Green Building Insurance

We'll be signing off today for the holiday weekend, but before we do that, I want to point out a couple of interesting green building statistics: one group collected by NAHB and the other which was mentioned during yesterday's Green Building Initiative webinar discussing insurance and surety issues for green construction projects. During the webinar, one panelist -- an employee of XL Specialty Insurance -- noted that only 20 percent of his company's insured design professionals consider themselves "very experienced" in green design. That's obviously a percentage to which XL is paying close attention in the context of green risk management.

Last week, the AIANYS Statewide Advisory Committee and the American Council of Engineering Companies of New York sponsored the 2007 Annual Joint Session on Current Insurance Issues for Design Professionals. Speakers from a number of prominent insurance companies, including Lexington, Beazley, Zurich, CNA, Liberty, and XL shared their thoughts on the current state of the insurance industry, from a softening market for professional liability insurance, to comments that several panelists made regarding the insurance coverage implications of BIM and LEED for design professionals. Of particular interest to us here at gbNYC, the entire panel agreed that the standard of care for architects and engineers is "changing rapidly," in large part due to the power of BIM technologies and the proliferation of USGBC’s LEED green building rating system.

First, with respect to BIM (which is discussed extensively in the context of sustainable design in the latest issue of eco-structure magazine), each insurer confirmed that their professional liability policies would cover errors and omissions in digital data, including BIM models. However, Lexington's representative called BIM "just 3-D CAD" and warned the audience that the true insurance coverage implications for BIM projects have yet to play out. In an interesting, though potentially sinister, twist, Beazley's panelist also noted that coverage would not extend in the type of situation where a firm hosted a BIM model on its own server, the server was compromised by some sort of hacker, and the digital model was damaged. This is not a designer's error or omission, so coverage would not be available to the architect or engineer who built the model. The same panelist noted that hidden risks are "key" with respect to BIM, and designers should guide themselves on such projects accordingly.

In terms of green projects, each of the panelists agreed that a design professional's errors and omissions coverage will not cover claims by an owner brought in the event that a LEED project does not reach the agreed-upon certification level.

In a paper that was released last month and authored by Janice Ochenkowski, Managing Director of Global Risk Management and John Schinter, President of Energy and Sustainable Services, Jones Lang LaSalle provides an overview of the challenges that green buildings have presented to the insurance industry, as well as a survey of how the industry has started to respond. Titled Insurance as Efficient as the Building: Insurance Coverage for Green Buildings, the paper focuses specifically on the green building insurance products offered by the Fireman’s Fund, which introduced a variety of coverage types for LEED - and Green Globes-certified buildings about a year ago. (Interestingly, Steve Bushnel, Product Director of Commercial Business for Real Estate Innovation for Fireman’s Fund, is quoted in the paper, stating that “[o]ur customers are enthusiastic about these products; sales and interests have been very high.”)

The paper first points out the importance of accurately assessing green building value in order to correctly correlate it to the limits of coverage.