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Green Construction Law: As Legislation Proliferates and Insurance Issues Emerge, Is Green Building’s Future Being Compromised?

An insightful letter to the editor that suggests many potential green construction law issues appears in the February 2008 issue of The Construction Specifier magazine. Written by Anne Whitacre of Gehry Partners’ Los Angeles office, Another Perspective on Green draws attention to the LEED mandates that continue to be enacted in the author’s hometown of Seattle. In the letter, Whitacre raises her concerns about both local green building incentives and public mandates; her comments ring particularly salient in light of the recent Managing Risk in Sustainable Building conference at DePaul’s Real Estate Center in Chicago a couple of weeks ago, as well as freshly proposed Seattle-based legislation that would expand a green building mandate at the county level.

In the context of green building financial incentives, Ms. Whitacre first asks “what if the building doesn’t meet the [LEED] certification?” She proposes the scenario where an owner plans on receiving a density bonus for additional floor space but the project fails to meet the level of certification as required under the incentive. “What happens then?” she asks. As far as we can tell, this is the first time that an industry stakeholder has raised legal concerns in connection with green building incentives. Nevertheless, this is where the legal issues could begin to get complicated. Even if the designer’s contract merely states that the architect or engineer will strive to meet the requisite LEED rating, as is typical in many agreements, could the design professional still be held liable to the owner? And, if so, would an exclusion to the designer’s professional liability policy kick in and disclaim coverage for the claim?

The thorn here is that professional malpractice insurance doesn’t typically cover claims for breach of guarantee or warranty- whether those guarantees or warranties are made expressly or impliedly. So if an insurance carrier deemed the “endeavor” language, coupled with the design professional signing LEED submittal templates, as the functional equivalent of a guarantee or warranty, in the absence of strong, clear contract language to the contrary, the exclusion might trigger. Currently, there’s no insurance product on the market that provides an endorsement to a professional liability policy and expressly articulates coverage for the type of scenario as suggested by Ms. Whitacre above. Given this murky and emerging area of the law, it’s possible that insurance carriers might simply refuse to issue any professional liability policies in connection with green projects until they are adequately able to determine the risks associated therewith.

It follows here that if state and local governments continue to enact green building ordinances, regardless of whether they’re in the form of mandates or incentives, or applicable to public or private projects, we may be laying the groundwork for some nefarious consequences. Private owners may simply refuse to proceed with LEED projects and choose to build elsewhere because there would be no assurance that the project’s designers were backed by adequate coverage in the event that the project did not achieve the certification necessary to obtain the incentive or satisfy the mandate. Ms. Whitacre actually refers to this scenario in Seattle, where local owners told the city that if its LEED legislation were in the form of a mandate, rather than simply “encouraged,” the owners “would build outside of the city limits.” Given the learning curve associated with sustainable design and construction, this is obviously an extremely unsavory scenario.

Another interesting liability wrinkle was suggested earlier today by Preston Koerner over at Jetson Green in connection with Thom Mayne’s Federal Building in San Francisco. Essentially, despite the project touting itself as a high performance building, it did not even achieve a LEED Certified level- significant because of a GSA mandate for federal buildings to reach that level of certification. Mayne stated that he “wasn’t arrogant, but . . . was confident. I just assumed we had the Platinum rating . . . all along we went through LEED and it wasn’t working. . . . It’s just very prescriptive . . . you either operate under that or you don’t.” Mr. Koerner suggests that Mayne and his firm may be trying to cover their tails by suggesting that LEED itself- and not the process by which they designed their building- is flawed. Could this be a high-profile example of a green project team recognizing its own potential liability and setting itself up for a pending litigation?

Green construction law is real but allocation of the risks that it implicates is still emerging. Much work remains to be done on the part of stakeholders across a number of related industries if sustainable building is to proliferate and not fade into the oblivion of well-intentioned policy resulting in unintended consequences, derailing the movement before it gains total traction. In the insurance context, owners must put pressure on design professionals to, in turn, put pressure their insurance carriers to tailor a product specific to the unique and emerging needs of green design. It’s also incumbent on policymakers to recognize that, while the real estate industry is taking the threat of global climate change seriously, it is still evaluating how each different stakeholder will account for the new risks that green design implicates. Rather than quickly legislating individual rating systems into code, policymakers would be better served by directing their efforts at analyzing how risk could be more effectively distributed amongst stakeholders. Otherwise, some of these potential outcomes could soon become a frightening, and unwelcome, reality.

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