TheOrientalInsuranceCompanyLimited

AdvanceLossofProfit/DelayinStartupInsurance(ALOP/ DSU)
Principals and contractors alike are being confronted with escalating financial risk exposure in thewakeoftheincreasingindustrialisation. Principalsnowoftencollateraliseloanswithprojectassetsandrepaythempurelyonthebasis ofprojectedearnings(i.e.NonrecourseFinancingdebtfinancingprovidedforprojectswithno or very limited recourse to the assets of the project sponsor. The financier relies on the technical,commercialandfinancialviabilityoftheprojectanditsearningsasthesolesourcefor debtservicing). Therevenuegeneratingcapabilityofaprojecthasthusbecomeacriticalfinancingfactor. Anydelayinthestartupofaprojectwouldimmediatelycausealossinanticipatedrevenue. Therefore, stringent conditions regarding delays in scheduled project completion are now commonplaceincontractsbetweenfinanciersandprincipals,andparticularlytothosebetween principalsandcontractors. Principalsare,therefore,underpressuretoensuretheeconomicviabilityoftheprojectsby generatingrevenueimmediatelyfollowingthescheduledcompletiondate. ThetraditionalStorageCumErectionInsurance(SCE)doesnotcoverlossofanticipatedrevenue /grossprofitintheeventofadelayinthescheduledstartupdateofanyproject,eventhough thesamemayhavearisenduetoaperilinsuredbytheSCEInsurance. Orientals Delay in Start up Insurance (also known as Advance Loss of Profits Insurance) provides the broadest possible insurance cover available in the market to meet such contingencies.Infact,wewerethefirstinsurancecompanyinIndiatoofferDelayinStartup Insurancetoourvaluablecustomers. The DSU insurance is recommended to be purchased as an extension to the Storage Cum ErectionInsurance/MarineCumErectionInsurance(SCE/MCE)
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TheOrientalInsuranceCompanyLimited
Delayinstartup Delay in startup (DSU) cover is designed to secure the portion of revenue which the principalrequirestoservicedebtandrealiseanticipatedprofit. Fortheprincipal/investorgroup,amajorincident/alargenumberofsmallerincidentsof damagetotheworksduringtheconstructionphase(or)islikelytoresultinadelayinthe commencementofcommercialoperationoftheprojectandconsequentlytheabilitytoearn revenue TheworkscontractbetweentheprincipalandtheEPCcontractorstipulatesthat,asarule, the contractor is accountable visvis the principal for any project startup delay arising throughanyfaultonthepartofhimselforhissubcontractors. Whilst some of these losses may be recoverable from the contractors delay penalties undertheconstructioncontract,othersmaynotgiverisetopenaltiesbecausethecontract provisions relieve the contractor of this obligation for any risk explicitly assumed by the principal. Whiletheserisksmayvaryfromcontracttocontract,theusualexclusionsarewithregardto Force Majeure events (earthquake, flood or windstorm etc.) as well as other physical destructionordamagebyanycausebeyondthecontrolofthecontractor,subcontractoror supplier. FurthermoretherecoveryofthefullamountofrevenuelossfromtheContractorsisoften limitedbyacaponliquidateddamages,thusleavingthePrincipal/InvestorGroupexposed tolossesinexcessofthislimit. The Advance Loss of Profits Insurance, covers the interest of the principal only, provided thatthedelayinstartupoftheprojectfromthescheduledbusinesscommencementdate andtheresultantlossofrevenueisduetophysicaldamagecoveredundertheunderlying: o StoragecumErectionInsuranceand o by the same set of perils as covered under the parallel Advance Loss of Profit Insurance Whocantakethepolicy? The policy is taken by the Principal as he stands to lose in case of any delay in the commissioningofanewprojectunderinstallation/construction Quiteoftentheinterestsoftheprojectfinanciersisalsoincludedasadditionalinsured Contractors / subcontractors cannot be included as the joint insured as they have no insurableinterest(unlikeinanEAR/CARPolicy)
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TheOrientalInsuranceCompanyLimited
