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Is Canada “Avoiding” Exposure to Green Building Risks?

Canada

Last week, Canada’s Daily Commercial News and Construction Record published an article suggesting that Canada’s green building experience to date has largely avoided any legal repercussions arising out of green building projects. The article’s conclusions rest on the fact that, at least according to a Toronto-based green building consultant, there are no construction-related green building insurance or surety products that “specifically target” projects seeking LEED certification.

According to the Record,

“[t]o date, no Canadian projects have failed to achieve the LEED status they were aiming for, either due to contractor or project team errors. But south of the border, several lawsuits have been launched against builders and developers because green features allegedly failed to perform as promised, or because a project failed to achieve the level of LEED certification the owners expected. “

Here, the Record appears to be referring to the Gidumal litigation in Battery Park City, as well as some of the insurance claims that were reported back in 2007 by Victor Schinnerer’s Frank Musica. What the article misses, though, are the issues that were raised by the Toronto Star earlier this year in its two-part piece about Ontario’s regulation of the local green building industry. As you’ll recall, that series included a discussion of a pending lawsuit in the Ontario courts against a developer who had converted a century-old building in downtown Toronto into a 4-unit, mixed-use building that was touted as one of the city’s top green building projects in 2006 by Now magazine. The developer is currently defending a suit for fraud brought by the purchasers of the units, who are seeking over $900,000 in damages for the project’s alleged failure to satisfy certain Ontario building codes, including those for its geothermal system.

(Also, and just for the record once again, if one of the suits the Record is referring to here is Shaw Development, the allegations there were not that the project failed to earn an anticipated level of LEED certification, but that it failed to capture state-level green building tax credits by receiving a certificate of occupancy by a certain fixed date under the program).

I mention this because I think it’s important to note that the liability issues associated with green building extend beyond LEED – and could ultimately be far more broad. Indeed, just because there are no insurance products currently available for purchase on the Canadian markets does not mean that there is no risk. In fact, what’s most interesting about the article is that it fails to even mention two major sources of risk that could result in LEED-related liability: the LEED 2009 Minimum Program Requirements and individual prerequisites under the various LEED rating systems. (For example, the lynchpin of the appellants’ allegations in the Northland Pines challenge was that the high school had failed to satisfy IEQ Prerequisite 1 and EA Prerequisite 2 of LEED NC version 2.1.)

Nevertheless, one of the reasons why Ian Theaker, the consultant quoted in the article, believes there have not been any Canadian insurance products released to date is that “the LEED process has been specifically set up to make planning decisions that avoid problems down the road.” According to Mr. Theaker, “the best insurance to achieve LEED certification is to actually overshoot the LEED guidelines by a few points. You can’t guarantee any particular number of points will be recognized by the CaGBC, so if you shoot higher than your goal, you can afford to miss one or two points along the way.”

While this may be true, I think these remarks miss the broader impact of the Northland Pines proceeding. Although we have yet to see a rash of litigation over projects’ failure to earn third-party certification on account of missing targeted credits, and although translating third-party goals will continue to remain a critical design and construction contract consideration, Northland Pines suggests that the more imminent risks may arise out of challenges that projects have failed to satisfy applicable LEED prerequisites and/or Minimum Program Requirements. Although it’s unclear after Northland Pines whether GBCI/USGBC will ever decertify a project, that risk still exists, particularly because there appears to be no limitation on who has standing to initiate a certification challenge under GBCI’s Certification Challenge Policy.

 These types of risks need to be fully vetted before the insurance industry – in Canada or elsewhere – can fully assess them. The Record quotes Mr. Theaker as stating that “insurance companies may find it initially challenging to evaluate the risk associated with novel building materials and building techniques, but that the market soon catches up as they become mainstream.” As Northland Pines suggests, considering novel building materials and techniques is only one small slice of a comprehensive green building risk management strategy.

Finally, notwithstanding a perceived lack of Canadian green building risks, the Record also reports that Chartis intends to introduce its Green Reputation Coverage product – which covers legal costs and crisis consulting to manage the adverse publicity that may arise if a building fails to earn third-party green building certification – to Canadian markets sometime in the near future. This is a product which we have not discussed previously here at GRELJ, but would “cover the legal cost of defending a lawsuit in which the insured’s reputation would be damaged for failing to achieve a promised green standard,” according to Chartis vice president Joseph Fobert.

So, does the Canadian construction industry face a lower risk profile when building green? If so, why? I look forward to your thoughts in the comments.

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One Response to Is Canada “Avoiding” Exposure to Green Building Risks?

  1. Brian D. Anderson July 23, 2010 at 9:06 am #

    Clearly, our only option is war with Canada.

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