What Is Marine DSU?
Marine DSU (Delay in Start-Up) addresses the financial loss arising from a delay in a project's planned commercial start-up that is caused by insured physical damage to critical equipment while it is in transit. The same need is also described in the market as Marine ALOP (Advance Loss of Profits) or project-cargo marine consequential loss; whether the terms are equivalent in scope depends on the wording.
The cover does not respond to the physical loss of the goods themselves, which the cargo/transit policy addresses. Marine DSU concerns, where the conditions are met, the financial loss calculated in the manner defined in the policy: for example, deferred or lost future revenue.
The scope of cover is contractual. This page is general information only and does not represent the scope, price, acceptance or any guarantee of payment under a particular policy.
Who Is It For?
The insurable interest under Marine DSU is generally the financial interest in the revenue the project is expected to earn once it starts on time. That interest usually lies with the project owner or with another party whose position depends on the project's revenue and financing; project owners carrying debt service or fixed-cost obligations tied to that revenue may need this cover. Energy, industrial and infrastructure projects in which large, critical equipment (for example turbines, transformers or reactors) moves through a long transit chain are typical examples.
A contractor's own costs, additional expenses or contractual liabilities are not the same financial interest. Whether a contractor can be an insured, and which interest can be covered, depends on the policy structure and the wording. The position of a financing party under the policy (for example as an insured or as a payee) also depends on the financing agreement and the wording. Eligibility, acceptance and terms rest with the relevant insurer.
Relationship with Marine Cargo
Marine Cargo addresses physical loss and damage to goods in transit; Marine DSU, where the conditions are met, addresses the financial consequence of the project delay such damage causes. Neither replaces the other. For cargo details, see Marine Cargo Insurance.
In the market Marine DSU is often arranged in connection with the project cargo (cargo/transit) policy, but this is not the only possible structure in every case. It can be structured together with cargo or under a separate arrangement; which structure is available depends on the insurer, the project and the transit chain.
For matters such as delivery terms and insurable interest, the Incoterms Guide gives general information; how the cargo cover and the DSU structure should be set up for a particular shipment is assessed from the policy and contract documents.
The Link Between Insured Physical Damage and Project Delay
As a rule, Marine DSU depends not merely on the existence of a delay but on the delay arising from insured physical damage. The general structure works as follows:
- Insured physical damage: Insured damage meeting the conditions of the wording occurs to the project equipment in transit.
- Project impact: The damage prevents the equipment from reaching the project on time or from becoming ready for use.
- Delay: The project's planned commercial start-up date is delayed.
- Financial loss: The financial consequence of the delay defined in the policy is calculated using the method in the policy.
Not every transit delay is a Marine DSU loss. Delays occurring without damage, causes that are not insured perils, or other delays already present in the project may not satisfy the conditions of the policy; how they are treated depends on the wording and any special extensions.
Critical Path and Planned Commercial Operation Date
The critical path is the chain of activities that determines the project's completion time; a delay in that chain generally delays the whole project. If the damaged equipment lies on this chain and the damage actually delays the project's planned start-up date, the causal link between the insured physical damage and the delay is assessed. Damage to an item outside the critical path may not delay the project date. How critical path analysis and the project schedule feature in the policy and in the assessment varies by insurer and wording.
The planned commercial operation date (which may appear under different names in wordings) determines the date against which the delay is measured. How that date is defined, under what conditions it may be revised and whether a revision requires the insurer's approval should be verified from the policy.
Marine DSU vs CAR/EAR DSU-ALOP, BI and Loss of Hire
Scroll the table horizontally to see all columns.
