13. What is meant by a Pure Economic Loss?

  • A pure economic loss arises where a third party suffers a loss without there being Injury or Damage.
  • Any loss under a liability policy will arise out of either:
    • Injury – this includes sickness or death
    • Damage – this includes theft
    • Pure economic loss – a loss where there has been no Injury or Damage
  • A pure economic loss is also known as a financial loss since they are purely pecuniary (monetary) nature.
  • Mostly a pure economic loss arises when the Insured denied the third party access to something that it uses to generate an income
  • For example, the Insured’s negligence in handling certain chemicals causes a potentially serious threat to the neighbouring businesses and as a result they need to be evacuated. The neighbours could sue the Insured for the loss of income and expenses they suffered because of the evacuation.
  • Where Injury or Damage has not yet occurred, but it is anticipated because of the Insured’s negligence, that could result in a pure economic loss.
    • For example, the Insured neglected to inspect the foundations properly, the building now needs to be torn down and rebuilt.
  • For example, the Insured is a courier company which is delivering examination papers. It makes the delivery to the wrong address. It soon discovers its mistake and recovers all the examination papers undamaged. However, by that time unauthorised people have seen the questions and it is necessary for the examination paper to be redone. The cost of redoing the examination paper is a pure economic loss.
  • Although the Pure Economic Loss extension provides cover for these losses, many pure economic losses are best covered elsewhere in the policy.

The abovementioned examination paper example would be covered under the E&O extension and not the PEL extension because the PEL extension excludes losses arising out of the supply of any Product

General Liability