What is Consequential Damages?

Definition

Consequential damages are losses that go beyond the direct, immediate harm of a breach: lost profits, missed business opportunities, reputational damage, and other downstream effects. Most commercial contracts include a clause that waives or excludes consequential damages, which dramatically limits what you can actually recover even when the other party is clearly at fault. This matters because consequential damages are often where the real financial harm lives. The direct cost of a failed software deployment might be the contract value, but the consequential damage of lost customers and revenue during downtime could be ten times higher. For example, if a vendor delivers defective inventory that causes you to lose a major retail account, a consequential damages exclusion means you can only recover the cost of the defective goods, not the value of the lost account. Watch for one-sided exclusions where the other party waives consequential damages for themselves but preserves the right to claim them against you.

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