Insurance, Guarantees and Performance--Oh my!

Although many green building experts have been discussing the issue of whether green buildings are performing up to their claims for some time, the mighty grey lady spoke on the issue this week and set the blogosphere humming. The New York Times article comes in the wake of the USGBC's announcement that it would begin to track the performance of LEED buildings after they have been certified, and potentially to revoke the certification of those buildings which failed to perform, which also kicked up a lot of discussion. On top of all this, ACE announced that it would begin to guarantee the certification of green buildings it was involved with.

These events have an important nexus--risk of liability.  If the USGBC tracks building performance, failure to perform up to the requirements now brings with it the threat of decertification.  In the past, no one was really tracking the claims and there was no consequence for failure, except PR embarassment. Now that design professionals guarantee achievement of certification, failure to do so brings enhanced contractual liability as well (although ACE seeks to limit its liability to a refund of its LEED administration fee, it remains to be seen if this limitation would hold, especially if the failure to acheive certification were due to the professional negligence of ACE).

To protect against the risk of liability, professionals turn to insurance.  As I reported here on Monday, Argo Insurance Brokers and Lloyd's of London are looking to fill this niche by bringing to market the first green professional liability policy for architects and engineers.  Among other things, the policy includes technical consulting, site selection, water efficiency, and other sustainable services as "covered services" under the policy. In addition, it "specifically includes coverage for guarantees and warranties of achievement of green certification."  Thus, through the Argo policy, architects and engineers can now manage their risk. 

On the whole I think the Argo policy is progressive and a great tool for design professionals looking to go green.  If I were an owner, I would want the professionals I engage to have this coverage.  However, I would like to see more explicit language in the policy regarding the "coverage for guarantees and warranties of achievement of green certification," particularly as it relates to performance after certificate of occupancy.  The Argo/Lloyd's policy is probably just the first of its kind in this area, and it will be interesting to see the policy language develop over time.

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Comments (4) Read through and enter the discussion with the form at the end
Mark Rabkin - September 2, 2009 12:57 PM

Shari - I would be interested to see if there are limitations or exclusions within the definitions of guarantees or warranties pertaining to a contractor or consultant's promise to achieve a desired level of certification. Essentially, will the failure to obtain tax incentives be covered or excluded and to what limit?

Michael Gibbons - September 2, 2009 3:27 PM

Thanks for writing about the new Lloyds backed professional liability coverage that appears to significantly broaden coverage for design professionals working on LEED or sustainable development projects.

On the subject of the USGBC's tracking of energy and water use data under new v3, the USGBC has announced that projects will NOT risk decertification in the event that their energy performance is less than design energy modeling had predicted. The purpose behind the new MPR 7 under v3 is to facilitate the creation of a data base that will allow for quantitative studies of LEED certified buildings on an anonymous and confidential basis. The ultimate goal is to identify what works and what doesn't work in the area of achieving energy and water use efficiencies. According to the USGBC and the NY Times article cited in your blog post, the building owner only risks decertification if it fails to cooperate with providing the data or access to the data.

Dominick Kasmauskas - September 3, 2009 8:23 AM

I am wondering why the IgCC SBTCommittee is not discussing the inherent environmental benefits of automatic fire protection? Document wre supplied to the Committee and there has been no legitimate discussion except for a 30 second comment after a question from the audience in July's meeting.

Early suppression uses a fraction of the water that a fire department will use, reduces production of Carbon Dioxide and toxic gases, and decreases items going to the landfill.

Cary White - October 14, 2009 1:09 AM

It is through the specific attention of professionals like you that good things come about. Keep up the the great work on this topic. The obvious follow up is a posting or additional postings on the contractual issues for green building professionals with respect to:

- disclosures

- warranties

- guarantees

- insurance requirements, and

- indemnification/hold harmless

Lastly, for the best coverage it may be best for the owner to procure a single policy covering all of the design professionals for these green building issues to ensure the lowest cost, less coverage uncertainty between the participants, sufficient coverage limits, project specific coverage, coverage certainty through the life of the project and through the statute of limitations.

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