Construction Engineering Insurance: Deterioration of Stock vs Business Interruption Insurance

Construction and engineering businesses carry a unique mix of risks: complex supply chains, weather exposure, tight programmes, specialist materials, and high-value plant and equipment. When something goes wrong, the financial impact often shows up in two places at once:

• Physical loss or damage (materials, components, stock, plant)

• Loss of income and extra costs caused by delays and disruption

Two covers that are often confused—especially when a claim is being prepared—are Deterioration of Stock (DoS) and Business Interruption (BI). They can both respond to the same incident, but they protect different things, have different triggers, and are measured differently.

This guide explains the difference in plain English, shows where each policy fits in a construction or engineering setting, and highlights common gaps that can leave businesses uninsured.

Quick definitions

What is Deterioration of Stock?

Deterioration of Stock is a cover extension (often under Engineering or Property policies) that protects the value of stock that becomes unusable due to a defined event—typically a failure of refrigeration, temperature control, power supply, or other critical equipment.

In construction and engineering, “stock” can include:

• Temperature-sensitive adhesives, resins, epoxies, sealants

• Paints, coatings, and chemicals

• Specialist membranes and composites

• Precast components or engineered timber products stored under controlled conditions

• Electrical components or batteries requiring stable temperature/humidity

• Materials stored in containers or site stores with environmental controls

The key idea: DoS is about the stock itself deteriorating—going off, curing incorrectly, becoming contaminated, or otherwise losing its intended use.

What is Business Interruption?

Business Interruption insurance covers the loss of gross profit (or revenue) and increased cost of working following an insured event that disrupts your ability to trade.

In construction and engineering, BI can relate to:

• A workshop or fabrication unit being damaged by fire

• A key piece of plant failing, stopping production

• A flood damaging a depot and halting dispatch

• A supplier incident (if contingent BI is included)

• A site incident causing delay and loss of contract income (where contract works/engineering BI is structured to respond)

The key idea: BI is about the business’s earnings and extra costs, not the direct value of damaged stock.

Why construction and engineering firms get tripped up

Construction and engineering operations don’t always look like “traditional retail stock + shop sales.” You might have:

• Materials stored for a specific project (not “for sale”)

• Long lead-time items where replacement delays cause programme slippage

• Contractual penalties, liquidated damages, and performance obligations

• Multiple sites and a mix of owned/leased premises

• A blend of on-site works, off-site fabrication, and logistics

Because of this, a single incident can create multiple losses:

• Stock deteriorates (DoS)

• Production stops (BI)

• Projects are delayed (potentially BI/engineering delay covers)

• Extra costs mount (expediting, overtime, alternative suppliers)

Understanding which cover pays for what is essential when arranging insurance and when presenting a claim.

Deterioration of Stock: how it works in practice

Typical insured triggers

DoS cover is usually triggered by events such as:

• Refrigeration or temperature control breakdown

• Power failure (sometimes only if it occurs at your premises)

• Accidental failure of equipment (compressors, chillers, HVAC)

• Human error (e.g., incorrect settings) if included

• Leakage of refrigerant or mechanical breakdown

In construction settings, DoS is commonly relevant where materials must be stored within strict temperature ranges.

What the policy typically pays

Depending on wording, DoS can cover:

• Cost price of the stock that deteriorated

• Selling price or “value at risk” (less common; depends on basis of settlement)

• Disposal costs (if included)

• Testing and re-certification (sometimes, where stock integrity must be proven)

The settlement is usually tied to the value of the stock that has become unusable, not the knock-on delay.

Common DoS exclusions and limitations

DoS is often narrower than people expect. Common issues include:

• Gradual deterioration or wear and tear (not sudden breakdown)

• Poor maintenance or known defects

• Power failure outside the premises (unless “public supply failure” is included)

• Incorrect packing or storage not caused by an insured event

• Stock not in the specified storage (e.g., moved to a temporary container without controls)

• Waiting periods (e.g., power must be off for a minimum number of hours)

Construction-focused DoS example

A contractor stores specialist two-part resin used for structural bonding in a temperature-controlled container on site. Over a weekend, the container’s HVAC fails. The resin is exposed to freezing temperatures and becomes unusable.

• DoS may cover the value of the resin that deteriorated.

• BI would not automatically cover the resin itself.