ALOP/DSUcoversaretobepurchasedinconjunctionwith: 1. MarineCargoInsuranceforcriticalitemsoftheproject 2. ErectionAllRisksInsurance/ConstructionAllRiskInsurance Irrespective of whether the delay results from damage covered under the marine or the erectionpolicy,thetriggerdateremainsthesame. Hence, it is recommended that a single DSU policy in conjunction with the Marine Cum ErectionInsurancebepurchasedwhichwouldcover: All(insured)physicaldamage Loss of Gross Profit arising out of a delay in project, due losses covered by the underlyingstoragecumerectioninsurance. Indemnification TheindemnityprovidedbytheAdvanceLossofProfitPolicyshallbeinrespectof: Lossofgrossprofit(Hyperlink)sustainedduringtheindemnityperiod(Hyperlink)resultingfrom areductioninturnover(Hyperlink)includinganyincreasedcostofworking(Hyperlink) or Specified standing charges (Hyperlink), the amount actually not earned during the indemnity periodresultingfromareductioninturnoverincludinganyincreasedcostofworking Theindemnityshallnotexceedthesuminsured(Hyperlink)forthemaximumindemnityperiod. Q1.WhatdoesGrossProfitmean? Answer:Grossprofitmeanstheamountbywhichthevalueoftheturnoverandthevalueofthe closing stock exceed the value of the opening stock and the amount of the specified working expenses.Thevalueoftheopeningandclosingstocksshallbecalculatedinaccordancewiththe insuredsnormalaccountingmethods,dueprovisionbeingmadefordepreciation. Q2.Whatdospecifiedworkingexpensesmean? Answer:Specifiedworkingexpensesmeansanycostsincurredfortheacquisitionofgoods,raw materialsorauxiliariesaswellasforsuppliesunlessrequiredfortheupkeepofoperationsand any costs of packaging, carriage, freight, intermediate storage, turnover tax, purchase, tax, licencefeesandroyalties,insofarassuchcostsaredependentonturnover. Q2.WhatdoesIndemnityperiodmean?

TheOrientalInsuranceCompanyLimited
Answer:Indemnityperiodistheperiodduringwhichtheinterestinsuredisaffectedasaresult of the delay in startup, beginning on the scheduled date of commencement of the business insuredandnotexceedingthemaximumindemnityperiodspecifiedintheschedule. Q3.WhatdoesTurnovermean? Answer:Turnovermeanstheamountofmoney(lessdiscounts)paidorpayabletotheinsured forgoods,productsorservicessold,deliveredorrenderedinthecourseofthebusinessinsured. Q4.WhatdoesIncreasedcostofworkingmean? Answer: Increased cost of working means the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the loss of gross profit which,withoutsuchexpenditure,wouldhavetakenplace. Q4.WhatdoSpecifiedstandingchargesmean? Answer: Specified standing charges mean any fixed costs specified in the schedule which continuetobepayableinfullduringtheindemnityperiod. Q5.WhatdoesSuminsuredmean? Answer:Thesuminsuredshouldbedecidedbytheinsuredonthefollowingbasis: theannualanticipatedgrossprofit(Hyperlink)or annualanticipatedspecifiedstandingcharges.(Hyperlink) Shouldthemaximumindemnityperiod(Hyperlink)exceedtwelvemonths,thegross profitorthespecifiedstandingchargesshallbetheprorataamountforthatperiod. Q5.Howshouldtheinsureddecidethemaximumindemnityperiod? Answer:Thelengthoftheindemnityperiodshouldbedecidedcarefullyonareasonedguess estimatebasisastohowlongwillittaketoactuallystartproductionintheeventofamajorloss duringtheerectionortestingperiod.Thisshouldbeplannedonaworstcasescenariobasis. Theindemnityperiodshouldbeselectedbytheinsuredbaseduponthelongest replacementtimerequiredforcriticalitems Includes:timerequiredforreordering,remanufacturing(ifrequiredmadeto order),transportationtothesite,reerection,testingandcommissioning The extent of the maximum likely period of interruption will need to be assessed from a number of possible scenarios and the resultant financial impact on the Project. Particular attentionneedstobepaidtoanyTakeorpayprovisionintheFuelSupplyAgreements(ifany) andpossibledelaylinkedpenaltiesforfailuretosupplythefinishedproducttospecifiedbuyers.
