Construction Project Delays: Does Your CAR/EAR Policy Cover Revenue Loss?

You're building a RM80 million manufacturing facility. Six months before handover, a fire destroys the partially completed electrical substation. Your CAR policy covers the physical damage and the rebuild cost. But the rebuild pushes your completion date back by 4 months. During those 4 months, you're still paying loan interest, the factory generates zero revenue, and your anchor tenant is threatening to pull out. Your CAR policy pays nothing for any of that.

This guide explains DSU (Delay in Start-Up) insurance, the extension to your CAR/EAR policy that covers the financial consequences of project delays caused by insured damage events.

This guide covers:

• What DSU insurance is and how it connects to CAR/EAR
• The three conditions that must be met for DSU to trigger
• What DSU covers (and what it doesn't)
• How the time excess (waiting period) works
• DSU vs business interruption insurance
• When you need DSU and when you don't

How CAR/EAR Insurance Is Structured

Before understanding DSU, you need to understand the policy it extends. Contractor's All Risks (CAR) and Erection All Risks (EAR) policies follow a three-section structure.

Section	What It Covers	Example
Section I: Material Damage	All-risks cover for the contract works during construction/erection	Fire damages partially built structure; cost to rebuild is covered
Section II: Third Party Liability	Bodily injury or property damage to third parties from construction activities	Crane drops material onto adjacent property
Section III: DSU (Optional)	Financial losses from project delay caused by Section I damage	4-month delay from fire = 4 months of lost revenue and ongoing loan payments

Sections I and II are standard in every CAR/EAR policy. Section III (DSU) is optional and must be specifically added. Most contractors don't have it unless their project financier or client requires it.

What Is DSU Insurance?

DSU stands for Delay in Start-Up. It's also called ALOP (Advance Loss of Profits). DSU covers the financial consequences when a construction or erection project is delayed beyond its scheduled completion date because of physical damage covered under Section I of the CAR/EAR policy.

The key concept: CAR/EAR Section I covers the cost to fix or replace what was damaged. DSU covers the money you lose while waiting for that fix.

Without DSU	With DSU
Physical damage to works: Covered (Section I)	Physical damage to works: Covered (Section I)
Loan interest during delay: Not covered	Loan interest during delay: Covered
Lost revenue during delay: Not covered	Lost revenue during delay: Covered
Fixed costs during delay: Not covered	Fixed costs during delay: Covered
Total financial exposure: Physical damage only	Total financial exposure: Physical damage + financial losses

The Three Conditions for DSU to Trigger

DSU doesn't trigger automatically when a project is delayed. All three of these conditions must be met simultaneously.

Condition	What It Means	What Doesn't Qualify
1. Indemnifiable event under Section I	The damage must be covered under the material damage section	Design errors, excluded perils, damage outside policy period
2. Delay exceeds the time excess	The project must be delayed beyond the waiting period (e.g., 30, 60, or 90 days)	Minor delays within the time excess
3. Actual financial loss suffered	The delay must cause actual financial loss to the insured	Delay that doesn't affect revenue or costs (e.g., project was already behind schedule for other reasons)

This is critical: DSU only responds to delays caused by physical, insured damage events. If your project is delayed because of permit issues, labour shortages, design changes, or contractual disputes, DSU does not cover it. The delay must trace back to a Section I loss.

What DSU Covers

DSU coverage has expanded over time. Modern policies typically cover three categories of financial loss.

Loss Category	What's Covered	Example
Debt service costs	Loan interest and (in some policies) capital repayments during delay	RM200,000/month loan interest that continues during 4-month delay
Fixed standing charges	Ongoing costs that continue whether or not the project generates revenue	Staff salaries, professional fees, insurance premiums, utilities
Loss of anticipated revenue	Gross profit the project would have earned if it had started on time	Factory that would generate RM500,000/month revenue from Month 1

The distinction between "debt servicing as interest only" versus "interest plus capital repayments" can mean differences of tens of millions on large projects. Check your policy wording carefully.

What DSU Does NOT Cover

Exclusion	Why
Contractual penalties and liquidated damages (LAD)	These are contractual obligations, not insurable losses
Delays from design errors or defective workmanship	Not covered under Section I (excluded perils)
Delays from labour disputes, strikes, or permit issues	No physical damage event to trigger DSU
Gradual deterioration or wear and tear	Standard exclusion under Section I
Maintenance/defect liability period losses	Outside the construction period coverage
War, nuclear risks, terrorism (unless specifically added)	Standard policy exclusions

Time Excess: The Waiting Period

Unlike a normal deductible (which is a monetary amount), DSU uses a time excess. This is a waiting period expressed in days before coverage begins.

Common Time Excess	What It Means	Best For
30 days	You absorb the first 30 days of delay losses; DSU pays from day 31	High-value projects where even short delays are costly
60 days	You absorb the first 60 days; DSU pays from day 61	Medium projects with some schedule buffer
90 days	You absorb the first 90 days; DSU pays from day 91	Lower premium; suitable if project has built-in contingency

A longer time excess means a lower premium, but greater self-retention of loss. Choose based on your project's financial sensitivity to delays and the amount of schedule float you've built in.

Maximum Indemnity Period

DSU coverage has a cap on how long it will pay out. Common maximum indemnity periods in the Malaysian market range from 12 to 18 months. Beyond this cap, you absorb the losses yourself even if the delay continues.

The indemnity period starts from the date the project would have been handed over if the loss had not occurred (the Scheduled Opening Date), not from the date of the damage event. It ends when commercial operations begin or when the maximum period expires, whichever comes first.

DSU vs Business Interruption Insurance

DSU and BI (business interruption) insurance are often confused. They cover similar financial losses but in completely different situations.

