Consequential damages refer to certain economic losses that can be recovered in a breach of contract action if proven, but that go beyond the ordinary, natural, and generally foreseeable losses that directly arise from a failure to perform under the contract. To qualify as consequential damage, the losses must have been reasonably foreseeable by the parties at the time of contracting and approximately caused by the breach.

This concept of indirect, specialty losses is important in how courts allocate risk and determine appropriate financial remedies when contractual obligations are not fulfilled as agreed. Understanding the nuances of consequential damages is crucial for businesses drafting, negotiating, and litigating commercial contracts.

What are Consequential Damages?

Consequential damages refer to economic losses arising from special circumstances, as opposed to general damages that are the natural, foreseeable result of a breach of contract. They are losses due to the breach but were not direct, ordinary losses. A classic example is losing a lucrative business deal because a supplier breached their contract by failing to deliver an important product on time.

Direct vs Indirect Damages

Direct damages naturally and usually occur from a breach of contract itself. In the case of a construction contract, for example, direct damages could include the cost to complete unfinished work or repair defective work. Indirect damages, also known as consequential damages, result from special circumstances not inherent in the type of contract or events surrounding the breach.

Requirements for Consequential Damages

To be awarded consequential damages in a breach of contract case, the plaintiff must prove that:

• The losses were caused by the breach of contract
• The losses were foreseeable at the time of contract formation
• The losses can be proven with reasonable certainty

Common Types of Consequential Damages

Some common types of consequential damages in contract disputes include:

• Lost profits
• Delay damages for extended project completion schedules
• Increased financing costs due to project delays
• Lost business opportunities and clients
• Damage to business reputation
• Extra equipment rental costs
• Increased labor costs

Limitations and Other Considerations in Florida Contract Law

Florida law imposes some important limitations on recovering consequential damages for breach of contract.

Foreseeability Requirement

As mentioned earlier, the losses must have been reasonably foreseeable during contract formation to qualify as consequential damage. Florida courts use an objective man-on-the-street test: Would an ordinary prudent businessperson have reasonably foreseen these types of losses as likely to occur?

Mitigation Requirement

The injured party must take reasonable steps to mitigate, minimize, or reduce the consequential damages amount after a breach occurs. Any losses that could have been avoided through reasonable efforts may not be recoverable.

Proximity Requirement

The losses must bear some proximate and direct relation to the breaching party’s failure to perform under the contract. Losses that are too remote, removed, or distinct from the breach likely will not be awarded.

Consequential Damage Exclusion Clause

Parties to a contract are free to negotiate whether to allow recovery of consequential damages or to impose damages limitations. A written clause excluding or limiting consequential damages will generally be enforced by Florida courts if the language is unambiguous.

Punitive Damages Not Allowed

Punitive or exemplary damages aimed at punishing the breaching party, as opposed to compensating losses, are not available for simple breach of contract in Florida. This limitation does not affect any available punitive damages for related tort claims like fraud.

Consequential Damages Clause in a Contract

Contracting parties should include a specific clause in their written agreement addressing the issue to establish expectations around consequential damages and limit liability if desired.

A basic consequential damage exclusion clause may state:

In no event will either party be liable to the other for any indirect, incidental, consequential, special, exemplary, or punitive damages arising out of this agreement, whether based upon a claim or action of contract, warranty, negligence, strict liability, or other tort, or otherwise, and whether or not the parties have been advised of the possibility of such damages.

Such a clause eliminates the ability to recover consequential losses in case of a breach, default, or other claim arising under the contract.

Alternatively, a clause may limit consequential damage to a set monetary amount or percentage of the total contract price:

Damages for any causes arising under this agreement, whether based on contract, warranty, negligence, strict liability, or otherwise, shall in no event exceed the contract price or $ XX,000, whichever is less. In no event shall either party be liable for indirect, incidental, or consequential damage.