“Loss profits” is one component of potentially recoverable damages in a small business or other business setting. A fire or flood caused by a third-party affecting a business may damage a building structure, inventory and other property, or real property, as to which damages can generally be calculated based on objective proof.
Lost profits is a separate category of damages that can create difficulties for plaintiffs and can be difficult to prove in a few respects, especially for small businesses.
First, in a tort setting the conduct complained of must be established as a proximate cause of the plaintiff’s alleged lost profits. In Connecticut, this generally means the defendant’s conduct is a “substantial factor” in causing injury. Practically, the plaintiff must be able to demonstrate that, if not for the conduct at issue, the business suffered lost profits.
Second, as with other elements of damages, the plaintiff must be able to demonstrate the amount of damages with “reasonable certainty.” The law does not allow a plaintiff to recover “lost profits” based upon conjecture or wishful thinking and requires objective proof.
The burden of proving causation and damages falls on the plaintiff, and damages must be established “to a reasonable certainty.” Along these lines, any jury determination on these damages must be “reasonably supported by the evidence.”
Courts in Connecticut consider a number of factors in determining whether a lost profits claim is valid, most prominently:
(1) general business conditions in which the business operated;
(2) whether similar enterprises have been successful and to what degree;
(3) the plaintiff’s prior experiences in the same business;
(4) the plaintiff’s experience in the same enterprise subsequent; and
(5) comparisons between the plaintiff’s experience and that of third parties in the same industry, and the average experience of participants in the same line of business.
These factors can create significant problems for start-ups in particular, or small businesses with minimal record-keeping or business planning and profit expectations that may make sense only to a few individual owners. In any events, these issues require that lost profits complainants and their lawyers undertake real due diligence in documenting and prosecuting their claim.
Keep in mind that the above pertains to a third-party loss, i.e., when a business experience loss and potential lost profits due to the conduct of a third-party. Similar issues arise where a business asserts a first-party business loss or “business interruption” claim against its own insurer.
This content is provided as background and does not constitute legal advice. For more information or to schedule a free consultation, contact us at info@lalorattorneys.com / 646.818.9870.
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