Advanced Loss of Profit / Delay in Startup Policy (ALOP/DSU)

About

Principals and contractors alike are being confronted with escalating financial risk exposure in the wake of the increasing industrialization. Principals now often collateralize loans with project assets and repay them purely based on the projected earnings.
The revenue-generating capability of a project has thus become a critical financing factor. Any delay in the start‐up of a project would immediately cause a loss in anticipated revenue. Therefore, stringent conditions regarding delays in scheduled project completion are now commonplace in contracts between financiers and principals, and particularly to those between principals and contractors.
Principals are, therefore, under pressure to ensure the economic viability of the projects by generating revenue immediately following the scheduled completion date. The traditional Storage Cum Erection Insurance (SCE) does not cover loss of anticipated revenue / gross profit in the event of a delay in the scheduled start update of any project, even though the same may have arisen due to a peril insured by the SCE Insurance.

ALOP / DSU covers are purchased in conjunction with:

• Marine Cargo Insurance for critical items of the project
• Erection All Risks Insurance / Construction All Risk Insurance

Irrespective of whether the delay results from damage covered under the marine or the erection policy, the trigger date remains the same.

Key Benefits

Advance loss of profit (ALOP) insurance provides coverage for financial losses due to delays in construction and infrastructure projects. ALOP will also provide a payout if companies face higher costs or lost profits when a project takes longer than expected to complete

Scope

The Advance Loss of Profit is designed to cover:

• Loss of Gross Profit = Net Profit + Standing Charges
  OR
• Loss of Gross Earnings = Turnover - Specified Working Expenses
  OR
• Fixed Operation & Management Costs
  • Debt Service Charges
  • Increased Cost of Working
  • Special Expenses, e.g. penalties

The policy pays for the actual loss of gross profit incurred during the period of delay, commencing from the scheduled date of commencement of commercial operation up to the actual date of commencement of commercial operation subject to a time excess and indemnity period selected. The delay, however, should have occurred due to a claim payable under marine -cum- erection policy, storage-cum -erection policy or contractor's all-risk policy.

Coverage

Hence, it is recommended that a single DSU policy in conjunction with the Marine Cum Erection Insurance be purchased which would cover:

• All (insured) physical damage
• Loss of Gross Profit arising out of a delay in the project, due losses covered by the underlying storage cum erection insurance.

Exclusions

• Loss or damage covered under Section I of CAR/EAR policy by way of endorsement, unless it has explicitly been agreed in writing
• Loss of or damage to surrounding property, construction machinery, plant and equipment
• Loss of or damage to operating media or feedstock, shortage, destruction, deterioration of or damage to any materials necessary for the insured business
• Any restrictions imposed by a public authority; Cancellation of license or Govt. restrictions etc
• Non-availability of funds for repairs/replacement to damaged items
• Alterations, additions, improvements, the rectification of defects or faults or elimination of any deficiencies carried out after the occurrence
• Any loss due to fines or damages for breach of contract, for late/non-completion of orders, or any penalties
• Business loss due to causes such as suspension, lapse/cancellation of a lease, license or order, etc. which occurs after the date of the actual commencement of the business
• Any consequence of war, invasion, the act of a foreign enemy, hostilities
• Nuclear reactions, nuclear radiation or radioactive contamination;
• Inventory losses
• Delay in the shipment of supplies
• Normal project schedule slippages

Claim Process

In the event of loss, the following are immediate actions to be taken
Intimate the insurer the occurrence of loss, submit a full statement in writing of the claim, provide the nature and extent of loss and also the estimate of loss. Any delay in intimation might jeopardize the claim as the insurer may express an inability in accepting liability of the loss/damage.

• To take all steps to reduce and minimize the extent of loss/damage and liability.
• The proximate cause of loss and assess the type/extent and whether it is within the scope of the policy.
• To extend full co-operation to the insurer and the surveyor appointed for completion of the survey work and proper assessment of the loss.
• Produce all such records and proof as may be required by the surveyor or the insurer for arriving at the extent of loss and the liability under the policy.
• Provide documents such as claim form, claim bill, copy of policy etc.
• Keep the damaged property under the safe custody until advised by the surveyor/insurer regarding its disposal.