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.

Attention Architects & Engineers--Green Professional Liability Insurance Has Arrived

Argo Insurance Group of San Francisco has developed a green professional liability policy designed to protect architects and engineers involved in sustainable projects.  Information about the policy is available here.  What is unique about the policy, which is underwritten by Lloyd's of London, is that it specifically includes sustainable services in the list of covered professional services which the policy covers, including services:

provided as an accredited/certified professional in the areas of sustainable site development, water savings, energy efficiency, materials and resource selection, indoor environmental quality, and computer aided drafting and design services

In addition, USGBC members get a 5% discount on premiums. 

I had the opportunity to speak to Bill Feree, Vice President at Argos and Nate Brzovich, an Argos
Commercial Producer about the new program. Check back on Wednesday for my take on the Argo policy and what's next for the future of green insurance!

GBLB: What is the background behind the development of the green professional liability policy?

ARGO: We have a very large real estate and construction practice. We saw the development of the Fireman’s Fund green building loss policy. Then we started to work with USGBC creating USGBC chapter D&O insurance. When we went out to do marketing, a lot of the stakeholders were architects, engineers and LEED APs working on the buildings. They asked how their professional liability policies responded to green building issues. We looked at policies and saw holes. The real deficiency was not having heightened standard of care language in professional liability policies, and coverage for failure to acheive LEED accredidation, tax or energy savings. We tried to put specific language in our policy to achieve those goals. Now we are promoting it.

GBLB: Who are the underwriters?

ARGO: Lloyd’s of London is the insurer. We approached quite a few. Insurers tend to take a hands off approach and then respond. The main factor was to find an insurer that was as proactive as we are in developing a product for this industry.

GBLB: What are the components of the Green Pro Endorsement?

ARGO: We added to the standard Lloyd’s policy for architects and engineers professional liability insurance. It takes the definitnion of professional services and includes as usual and customary services those services that are encompassed by sustainable services. We wanted to make it more broad. Technical consulting, site selection, water efficiency, are all covered services.  We also specifically include coverage for guarantees and warranties of achievement of green certification.

GBLB: Is anything specifcially excluded from coverage?

ARGO:  Environmental engineers doing phase I and Phase II are not included. The carrier did not want to underwrite these services. As soon as we get this policy launched, we will be going to carriers to write specialty policies.

GBLB: When was the program launched?

ARGO: The policy became available 3 months ago. We have generated a lot of interest, there is a bit of a sales cycle because people have ongoing policies, so there is a sales cycle that has been a minimum of 12 months.