Feature	DSU / ALOP	Business Interruption
Applies to	Project not yet operational (under construction)	Established operating business
Attached to	CAR/EAR policy (Section III)	Fire/IAR policy (extension)
Trigger	Physical damage during construction	Physical damage to operating property
Loss covered	Pre-revenue losses (anticipated profits, debt service)	Post-revenue losses (actual revenue decline)
Coverage period	From Scheduled Opening Date until operations begin	From damage event until business is restored
Revenue basis	Projected (based on feasibility studies, contracts)	Actual (based on historical financial records)

Once the project is handed over and commercial operations begin, DSU coverage ends and business interruption insurance takes over. There should be no gap between the two.

Who Needs DSU?

Not every construction project needs DSU. But for certain projects, going without it is a significant financial risk.

Project Type	DSU Needed?	Why
Project-financed developments	Yes (often mandatory)	Lenders require DSU to protect debt service; revenue needed to service loans
Power plants and utilities	Yes	Revenue generation starts immediately upon commissioning; delay = direct revenue loss
Manufacturing facilities	Yes	Pre-sold production commitments; delay = lost orders and customer contracts
Commercial buildings (for rent)	Yes	Rental income loss from delayed handover to tenants
Infrastructure (roads, bridges)	Sometimes	Depends on concession/toll revenue structure
Small renovation/fit-out projects	Rarely	Low financial exposure from short delays; cost may not justify premium

How to Calculate DSU Sum Insured

The DSU sum insured should reflect the maximum total financial loss that could occur during the maximum indemnity period. It's based on projections, not historical figures (unlike BI insurance).

Component	Calculation Basis
Debt service	Monthly loan repayment x maximum indemnity period (months)
Fixed standing charges	Monthly fixed costs x maximum indemnity period
Lost gross profit	Projected monthly revenue less variable costs x maximum indemnity period
Total DSU sum insured	Sum of all three components

Under-declaring your DSU sum insured exposes you to the same average clause risk as property insurance. If the actual maximum loss exceeds your declared sum insured, the payout is reduced proportionally.

DSU in the Malaysian Construction Context

The Malaysian construction sector is exposed to significant physical damage risks during the construction phase: fire, flood, collapse, and natural disasters. These events don't just cost money to repair. They push back completion dates, which triggers a cascade of financial consequences.

Scenario	Section I (Material Damage)	Section III (DSU)
Fire damages partially built factory	Pays to rebuild the damaged section	Pays lost revenue + loan interest during rebuild delay
Flood damages foundation works	Pays to redo the foundation	Pays lost rental income from delayed tenant handover
Crane collapse damages M&E installation	Pays for replacement equipment and installation	Pays debt service while commissioning is delayed

For a broader look at construction risk management in Malaysia, see our complete guide.

FAQ

Is DSU the same as ALOP?

Yes. DSU (Delay in Start-Up) and ALOP (Advance Loss of Profits) refer to the same coverage. DSU is the more common term in the Malaysian and Asian markets. ALOP is more commonly used in some European markets. Both are Section III of a CAR/EAR policy.

Can I buy DSU as a standalone policy?

No. DSU can only be added as an extension (Section III) to an existing CAR or EAR policy. It cannot function without the underlying material damage cover because the DSU trigger requires a Section I indemnifiable event.

Does DSU cover delays from design errors?

No. Design errors and defective workmanship are typically excluded under Section I of the CAR/EAR policy. Since DSU requires a Section I indemnifiable event as a trigger, delays from design errors do not qualify for DSU cover.

What happens if my project was already behind schedule when the damage event occurred?

DSU measures delay against the original Scheduled Opening Date (SOD) agreed in the policy. If your project was already behind schedule for other reasons, the DSU loss is calculated from the SOD, not from the actual (delayed) completion date. The insurer only pays for the additional delay caused by the insured damage event.

Does DSU cover liquidated damages (LAD) I have to pay?

No. Contractual penalties including LAD are specifically excluded from DSU coverage. DSU covers actual financial losses (debt service, fixed costs, lost revenue), not contractual obligations to compensate third parties.

How do I decide on the time excess (waiting period)?

Consider your project's financial sensitivity to delays and any schedule float. A 30-day excess gives earlier coverage but at higher premium. A 90-day excess is cheaper but means you absorb 3 months of losses yourself. If your project has zero schedule contingency and high monthly financial exposure, a shorter time excess is worth the premium.

My bank requires DSU. What exactly do they want?

Project financiers typically require DSU to protect their debt service payments during construction. The bank wants assurance that if a covered event delays the project, the loan interest will still be serviced. The DSU sum insured usually needs to cover at least the debt service component for the maximum indemnity period.

When does DSU end and business interruption begin?

DSU ends when the project is handed over and commercial operations begin. Business interruption insurance covers losses from that point forward. There should be no gap between the two. Work with your insurance intermediary to ensure seamless transition from DSU to BI coverage.

Foundation Conclusion

Your CAR/EAR policy protects the physical works. But the financial losses from project delays can dwarf the cost of physical repairs. A 4-month delay on a RM80 million project can easily generate RM3-5 million in lost revenue, ongoing loan payments, and fixed costs that Section I doesn't touch.

If your project has significant financial commitments tied to the completion date, DSU isn't optional. It's the coverage that makes sure a physical damage event doesn't become a financial catastrophe.

Talk to our risk specialists about DSU coverage for your construction project

Disclaimer: This article provides general guidance on insurance coverage available in the Malaysian market as of March 2026. Policy terms, conditions, and availability vary by insurer. Always review your specific policy wording or consult a qualified insurance professional before making coverage decisions.