ALOP / Delay in Start-Up (DSU) Explained

Large construction and energy projects carry a financial exposure that does not exist in ordinary operating businesses: the risk of earning nothing because operations never started on time.

Advance Loss of Profits (ALOP), also known as Delay in Start-Up (DSU), addresses this exposure. It is not Business Interruption insurance. It is a specialised financial loss cover designed for projects that are still under construction and have not yet begun generating revenue.

What Is ALOP / DSU?

ALOP or DSU provides indemnity for financial loss arising from a delay in the planned commencement of operations, where that delay is caused by insured physical damage during construction, testing, or commissioning.

Unlike Business Interruption (BI), which protects existing earnings, DSU protects anticipated earnings that have not yet materialised.

How DSU Works

DSU is triggered only when all three elements are present:

• Insured physical damage under the underlying CAR/EAR or project policy
• The damage causes delay to scheduled completion or commissioning
• The delay results in loss of anticipated revenue or profit

If there is no physical damage, DSU does not respond — even if the project is delayed.

The Core Principle

DSU follows damage, not delay.

Pure delays caused by the following are not covered unless specifically extended:

• Contractor inefficiency
• Funding constraints
• Regulatory or permitting delays
• Supply chain disruption without insured damage

Practical Example: Gas-Fired Power Plant

A power plant is scheduled to commence operations on 1 July. During testing, a turbine suffers insured mechanical damage.

• Repairs take 4 months
• Commercial operation shifts to 1 November

The DSU claim may cover:

• Lost electricity sales revenue
• Lost capacity payments
• Lost contractual earnings during the delay period

Payment remains subject to the DSU sum insured, indemnity period, and any waiting period (time deductible).

DSU Indemnity Period

Similar to Business Interruption, DSU policies include an indemnity period — the maximum time the insurer will compensate for delay-related financial loss.

If the project delay exceeds this period, losses beyond that point are uninsured. This makes accurate project scheduling and financial modelling critical at placement stage.

Waiting Period (Time Deductible)

Most DSU policies include a waiting period expressed in days or weeks.

For example, a 30-day waiting period means the first 30 days of delay are not payable, even if insured damage occurred.

This mechanism prevents claims for minor schedule slippages and aligns coverage with material financial impact.

Common DSU Claim Disputes

• Whether the damage actually impacted the project’s critical path
• Overly optimistic original completion schedules
• Disagreements on projected revenue assumptions
• Incorrect DSU sum insured calculations
• Overlap with contractor liquidated damages (LD) provisions

DSU claims are technically complex and frequently involve engineers, delay analysts, forensic accountants, and legal advisors.

BI vs DSU — The Critical Distinction

• Business Status: BI applies to operating businesses; DSU applies before operations begin.
• Trigger: BI responds to interruption; DSU responds to delay caused by damage.
• Loss Type: BI covers lost earnings; DSU covers lost anticipated earnings.
• Typical Policy Structure: BI attaches to Fire/IAR; DSU attaches to CAR/EAR.

Why DSU Is Essential for Large Projects

Major energy, infrastructure, and industrial projects often rely on:

• Project financing arrangements
• Power purchase agreements
• Debt servicing schedules

Even if the physical asset is eventually completed, a delay in start-up can create significant financial strain, breach financing covenants, and trigger contractual penalties.

DSU is therefore not optional for capital-intensive projects — it is a financial stabilisation mechanism.