| Marine DSU | CAR/EAR DSU-ALOP | BI | Loss of Hire | |
|---|---|---|---|---|
| Stage | Generally while project equipment is in transit | Generally during construction and erection | Generally after the business has started operating | Generally during the vessel's commercial operation |
| Subject | Delay in the project's start-up caused by insured damage in transit, and the financial loss defined in the policy (subject to the policy's indemnity basis and limits) | Start-up delay caused by insured damage at the site or during erection, and the financial loss defined in the policy (subject to the policy's indemnity basis and limits) | Generally the loss of earnings and expenses, as defined in the policy, of an operating business after insured material damage | Interruption of the vessel's earning activity because of an insured peril, and the loss of hire or operating income defined in the policy |
| Insured interest | Generally the financial interest in the project's revenue (often the project owner); the capacity of the insured depends on the policy | Generally the financial interest in the project's revenue; the capacity of the insured depends on the policy | Generally the interest in the business's earnings and expenses (the business owner); depends on the policy | The interest in the vessel's hire or operating income (the shipowner or operator); depends on the policy |
| Basis | Generally insured cargo/transit damage and the related wording; under suitable special wordings it may overlap with a CAR/EAR-linked structure | Insured material damage under CAR/EAR and the related wording; under suitable special wordings it may also include transit risks | Generally the business's material damage cover and the BI wording | The insured peril defined in the policy and the related Loss of Hire wording |
The stage distinction is a general guide, not an absolute one: under suitable special wordings, Marine DSU and CAR/EAR-linked DSU cover may overlap. These are separate structures and do not replace one another. The terms DSU and ALOP are used synonymously in some contexts to describe the same need, but their scope may differ by wording. For the CAR/EAR-linked structure see Construction & Erection Insurance; for an operating business see Business Interruption Insurance.
Loss of Hire is a separate cover relating to interruption of a vessel's earning activity and should not be equated with project DSU: deferral of a project's revenue (including financing obligations) and loss of a vessel's hire or operating income are different economic interests. For the product difference, see Loss of Hire Insurance.
Waiting Period, Indemnity Period and Calculation of Financial Loss
The waiting period refers to the initial part of the delay that remains for the assured's own account; the indemnity period is the maximum period over which indemnity is calculated. There is no single standard for these periods or number of days; they differ according to the project, the equipment and the insurer's assessment.
The elements of the financial loss are defined in the policy. Depending on the wording, the following elements may be relevant:
- Fixed costs: Fixed cost items defined in the policy that cannot be met because revenue is not earned.
- Debt service: Amounts defined in the policy that are payable under the financing.
- Anticipated profit: The earnings that would have been made had the delay not occurred, calculated by the method in the policy.
- ICOW (Increased Cost of Working): Reasonable additional expenses incurred to prevent or reduce the delay; the scope, limit and any requirement for the insurer's consent depend on the policy.
Mitigation measures and alternative sourcing are also subject to the insurer's approval and the policy conditions. Whether the amount is calculated on an actual-loss basis or on a stated daily amount may vary by policy.
Exclusions and Policy Conditions
The following are examples; the list is not exhaustive and varies by policy.
- Existence of a delay is not enough: The insured physical damage required by the policy, the damage actually delaying the project and the other conditions must be met.
- Penalties and liquidated damages: Contractual delay penalties and liquidated damages are not automatically covered; their scope and limits depend on the policy and any relevant extension terms.
- Catastrophe perils: Earthquake, tsunami and similar catastrophe events are treated differently according to the policy and special terms; no general promise of cover can be given.
- Waiting period and limits: Loss within the waiting period remains with the assured; indemnity beyond the indemnity period or the limit is not payable.
- Notification and policy conditions: Progress reports, notification of changes and compliance with other policy conditions may affect the indemnity.
Important policy conditions: matters such as vessel breakdown, General Average and Salvage, war and strikes, delivery terms such as CIF/FOB and insurable interest, extensions for non-damage delay, and the presence of several concurrent causes of delay depend on the policy terms and any special extensions. Without reviewing the specific wording, they should not be assumed to be inside or outside cover.
Information and Documents Needed for a Quotation
- Project owner, contractor, project type and budget
- Critical equipment list and the place of each item in the project schedule
- Transit route, modes of transport and the loading, discharge and temporary storage stages
- The project cargo policy and its wording
- Planned commercial operation date, critical path and project schedule
- Repair or replacement lead time in case of damage
- Anticipated revenue, fixed costs and debt service information
- The requested waiting period and indemnity period
- Claims and delay history and, where needed, risk engineering or survey requirements
This list is illustrative; the information and documents requested vary by insurer and product and should not be read as a single mandatory standard form for every insurer. Acceptance, requests for further information and terms rest with the relevant insurer.
Frequently Asked Questions
What is Marine DSU and how does it differ from Marine Cargo insurance?
Is every transit delay covered by Marine DSU?
Is Marine DSU the same as CAR/EAR DSU-ALOP?
How long are the waiting period and the indemnity period?
What information is needed for a Marine DSU quotation?
Neolife's Role
Neolife Group can assess the project information, carry out placement work in the appropriate insurance and reinsurance market and compare the quotations received. This does not imply the capacity of any particular insurer or reinsurer, acceptance of cover, price or any commitment to pay; these are subject to the rules of the relevant insurer and the policy terms.