Green Building Insurance - Unique?

Green Building Insurance - Unique?

March 6, 2009 11:04
by J. Wylie Donald

One can often tell when a subject has hit the mainstream by the trend in courses and webinars one finds in one's email. By that metric, green construction is now front and center. Two emails greeted me this week. One addressed best practices for "green" leases, the other was more general and took on "green" construction in its entirety.

I scanned through the materials looking for information on insurance. One brief mention indicated that the "unique" issues would be addressed. That piqued my interest. "Unique" - one of a kind - original. Was there something new under the sun here?

Well, yes and no. Many green building materials are new, but at one time so was asbestos. More recently the housing industry has had problems with EIFS (Exterior Insulation and Finish System). E.g., Pulte Home Corp. v. Parex, Inc., 942 A.2d 722 (Md. 2008). Well then, how about design issues like grass roofs and geothermal heating? Also new, but also paralleled by the shift to controlled building envelopes which gave us (some believe) Sick Building Syndrome.

LEED certification is new, as are building codes and contracts requiring LEED certification to one level or another. But Underwriters Laboratory has certified electrical equipment for years, and been sued in connection with its certifications many times as well, e.g., Peacock's Inc. v. Shreveport Alarm Co., 510 So. 2d 387 (La. App. Ct. 1987), and there are dozens of ASTM standards and building and fire codes that have been relied on as the standard of care in numerous design and construction malpractice cases. In many of those cases, insurance companies paid for the defense and indemnified the insured.

I conclude from all that, that green building coverage issues will be analogized to what has gone before, and that there will be plenty of precedent to guide a court. Will there be new twists? Certainly, but, at least so far, green building insurance issues are not unique.

The issue is not that green building has unique insurance issues, but that there are risks associated with green building that need to be identified and addressed. Insurance will be part of the solution but not the entirety of the solution. Let's take one brief example.

Owner wants a LEED certified building. It intends to market the building as LEED Platinum, will charge premium rents, and apply for tax benefits and code exemptions. Who will bear the risk if Platinum is not obtained, or is only obtained after an extra year, or that damages result from the failure or delay? This is not an idle question. See Shaw Development, Inc. v. Southern Builders LLC, Dkt. No. 19-C-07-011405, Somerset Cty., Maryland (claim that green tax credits not obtained).

An architect's malpractice insurance generally will exclude warranties of performance, but expressly cover loss arising out of the negligent performance of professional services. If the claim is the architect designed the building in breach of an applicable standard of care, the architect may have malpractice coverage; if the claim is that the architect promised LEED Platinum, the odds against coverage are high. Thus Owner's contract with the architect should be designed to support claims of professional negligence in order to access insurance policies. (Owner should also consider where indemnities might be available and what kind of promises it can make that will not come back to haunt it if the Platinum certification is not obtained. But that topic is for a future blog.)

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