What does the term "indirect" imply in the context of physical loss?

In the context of physical loss, the term "indirect" signifies that the loss is a consequence of a chain reaction triggered by a direct cause. This means that while there may not be direct damage to a property, the impact of the initial event causes further negative effects that result in additional losses. For example, if a fire damages a warehouse (the direct loss), the subsequent loss of income from halted business operations or the cost to relocate is considered an indirect loss.

Understanding this distinction is essential, especially in fields like insurance, where the classification of losses can influence coverage and compensation. Indirect losses can significantly affect a business's operation and financial health, necessitating careful consideration during assessments.