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TheOrientalInsuranceCompanyLimited
Thus the coverage is determined by the amount of insurance purchased and by the agreed indemnity period, which should be commensurate with the risk. For example, if repair or rebuildingrequires12months,theindemnityperiodshouldbeatleast12monthsandincludea bufferforcontingencies. CAUTION:Ifthesuminsuredandmaximumindemnityisnotappropriatelydecided,itwill resultinapplicationoftheunderinsurance.Thereby,itmaynotbepossibleforthepolicyto provideyouappropriatecompensationforyourloss. Q6.WhatdoesRateofgrossprofitmean? Answer:Rateofgrossprofitmeansthepercentageofgrossprofitwhich,hadthedelayinstart upnotoccurred,wouldhavebeenearnedontheannualturnover. Q7.Whatdoesannualturnovermean? Answer:Annualturnovermeanstheturnoverwhich,hadthedelayinstartupnotoccurred, wouldhavebeenachievedduringthetwelvemonthsafterthescheduleddateof commencementofthebusinessinsured. Q8.Whatdoesdateofcommencementofthebusinessinsuredmean? Answer:Dateofcommencementofthebusinessinsuredmeanstheactualdateonwhichthe businessinsuredcommenced. Q9.WhatdoesScheduleddateofcommencementofthebusinessinsuredmean? Answer:Scheduleddateofcommencementofthebusinessinsuredmeansthedatespecified assuchinthescheduleoranyreviseddateuponwhichthebusinessinsuredwouldhave commencedhadthedelayinstartupnotoccurred. Q10.WhatdoesDelayinstartupmean? Answer:Delayinstartupmeansadelayinthescheduleddateofcommencementofthe businessinsured. IMPORTANT1 Progressreports Theinsuredshalltakeallreasonablestepstocompletetheworksasscheduled Theinsuredshallprovidetheinsurerwithupdatedprogressreportsattheintervalsstated intheschedule. The progress report shall show the progress of the work on the insured contract(s) in relationtoanycontractualprogrammeofworkpreparedbyanycontractor.
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Theprogressreportshallidentifyanydelaysorpotentialdelaysintheprogressofworkand theeffectofsuchdelaysintermsofapotentialclaimunderthissectionand anymeasurestakenorintendedtobetakentominimizetheeffectofanysuchdelays. In the event of difference between the anticipated and actual progress, necessitating a revision in the anticipated date of completion, the same may be got amended by an endorsementontheDSUpolicy.

IMPORTANT2 The amount payable is invariably subject to the actual loss sustained which must be substantiatedbytheinsured. Accordingly, if there are no tenants for a rental property or no buyers for manufactured products,therewillbenorecoveryfromtheDSUinsurance. Oneofthepreliminarystepstocalculatethelossisasunder: ActuallyAttainableGrossProfit(onbestcalculationandestimatebasis) (minus) ActualGrossProfitduringtheIndemnityPeriod However, the Actually Attainable Gross Profit can be established only after the projecthasbeeninoperationforatleast12months. Thereby: ActuallyAttainedGrossProfit(12monthsaftertheactualbusinesscommencement date) (minus) ActualGrossProfitduringtheIndemnityPeriod = Indemnityprovidedbythepolicy Therefore,attheinitialstage,foranindemnifiableloss.TheAdvanceLossofProfitspolicy mayonlyprovideanonaccountpayment.Thefinalamountpayableshallbecalculated oncompletionof12monthsaftertheactualcommencementdateofbusiness.
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TheOrientalInsuranceCompanyLimited
IMPORTANT3 No extension of the period of insurance under the Storage Cum Erection Policy shall automaticallyextendtheperiodofinsuranceforDelayinStartupInsurance. Anyanticipatedchangeinthescheduleddateofcommencementofthebusinessinsuredshall bereportedtotheinsurerandbeeffectiveforthissectiononlyifspecificallyagreeduponby theinsurerinwriting. Ifasaresultofadelayinstartuptheperiodofinsuranceunderthissectionistobeextended, thetimeexcessandtheindemnityperiodshallberenegotiatedandagreeduponinwriting. IMPORTANT4 InsuredVsUninsuredDelays Itisnecessarytoseparate: insuredincident(physicaldamagecoveredbytheunderlyingStorageCumErection Insurance) fromuninsuredincidentsotherswhichmaybecontributingtotheprojectdelaysay slowworksprogress. Hence,whilecomputethefinancialimpactofthedelay,itisnecessarytoexclude theimpactofdelayarisingoutofuninsuredevents. IMPORTANT5 Ifaprojectfallsbehindscheduleduetodelayscausedduetoinsuredeventscoveredin theunderlyingmaterialdamagepolicy theinsuranceperiodforDSUcovermustbeextendedtomaintainfullcover. AnyphysicaldamagetriggeringalossofprofitwhichqualifiesforDSUcovermustoccur withintheDSUinsuranceperiod/extendedperiod(ifany) Damage occurring after DSU cover is triggered is no longer insured under the policy, unless it concerns accidents directly associated with the repair or replacement of the initiallydamageditems. SignificantExclusions Thefollowingshallbeexcludedfromthecoverprovidedbythissection: UnlessalsoexpresslycoveredintheDelayinStartUpInsuranceLossordamage: CoveredunderunderlyingStorageCumErectionInsurancebywayofendorsement (ifany).
