Green Building Liability

A green building project without sufficient insurance coverage will never get out of the ground, which is why the recent efforts of Marsh to review current trends in the marketplace with respect to green building insurance issues have been particularly insightful.

While I’ve talked extensively here at gbNYC about the potential for green design services rendered by architects and engineers to trigger exclusions in professional liability policies (in relation to the signing of credit submittal templates in connection with LEED projects) the Marsh report did not explicitly discuss this specific risk. However, the report did note the potential liability for design professionals who guarantee or warrant “an outcome without having complete control over things such as construction means and methods, and operation and maintenance” (such as credit submittals in support of a project’s recycled-content material or percentage of recycled construction debris, where means and methods outside of the design professional or LEED consultant’s control may contribute to an unanticipated outcome).

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.

I had the opportunity last week to attend an excellent CLE that was offered by American Land. The program focused on the legal issues that attorneys must remain particularly mindful of when advising clients on green real estate projects. Accordingly, here are gbNYC’s top five legal issues that green construction projects may present to participants. While parts of the following list were offered by one of the lecturers, I've augmented it and included links to pertinent posts here at gbNYC that expound on each where appropriate.

#1: Negotiate and draft contracts that reflect each project stakeholder's role in earning the desired level of LEED or Green Globes certification and allocate that responsibility accordingly.

Strong contract language is critical for a number of reasons. First, with respect to obtaining certification pursuant to any green building rating system, which party will be responsible for tracking, collecting, assembling, and submitting the supporting documentation? Second, design professionals must be careful that, by signing credit submittal templates, they do not trigger an exclusion in their professional liability policy (the standard exclusion in such policies states that the policy "does not apply to warranties and guarantees and any claim(s) based upon or arising out of express warranties and guarantees.") Architects and engineers should thus insist on contract language that clearly indicates their signing of credit submittal templates is solely for the purpose of satisfying the given rating system credit and does not constitute any type of warranty or guarantee.

#2: Select design professionals and consultants that have participated on other green projects and are familiar with sustainable design, green building rating systems, and the corresponding certification process.

Obviously the best way to avoid legal problems down the road is to head them off at the pass up front. Sophisticated designers, contractors, and consultants that have extensive green experience are limited in number, but their ranks continue to grow as more owners are demanding sustainability. Due diligence by those owners in order to engage a green-savvy project team is critical to executing a successful project that achieves the desired sustainable result- whether that's certification under LEED or Green Globes or some other quantifiable measure of building performance- both on time and on budget.