When revenue will be produced by a completed project, loss of that revenue can be insured for/by the owner of the project in advance of the completion of the project.

Such insurance is known by many acronyms :

  • Delay in Start-Up Cover (DSU)
  • Advanced Consequential Loss (ACL)
  • Advanced Loss Profits (ALOP)
  • Advanced Business Interruption (ABI).

The cover is triggered by physical loss or damage to a project during construction, which causes a delay to the expected completion date and therefore a delay in realising the owner’s expected revenue from the project. This case study helps to provide context on the intricacies of this insurance product.


The Project

A developer was constructing a 20 unit residential complex with basement car parking. The developer was selling 10 units off the plan at $700,000 each and retaining ownership of 10 units for rental income. To construct the residential complex it was estimated to take 14 months with a project value of $7.5m.

The project capital was partially financed at an annual interest rate of 7%. The total aggregate interest on $4m loaned was $280,000). The estimated annual rental on the 10 units, at $45,000 per unit/annum was $450,000. The owner intended to pay back all of the money loaned from the sale of the 10 units.

The owner effected a Loss of Rents (and interest) ABI cover. The indemnity period was 16 months (to adequately allow for demolition in the event of total destruction when nearing practical completion). The time excess was 1 month. The (adequate) sums insured for 16 months cover comprised:

Loss of Rent:                        $600,000

Funding of Interest:            $373,000

Claim Prep Costs:                $  20,000


The Incident

At 4 weeks prior to practical completion of the residential complex, a fire (deliberately lit) extensively damaged the complex.

Demolition of the affected areas and repair took 8 months.

At the time of the fire, deposits had been taken for 9 of the units for sale and rental contracts had been signed for 8 units.


How the Policy responded

No indemnity was available for the one unsold unit or the two unrented units. Any interest and rent would have been borne by the owner for these three units had the fire not occurred.

After the time excess had been deducted (1 month), the policy responded to seven months interruption.

  1. Loss of rent settlement (on 8 units):
    $45,000 each unit per annum for 7/12 months          = $210,000
  2. Loss of interest settlement (on 17 units)
    $4m x 17/20 units @ 7%
    = $238,000 @ 7/12 months                                            = $138,833
  3. Claim Prep Costs:
    The owner spent $7,500 on consultant’s fees             = $7,500


Total Settlement                                                                = $356,333


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