Which of the following is an example of an indirect loss?

• A. A manufacturing plant is unable to operate because one of its suppliers lost its production plant in a fire
• B. A flood in another city
• C. A car accident
• D. A fire at the insured's building

Answer: (A)

Indirect losses are those that come from the interruption of a business's operations due to a covered event, rather than from physical damage to the business’s own property. In this scenario, a supplier’s production plant is destroyed by fire, preventing the manufacturing plant from obtaining essential inputs. The insured’s own property wasn’t damaged by the fire, but its ability to operate is halted, leading to lost income and potentially extra expenses. That disruption to business activities is the hallmark of an indirect loss.

The other situations either involve direct physical damage to the insured’s property (a fire at the insured’s own building) or are events that don’t clearly create a loss to the insured’s operations (a flood in a different location) without a direct causal link to the insured’s ability to operate. Hence, the described supplier-fire scenario is the best example of an indirect loss.