By: Richard Keegan  |  From the Adjusting Matters Blog Series  | Part 5 – The Price of Optimism: DSU, ALOPs and the Real Cost of Delay

I have recently been considering a very interesting loss flowing from the late delivery of a new production facility of a product with a very short shelf life, further comment restricted to avoid identifying the innocent.

However, in doing so a number of familiar features have come to the fore and reminded me of the difficulties which can present themselves when dealing with an insured event where the response to the damage is within the construction project and insured under a CAR policy.

The resultant trading losses can be insured by differently named variants including Delayed Start Up (DSU) or Advanced Loss of Profits (ALOPS). Coverage can be a specific section of cover to a Construction Project Policy (Contract Works/TPL & DSU) or by a separate policy held by a party with an insurable interest in the future income stream.

On the matter of insurable interest in future income streams, that depends on the nature of the project is, its future use and the role of the party wishing to insure, and as ever the devil is in the detail and in the timing.

Why DSU or ALOPs When You Have BI?

It’s a common question from policyholders: if a business already has Business Interruption (BI) cover, why bother with ALOPs?

The answer lies in the limitations of standard BI policies which are included to protect Underwriters from unintentionally insuring construction risks. In the UK, BI cover typically requires:

• Material damage which would trigger the property section of the same policy,
• Damage to operational assets “used by” the business, and
• Excludes construction-phase risks and/or property.

ALOPs, by contrast, is designed for projects still under construction, where income hasn’t yet started. The indemnity period begins when income would have started, not when the damage occurred. But this comes with trade-offs: shorter indemnity periods and lower limits are common.

The Coordination Challenge: CAR vs DSU & ALOPs

When damage occurs on a construction site, the CAR insurer and contractor typically focus on repair scope and cost not speed. Unless ALOPs Insurers are notified early and actively involved, mitigation opportunities are lost.

Too often:

• Policyholders delay notifying ALOPs Insurers,
• Insurers adopt a “wait and see” approach, and
• Repair programmes are set without regard for future trading losses.

But when DSU/ALOPs Adjusters are engaged early, they can:

• Influence the repair timeline,
• Agree acceleration costs as Increased Cost of Working (ICW), and
• Help avoid or reduce Liquidated Damages.

This proactive approach can turn a potential loss into a win-win for all parties.

What Makes DSU/ALOPs Claims Unique

Unlike standard property claims, DSU and ALOPs claims are:

• Single-event claims: all insured project delays are treated as one claim,
• Completion-date driven: only delays that push back the completion date matter,
• Vulnerable to exclusions: if an excluded peril contributes to the delay, losses running concurrently are excluded,
• Indemnity period timing: the period of indemnity commences not with the insured damage, but when the new income stream would have commenced.

This makes critical path analysis and attributing the delay to the cause essential.

Case Studies: Lessons from the Field

1. Property Owner, Leaseholder, and Operator – A Chain of Interests

In a typical development scenario, a new hotel is under construction. The Property Owner intends to lease the completed building to a Hotel Group, which in turn sublets it to a Hotel Operator. Each party has a distinct financial interest:

• The Property Owner expects rental income from the Hotel Group,
• The Hotel Group relies on turnover rent from the Operator, and
• The Operator depends on trading income from hotel operations.

When construction delays occur due to insured damage, each party may suffer a loss and each can potentially insure their respective income stream through ALOPs or DSU cover.

This layered structure of insurable interests adds complexity to claims handling. The DSU/ALOPs adjuster must assess:

• Whether the insured damage is on the critical path,
• The impact of any excluded perils, and
• How the delay affects each party’s income stream.

Understanding these interdependencies is crucial to accurately quantifying the loss and ensuring fair indemnification.

2. Wind Turbine Blade Manufacturer – Supply Chain Under Pressure

A manufacturer building a new UPVC block plant in China intended to supply their nearby wind turbine blade fabrication facility suffered a fire during testing. Though the damage was minor, long lead times on replacement parts caused a four-month delay.

This delay led to a scarcity of UPVC block within the business, jeopardising the fulfilment of confirmed customer orders. To mitigate the shortfall and create a surplus buffer without any additional production capacity, the company rerouted supply: instead of shipping block from the EU by sea (a 12-week journey), they used rail transport, cutting delivery time by 8 weeks.

The claim included:

• Lost gross profit from the new plant,
• Lost growth at the fabrication facility,
• Mitigation costs for importing materials from the EU,
• Additional costs for expedited rail transport to reduce stock-in-transit time.

This case highlighted the complexity of projecting losses in emerging markets and the importance of agile supply chain decisions in mitigating business interruption.

3. School Meals and the Cost of Overpromising

A catering company contracted by a Local Authority to deliver school meals faced disaster when the premises purchased to house their new kitchen was destroyed by fire. Despite clear Force Majeure provisions, the company promised the Local Authority customer uninterrupted service, whilst failing to notify Insurers promptly.

They hastily repurposed an old customer  facility, but it lacked the power, communications and transport infrastructure to meet demand.

The situation then developed as follows:

• The new facility failed to provide the contracted hot meals,
• Mitigation operations were put in place to provide cold foods,
• Under pressure from parents the Local Authority publicly blamed the caterer,
• Disruption continued for longer than the 6 months, and
• The caterer incurred gross profit losses plus £1.5m in penalties.

The ALOPs claim was limited by a 6-month indemnity period and policy limits. The penalties were declined entirely due to late notification and failure to mitigate.

Key Takeaways

1. Early engagement is critical: Involving DSU/ALOPs Adjusters from the outset can shape the recovery plan and reduce losses.
2. Understand your policy: Know what triggers your cover, what’s excluded, and how indemnity periods work.
3. Don’t overpromise: In the face of disruption, it’s tempting to reassure stakeholders, but optimism without realism can be costly.
4. Use your Force Majeure clauses: Early consideration with input from Insurers is key as failing to invoke them can undermine the claim.

Final Thought

ALOPs and DSU claims are among the most technically rewarding for Adjusters but they demand precision, foresight, and a willingness to challenge assumptions especially the optimistic ones.