Interestingly, if an insured has entered into a contract the question often arises of whether he or she has a liability in tort at the same time. This is known as concurrent liability, and this is something of a moving legal target. It is important, because:
• many policies restrict cover for liability in contract.
• claims in contract usually become barred sooner than claims in tort, so claims can often only be advanced in tort.
There also seems to be an increasing exposure to liability under statute in almost every area of commerce. Sometimes such liability arises where there has been physical injury or damage, and sometimes where there has not.
In order to understand how liability for “financial loss” arises, it is of
course necessary to understand what is actually meant by “financial loss”.
There is plenty of scope for confusion. For example, what are the differences between the following?
• economic loss • pure economic loss • consequential loss • financial loss
“Economic loss” and “pure economic loss” have clear meanings in law – they are the phrases used by judges.
Judges almost never refer to
“financial loss”, and yet, that is the phrase usually used by insurers to refer to what the law calls “pure economic loss”.
We will be using “financial loss” as insurers do but, where necessary and to be legally precise we will use the phrase “pure economic loss” in preference to “financial loss”.
Let’s summarise to try to simplify some important definitions:
> Economic loss: pecuniary loss consequential on injury or damage.
> Pure economic loss: pecuniary loss not consequential on injury or damage.
> Consequential loss: often used to mean economic loss.
> Financial loss: a term usually used by insurers to mean pure economic loss, but often loosely used to mean any of the above. Three example policy definitions: • A pecuniary loss cost or expense incurred by any person other than the insured
• A pecuniary loss cost or expense incurred by any person other than the insured resulting from the sale or supply of Products
• A pecuniary loss cost or expense and not occasioned by injury or loss of or damage t0 property
Are you “scratching your head now!”
Confusing? Yes! So, it is always good practice to read your policy wording very well or seek professional help if you are unsure. We try as professional insurance intermediaries to take a simple approach to the application of law and insurance to business and we hope this is exemplified by our articles.
So, to help simplify this muddled area, courtesy of the insurance industry for not following the legal definitions, in our next article we will revisit in more detail what is financial loss and delve into how liability arises?
Karen Brain Managing Director
Matrix Claims Services Ltd are an independent insurance intermediary regulated by the Financial Conduct Authority (FCA). They are not affiliated to any insurer and provide independent advice.
Matrix Insurance Services Ltd Tel: 01892 724060
kxb@matrix-ins.co.uk The Report • June 2019 • Issue 88 | 77
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