A Marine-cum-Erection or Contractor's All Risk policy covers only physical damage to property which, at best, covers the expenses incurred for repairing or replacing the damaged property. What if the project gets delay due to material damage which may result into anticipated loss of Gross profit.
ALOP /DSU Policy come into play in order to take care of these anticipated Loss of Gross profit.
The Advance Loss of Profit is designed to cover:
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 upto 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.
The policy does not cover delay due to:
Advance Loss of Profits (ALOP) insurance covers loss of Gross Profit. Gross Profit means turnover (the amount of money paid or payable to the Insured for goods, products or services sold) minus the variable costs (dependent on turnover) of raw materials needed to produce the goods, products or services sold.
DSU/ALOP coverage only attaches in the event of an interruption or delay resulting from a Material Damage loss covered under the Material Damage section of the policy.
Period of Insurance runs parallel to CAR/EAR /SCE policy i.e. period of Insurance of ALOP/DSU should be same as that of CAR/EAR/SCE policy.
Extension in the period of Insurance:
If material damage section of the project policy is required to be extended, because of the delay in construction due to whatsoever reason an extension on period of insurance of ALOP/DSU must be asked and agreed with Insurer.
Extension of ALOP cover should be subject to additional premium as per the balance exposure.
Excess/Deductible: Deductibles are express in terms of days and calculated as single delay at the end of project once the project is operational i.e. period between original anticipated start date/completion date and Actual Completion period.
The process of Claim settlement is quite complex and required detailed segregation of delay due to Insured perils and delay due to Uninsured subject such as financial constraint, legal & regulatory approvals, change in design, Delay resulting from suspension, lapse, termination and/or cancellation of or the failure to obtain or extend any lease, contract, license, permit or other commitments.
The entire process is quite complex since the final loss can be ascertained only at the end of project and segregation from delay due to insured peril and delay due to un-insured subjects and involves stake holder ranging from principle , contractor, sub contractor , supplier, financer almost whole gamut of project chain.
Mostly these being settled on mutually agreed value.