What is DSU insurance?

What Is DSU Insurance?

DSU insurance is a type of property, business income and expense coverage for projects that are under construction. 

DSU insurance covers the loss of soft costs, such as operating expenses, lost income and interest charges to lenders that result from an unexpected delay in completion of a construction project.

What Is DSU Insurance Coverage?

DSU insurance protects project owners (principals) against the loss of income from projects that are under construction if the project is delayed due to physical loss or damage.

DSU coverage may be a contractual insurance requirement in a solar project or energy storage project, or any project where income is expected to be generated at completion. 

Also known as delayed completion coverage, DSU insurance is a type of property coverage that may be part of a builder’s risk policy, construction all risk (CAR) policy, or erection all risk (EAR) policy.

DSU can be considered a type of business income coverage for projects that are under construction. 

Unlike a property only policy, DSU insurance covers the loss of anticipated revenue due to a construction delay. This may include soft costs, such as operating expenses, lost income, interest charges to lenders, and advertising expenses.

Net Profit And Fixed Costs

As a special form of property insurance, DSU insurance covers lost income and additional expenses or costs that must be incurred if a project is delayed by a covered cause of loss, such as physical damage. 

Net profit is gross revenue minus variable and fixed costs. 

Since variable costs only occur when a project is operational, DSU coverage only protects against loss of net profit plus any incremental fixed costs that occur during the delay.1

DSU insurance example
DSU insurance has a time-element deductible, meaning that a delay in startup must exceed the deductible time for the policy to pay out.

Trigger Date And Deductible

A DSU policy starts at the beginning of construction and ends at the project completion date, aka the “trigger date”. 

The trigger date is the date the project would have been completed and commercial operations would have begun. 

DSU coverage has a time-element deductible, or waiting period, meaning that a delay in start-up must exceed the deductible time for the policy to pay out.

DSU coverage is triggered by physical damage by or a covered loss to physical property damage peril for the project under construction.

Of course, delays may be caused by many factors, not all of which will be covered by a DSU policy.

If a delay is caused by both covered and non-covered perils, the covered and non-covered perils will be netted out. 

The amount of coverage is limited to actual losses sustained (ALS), in other words the net income that would have been earned plus any fixed expenses incurred. 

DSU coverage can only be triggered once and will have a maximum term and maximum pay out amount.

Footnotes

  1. Covered costs and additional endorsements to broaden DSU insurance may be negotiated on a carrier by carrier basis, depending on the project in question.
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