• Any project delay costs would depend on BI structure and whether contract works delay-type covers are in place.

Business Interruption: how it works in practice

Typical insured triggers

BI is usually triggered by physical loss or damage at insured premises caused by an insured peril (fire, flood, storm, etc.). For engineering businesses, BI can also be linked to:

• Machinery breakdown (if BI is extended to machinery damage)

• Utilities failure (if included)

• Denial of access (if included)

• Supplier/customer premises damage (contingent BI)

The key point: BI often requires a material damage trigger unless you’ve arranged a non-damage BI extension.

What BI typically pays

BI aims to put the business back in the financial position it would have been in if the loss had not happened. It commonly covers:

• Loss of gross profit (or loss of revenue, depending on basis)

• Increased cost of working (ICOW) to reduce the loss (e.g., hiring temporary plant, outsourcing fabrication)

• Additional increased cost of working (AICOW) in some wordings

• Accountants’ fees for preparing the claim

The importance of the indemnity period

The indemnity period is how long BI will pay for loss of profit and extra costs. In construction and engineering, this needs careful thought because:

• Replacement of specialist machinery can take months

• Re-certification and commissioning can extend downtime

• Supply chain delays can be significant

• Contract backlogs can mean the impact lasts beyond the physical repair

Underinsuring the indemnity period is one of the most common BI mistakes.

Construction-focused BI example

A fabrication workshop suffers a fire. CNC machines are damaged, and production stops for 12 weeks. Projects are delayed, and the business loses contract income while paying staff and overheads.

• BI may cover the loss of gross profit and increased costs (outsourcing, overtime, temporary premises).

• DoS would only come into play if stock deteriorated due to a defined DoS trigger (e.g., temperature failure) rather than fire damage.

Deterioration of Stock vs Business Interruption: the core differences

Where the covers overlap (and where they don’t)

When one incident creates both losses

A power failure can:

• Cause temperature-controlled stock to spoil (DoS)

• Shut down a workshop, stopping production (BI, if utilities failure is covered)

But the policies may respond differently depending on wording.

The “gap” scenario

A common gap is assuming BI will pay for spoiled materials. BI is not designed to reimburse the direct cost of stock that has deteriorated. That’s what DoS is for.

Another gap is assuming DoS will pay for programme delay and lost income. DoS is not designed to cover loss of profit—BI is.

Construction and engineering nuances you should plan for

1) Stock that is “project-specific”

Many construction materials are purchased for a specific job. If they deteriorate, the loss is real—but the accounting treatment can be different from retail stock.

Make sure your broker/insurer understands:

• Where the materials are stored (site, depot, container)

• Who owns them at the time of loss (you, client, supplier)

• Whether they are “stock” under the policy definition

2) Multiple locations and temporary storage

Construction businesses often use:

• Temporary site stores

• Portable refrigerated containers

• Third-party storage

DoS cover may be restricted to named premises unless extended. If you move materials between sites, confirm the cover follows the stock.

3) Plant and machinery breakdown vs BI

If your biggest exposure is a single critical machine, you may need:

• Machinery breakdown cover for the machine itself

• Machinery breakdown BI for the resulting loss of profit

Standard BI attached to a property policy may not respond to “internal breakdown” unless specifically arranged.

4) Contractual penalties and liquidated damages

BI typically covers loss of gross profit and extra costs, not contractual penalties—unless specifically included (and many insurers will limit or exclude these).

If your contracts include:

• Liquidated and ascertained damages (LADs)

• Performance penalties

• Delay damages

You need to discuss specialist solutions and realistic risk transfer options.

5) Supply chain and long lead-time items

A major driver of loss in construction is delay caused by replacement lead times. Consider:

• Higher BI indemnity periods

• Contingent BI for key suppliers

• Stock strategies for critical components

Setting sums insured: practical guidance

Deterioration of Stock sums insured

To set DoS correctly, estimate:

• Maximum value of temperature-sensitive materials held at any one time

• Seasonal peaks (winter storage risk can be higher)

• Lead times and replacement cost volatility

• Disposal and testing costs

Also check:

• Any sub-limits for DoS

• Waiting periods for power failure

• Whether “public supply failure” is included

Business Interruption sums insured

For BI, you’ll typically need:

• Annual gross profit (or revenue, depending on basis)

• A realistic indemnity period (often 12–24 months for engineering-heavy operations)

• Consideration of backlog and contract pipeline

Underinsurance can reduce claim payments via average, so accuracy matters.

