James Wallace, Director of Wymark Insurance Brokers, explains consequential loss and the impact it can have on your business.


You are planning to carry out a treatment at a food manufacturing plant. The plant is closed on the weekend which is ideal, as having the plant closed ensures the safety of its employees and allows you to go about your business unhindered. After the treatment on Saturday, you depart leaving the security guard to lock up.

On Tuesday morning you get a call from the owner of the food manufacturing plant, and you can tell from the tone of their voice it is not good news. The owner goes on to explain that due to contamination the plant must be shut down. It appears that some grains used for baking were left uncovered during the spray treatment and were exposed to the insecticide. The pest manager is asked to supply all paperwork related to the job – which had not yet been sent.

Initially it seemed that the issue was relatively minor. However, the plant was shut down until further notice by the government department. All stock on hand needed to be destroyed and a recall was issued for all food products that left the plant on the Monday and Tuesday. The consequential loss suffered by the manufacturer quickly adds up. The food manufacturing plant lodges a claim with the Industrial Special Risk (ISR) insurer and product recall insurer; both claims are paid. The plant is back up and running in a few weeks and damaged stock that was destroyed and lost revenue were all covered by the plant’s own insurance. What a fantastic result – the problem was resolved, and the pest manager did not have to make a claim on their insurance.

Some 12 months have passed, and the pest manager has forgotten all about the incident at the food manufacturing plant. The contract hadn’t been renewed and a competitor was now servicing the account. Then one afternoon there is an email from a solicitor representing the food manufacturing plant’s ISR insurer demanding the sums paid out in full with additional incurred costs as well. This is shortly followed up by a similar email from the product recall insurer.

So what’s the story? Well, often insurers will meet their contractual obligations and pay out the claims of their clients – in this case, the consequential loss suffered by the food manufacturing plant. Once the nal settlement has been made the insurer can look to recover these costs if another party is at fault. In this case, the exposed grains were a risk that should have been spotted by the pest manager during a pre-spray risk assessment. The actions of the pest manager were deemed the cause of the shutdown and therefore the pest manager became the target in recovering these costs.

Claims like this can easily run into the hundreds of thousands, if not millions to cover loss of stock, loss of revenue, product recall and legal fees. There are also contractual and reputational damages to consider. If you are undertaking work in commercial premises, consider the sums you are currently insured for. Recovery from insurers can take years before you are even notified.


James Wallace, Director, Wymark Insurance Brokers