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TheOrientalInsuranceCompanyLimited
Earthquake,volcaniceruptionortsunami Lossofordamagetofuelorfeedstockoranymaterialsnecessaryforthebusiness insured,unlessalsocoveredintheunderlyingStorageCumErectionInsurance lossofordamagetoitemsofaprototypenature, Redesigning,altering,addingtoorimprovingthepropertyinsuredorrectifyingdefectsor faults; Nonavailabilityoffunds; Anyfinesordamagesforbreachofcontract,forlateornoncompletionofordersorfor penaltiesofwhatevernature Lossordamagetosurroundingproperty,constructionplantandmachinery Lossresultingfromsuspension,lapseorcancellationofalease,licence,order,contractor agreement ConditionsForLossSettlement Intheeventofalossofinterestinsuredthebasisoflosssettlementshallbeasfollows: Lossofgrossprofit 1.Inrespectoflossofgrossprofit,theinsurershallpaytheamountobtained: bymultiplyingtherateofgrossprofit bytheamountbywhichtheactualturnoverduringtheindemnityperiodfallsshortof theturnoverwhichwouldhavebeenachievedhadthedelayinstartupnotoccurred. 2.Iftheannualsuminsuredislessthantheamountobtainedbymultiplyingtherateofgross profit by the annual turnover or, if the maximum indemnity period exceeds twelve months, the turnover calculated for the equivalent period, the amount payable shall be reduced proportionately. Specifiedstandingcharges 1. Inrespectofspecifiedstandingcharges,theinsurershallpaytheamountobtained: bymultiplyingthepercentagebywhichtheactualturnoverduringtheindemnityperiod fallsshortof theturnoverwhichwouldhavebeenachievedhadthedelayinstartupnotoccurred bytheamountofspecifiedstandingchargesincurredduringtheindemnityperiod.
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TheOrientalInsuranceCompanyLimited
Finetuning/AdjustmentClause Incalculatingtherateofgrossprofitandannualturnover,thefollowingaspectsshallbetaken intoconsideration: theresultsofthebusinessinsuredforthe12monthperiodafterthedateof commencementofthebusinessinsured any circumstances which would have affected the business insured had the delay in startupnotoccurred any circumstances affecting the business insured after the actual date of commencementofthebusinessinsured Thefinalfiguresshallrepresentascloselyasmaybedeemedreasonabletheresults, which the business insured would have achieved after the scheduled date of commencementofthebusinessinsured,hadthedelayinstartupnotoccurred. EffectofUnderinsurance Ifthesuminsuredhereunderislessthantheamountobtainedbymultiplyingtherateofgross profitbytheannualturnoveror,ifthemaximumindemnityperiodexceedstwelvemonths,the prorataturnoverforthatperiod,theamountpayableshallbereducedproportionately. Increasedcostofworking Inrespectofincreasedcostofworking,theDSUpolicyshallpay: theadditionalexpenditurenecessarilyandreasonablyincurredforthesolepurposeof avoiding or diminishing the reduction in turnover which, without such expenditure, wouldhaveoccurredduringtheindemnityperiodafterthetimeexcess. The indemnity, however, shall not exceed the amount of loss of interest insured therebyavoided. Addoncovers Inadditiontotheperils/expensescovered,theproposercanopttoseekcoverinrespectofthe followingperilsonpaymentofadditionalpremium: PremisesofCustomers PublicUtilities PreventionofAccessDamageatthePremisesofSuppliers Damageatthe DenialofAccess

TheOrientalInsuranceCompanyLimited
Howtoclaim Intheunfortunateeventofaclaimplease:

Immediatelyintimatesuchloss/damagetothenearestofficewithacopytothepolicy issuingoffice,sothataCompetentSurveyormaybedeputedforlossassessment. Takeallstepstominimisetheloss,asifnoinsurancehasbeentaken. giveanaccountofallpropertiesdamagedordestroyedwithestimatedamountshaving regardtotheirvaluesasonthetimeanddateandplaceofloss,notincludingprofitof anykind cooperate with surveyors by providing all the necessary documents for assessment of lossandestablishingliability. cooperatewiththeinsurer. informparticularsofallotherinsurancesexistingonthepropertyatthetimeofloss.