Claims: what evidence is usually needed

DoS claim evidence

Expect to provide:

• Temperature logs and monitoring records

• Maintenance and service records for refrigeration/HVAC

• Proof of power failure and duration

• Stock records: purchase invoices, batch numbers, quantities

• Disposal records and photos

BI claim evidence

Expect to provide:

• Management accounts and year-end financials

• Job pipeline and contract schedules

• Evidence of lost turnover or delayed invoicing

• Payroll and overhead records

• Evidence of mitigation steps and costs (hire invoices, outsourcing contracts)

Common mistakes (and how to avoid them)

• Assuming BI covers spoiled stock: It usually doesn’t. Add DoS where relevant.

• Not extending cover to sites/temporary stores: Confirm where stock is insured.

• Too-short indemnity period: Engineering replacements and commissioning take time.

• No machinery breakdown BI: If breakdown is your key risk, standard BI may not respond.

• Ignoring utilities failure: Power issues can drive both DoS and BI losses.

• Underestimating claim preparation complexity: Accountants’ fees cover can be valuable.

Which cover do you need?

Many construction and engineering firms benefit from both covers, but the right mix depends on your operations.

You should strongly consider DoS if you:

• Store temperature-sensitive materials

• Use controlled containers or warehouses

• Rely on refrigeration/HVAC to maintain product integrity

You should strongly consider BI (and extensions) if you:

• Have a workshop, depot, or fabrication unit

• Depend on key machinery or plant

• Have fixed overheads that continue during downtime

• Have contracts that would be impacted by disruption

How Insure24 can help

At Insure24, we arrange commercial insurance tailored to the realities of construction and engineering businesses—helping you avoid gaps between stock loss and income loss.

If you want a quick review, we can:

• Map your key operational risks (stock, plant, premises, sites)

• Identify where DoS and BI should sit within your programme

• Check sums insured, sub-limits, and indemnity periods

• Make sure your cover aligns with how you actually work

For a quote or a coverage review, call 0330 127 2333 or visit insure24.co.uk.

FAQs: Deterioration of Stock vs Business Interruption

Is deterioration of stock the same as stock insurance?

Not exactly. Stock insurance generally covers physical loss or damage to stock from insured perils (fire, flood, theft). Deterioration of Stock is specifically about stock becoming unusable due to temperature control or equipment failure.

Does Business Interruption cover materials that go off or cure incorrectly?

Usually no. BI covers loss of gross profit and extra costs following an insured disruption. Spoiled or unusable materials are typically a DoS or stock/material damage issue.

Can one power cut trigger both DoS and BI?

Yes, potentially. DoS may respond if stock deteriorates due to the power cut. BI may respond if your policy includes utilities failure and the interruption impacts trading.

Do I need DoS if I don’t have refrigerated stock?

Maybe. Construction materials can be temperature-sensitive even if they aren’t “refrigerated” in the traditional sense. If you rely on controlled storage (heated, cooled, humidity-controlled), DoS may still be relevant.

What indemnity period should a construction engineering firm choose?

It depends on your exposure. If you rely on specialist machinery or long lead-time components, 12 months may be too short. Many engineering-heavy operations consider 12–24 months.

Will BI cover delay penalties in contracts?

Often not, or only with strict limits and conditions. BI is designed to cover loss of gross profit and extra costs, not contractual fines. Always check wording and discuss your contracts with your broker.

What’s the biggest risk of getting this wrong?

The biggest risk is a claim where you discover you insured the wrong thing: you can have cover for damaged stock but no protection for income loss—or vice versa.

Can I insure stock at a construction site under DoS?

Sometimes, yes—but you must ensure the policy definition of premises and storage locations includes sites and temporary stores. This is a common area where cover can be unintentionally restricted.

How do I reduce the chance of a DoS claim?

Use temperature monitoring with alerts, maintain HVAC/refrigeration equipment, document maintenance, and have contingency plans for power failure (generators, transfer to alternative storage).

How do I reduce the chance of a BI claim?

Maintain critical machinery, hold spares for key components, diversify suppliers, document continuity plans, and ensure your BI sums insured and indemnity period are realistic.