“Its all your fault, we are claiming on our DSU Insurance Policy!”
It’s becoming increasingly common on major projects, particularly within the energy sector, for owners or operators to take out additional DSU insurance. This is to protect themselves from the losses caused by the delayed start up or start of commercial operation, or the date upon which “first gas” or “first oil” was achieved, due to an insurable event. Put simply, if the owner can’t export power to the grid then he will suffer a loss of profit which he will look to indemnify himself against.
Owners normally do this by purchasing a Delay in Start Up or “DSU” insurance policy which offers him this indemnity and is usually purchased alongside his usual CAR and EAR policies which will cover him for the direct costs incurred from the material or physical damage event.
All is good, I hear you say. Well maybe…call me cynical, but no!
From our experience, too many projects suffer from what we call “political” reporting wherein the contractor, not wishing to be the bearer of bad news will report the project being on time and not take into account all known delay events. This may be out of an optimistic assumption that “we can pull it back” or a “sit and wait” attitude, where the contractor will wait for owner-caused delays to mask his own causes of delay.
Whatever the real reason, this leaves the insurer and the loss adjuster with a problem when faced with a construction claim from the owner / operator under a DSU policy – did the insured event really cause the delay in start-up?!
Well, as ever it comes down to the facts. You need to tease out what actually happened and not solely rely on the reported situation.
At Kenzie we find this all too common in construction claims that we work on and we see lots of jobs where no delay is reported, but the retrospective analysis shows a previously unreported delay. This can have a dramatic effect on the level of indemnity to be paid out by the insurer.
So, insurers and loss adjusters be aware!
In the world of construction, the reported and the reality do not always align. But not to worry, by adopting recognised delay analysis techniques it is possible to accurately assess the true status of the project at the time of the insurable event, whether reported or not and the actual effect of the insured event on the planned start-up date.
We prefer facts – now this sounds simple – but we don’t exist in the land of theory as this doesn’t resolve anything. So, I am afraid it’s a case of going back to basics and reviewing and analysing photographs, reports, notices, meeting minutes, schedules and official correspondence to unpick the reality of the situation.
Only by doing this will you accurately assess the actual status of the project at the date of the insurable event and ensure that the insured owner/operator is reimbursed exactly what he is entitled to, no more and no less using his DSU insurance policy.
But that’s not the end of it. What about mitigation measures during the period of the repair or insurable event? What about assessing the status at the end of the insurable event? What about the deductibles? What about the waiting period?
Well as you know it’s a complicated business but take our advice, you can’t beat facts and contemporaneous records to truly assess the insureds’ entitlement. This way you can be sure that the “reported” and the reality align.