Documentsrequiredbyinsurerforprocessingtheclaim: ClaimduetoFireand/orExplosion CopyofClaimintimationgiventoCompanytogetherwithxeroxofpolicy&premium receipt DulyfilledClaimForm PolicePanchnama/FirstInformationReport/FinalPoliceReport(ForensicDeptt.) FireBrigadeReport PhotographsofDamagedPropertyshowingextentofdamage&/orvideofilmofloss Tosubstantiatequantumofloss,valueofdamagedinsuredpropertyjustpriortoloss,&valueof salvage.Pleasemakeavailabletosurveyors/investigatorsfixedAssetRegister,originalBills/ Invoice,Repairs/ReplacementBills/InvoicesandstockRegister ClaimduetoFlood,Storm,Cyclone,Earthquake,Subsidence/Landslide CopyofClaimintimationgiventoCompanytogetherwithxeroxofpolicy&premium receipt DulyfilledClaimForm Tosubstantiatequantumofloss,valueofdamagedinsuredpropertyjustpriortoloss,& valueofsalvage.pleasemakeavailabletosurveyors/investigatorsfixedAssetRegister, originalBills/Invoice,Repairs/ReplacementBills/InvoicesandstockRegister
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TheOrientalInsuranceCompanyLimited
Newspapercuttingwhereintheincidenceofoccurrenceofflood/stormcyclone/ earthquake/landslidehasbeenreported MeteorologicalReport ClaimduetoRiot,Strike,MaliciousDamageandTerrorism(RSMDT) CopyofClaimintimationgiventoCompanytogetherwithxeroxofpolicy&premium receipt DulyfilledClaimForm PolicePanchnama/FirstInformationReport/FinalInvestigationReport 04104 Newspapercuttingwhereintheincidenceofriotshasbeenreported PhotographsofDamagedPropertyshowingextentofdamage&/orvideofilmofloss MarineInlandTransitLossofcargo/machinery CopyofClaimintimationgiventoCompanytogetherwithxeroxofpolicycover note/certificate/declaration&premiumreceipt GR/RR DeliveryReceiptwithremarks Invoice&Packinglist SurveyReport&DulypaidSurveyfeebill Lossminimisationexpensesreceipt PolicePanchanama/FirstInformationReport PhotographsofDamagedPropertyshowingextentofdamage&/orvideofilmofloss DulyfilledClaimForm Originalpolicydulydischargedbyassured/consignee Originalopendelivery/nondelivery/shortdeliverycertificateofcarrierdulysigned& sealed CopyofRegd.A.D.letterlodgingclaimwithcarrieralongwithmonetaryclaimbill A.D.cardofclaimlodgingletteroncarrier Originalreplyofcarrierinreplytoclaimlodgingletter Letterofsubrogationcumundertaking Claimbill
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TheOrientalInsuranceCompanyLimited
MarineLossofcargo/machineryduringImport CopyofClaimintimationgiventoCompanytogetherwithxeroxofpolicy&premium receipt Invoice&Packinglist Billoflading/AirwaysBill LandingCertificatewithremarksforshortdelivery/damage Customclearancecertificate JointSurveywithshippingcompany/PortTrustAuthority GR/RR DeliveryReceiptwithremarksforshortdelivery/damage SurveyReport&DulypaidSurveyfeebill SaleContract PhotographsofDamagedPropertyshowingextentofdamage&/orvideofilmofloss DulyfilledClaimForm OriginalPolicy/Certificate/CovernotedulydischargedbyAssured/Consignor CopyofRegd.A.D.letterlodgingclaimonShippingCo./AirCarrierwithmonetaryclaim &replyofshippingco. Letterofsubrogationcumundertaking Billofentry CertificateofOrigin ClaimduetoBreakdownduringTesting/Commissioning CopyofClaimintimationgiventoCompanytogetherwithxeroxofpolicy&premium receipt DulyfilledClaimForm Statementofeyewitnesstolossaboutcauseofloss&circumstancesofloss AssetRegister,logbook,originalbills/Invoices/billofentryofdamagedproperty& repair/replacementbills/invoicestosubstantiatethequantumofloss.(Tobemade availabletosurveyor). Proformainvoicesofnewmachine PhotographsofDamagedPropertyshowingextentofdamage&/orvideofilmofloss
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TheOrientalInsuranceCompanyLimited
ClaimduetoBurglary CopyofClaimintimationgiventoCompanytogetherwithxeroxofpolicy&premium receipt DulyfilledClaimForm PolicePanchanama/FirstInformationReport Policeinvestigationreport PhotographsofDamagedPropertyshowingextentofdamage&/orvideofilmofloss Tosubstantiatequantumofloss,pleasemakeavailabletosurveyor/investigator,your stockregister,originalBills/Invoice,cashmemos,fixedassetregister,bankstatement, cashbook/ledger Inventoryofarticleskeptinbanklocker

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