First, the design professional who functions as an advocate, extolling the promises of increased energy efficiency, asset values, and rental premiums of LEED-certified buildings is creating a corresponding high expectation in the eyes of his or her client. As we noted over at gbNYC in the aftermath of a BIM/green building panel held here in New York City nearly two years ago, insurance industry professionals will almost always observe that claims start with violated expectations. As architect and attorney Fred Butters points out in his seminal Real Estate Issues article, Greening the Standard of Care: Evolving Legal Standards of Practice for the Architect in a Sustainable World, “[i]f the architect does not clearly and sufficiently indicate the positives and negatives [of green building installations, technologies, or certification programs], the client will be looking to the architect to make him or her whole. Becoming an advocate for many types of sustainable approaches may cause the design professional to overlook the messy reality for the sake of being a good advocate.”

Butters also points out that “[i]f the architect is serving as an educator, the client’s decision to ‘go green’ may be only that- the client’s decision. However, if the architect is ‘encouraging’ or ‘advocating’ for the incorporation of green features, his or her advice is implicated in the design decision. In that instance, the possibility that the architect can avoid the effect of the client’s unmet expectations is low.” Advocating for LEED or other green design features may also implicate standard of care issues, potentially elevating that standard beyond what prevails for architects and engineers in their particular geographic location. As we have noted previously, this amounts to an assumption of liability above what is imposed by law; most professional liability policies will exclude coverage for claims where the design professional has failed to satisfy that heightened standard.

What makes this issuer thornier, though, is that the architect actually does, in fact, have an obligation- both in the 2007 version of the AIA contract documents, and the new AIA Canon of Ethics- to promote sustainable design practices. For example, Canon VI, Obligations to the Environment, requires the architect to “advocate the design, construction, and operation of sustainable buildings and communities.” (Ethical Standard 6.2). In performing design work, the architect “should be environmentally responsible and advocate sustainable building and site design.” (Ethical Standard 6.1). As Mr. Butters also points out, and as we’ve noted here at GRELJ previously, the B201 (2007) Owner – Architect Agreement contains similar requirements:

§ 3.2.3 The Architect shall present its preliminary evaluation to the Owner and shall discuss with the Owner alternative approaches to design and construction of the Project, including the feasibility of incorporating environmentally responsible design approaches.

§ 3.2.5.1 The Architect shall consider environmentally responsible design alternatives, such as material choices and building orientation.

The National Society of Professional Engineers’ Code of Ethics contains a similar obligation under Professional Obligations, III.2.d: “[e]ngineers are encouraged to adhere to the principles of sustainable development in order to protect the environment for future generations.” The design professional is thus placed in a delicate position; professionally, it has an obligation to promote sustainability, but at what potential perils?

Mr. Yudelson’s remarks are also important to note in light of our recent article here at GRELJ about the insurance coverage implications of the Energy Ace LEED certification “guarantee.” Unbridled green building advocacy could also provide an insurance carrier with the argument that the design professional has provided the functional equivalent of a guarantee- either LEED certification, performance, or otherwise- that might give the carrier grounds to deny coverage for negligence claims arising out of the project. For example, and as we noted previously, “the concept of a guarantee is essentially representing perfection; anything less is a breach of contract, claims for which are similarly not covered by a professional liability policy (though the insurer may still defend under the policy but reserve its rights). In short, absent confirmation from the carrier that coverage will remain available, it will continue to be dangerous for parties that maintain professional liability insurance to make the types of representations implicated by the Energy Ace guarantee.”

I think it’s therefore worth repeating that while the analysis of green building legal issues related to standards of care, professional liability insurance, and LEED building performance continue to play out, architects and engineers should be particularly careful when making the types of representations that Mr. Yudelson suggests when participating in the design of green construction projects.

• Green Building Consultant Challenges San Antonio City Groups to Welcome “New Green Era” (PR)
• Green Insurance Law: Thoughts on BIM and LEED Coverage for Design Professionals (gbNYC)

First, I think it’s important to note at the outset that in most jurisdictions- including New York- there is no statutory obligation for a party to carry professional liability insurance, though of course most owners will insist upon it where that party is rendering architectural or engineering design services. Accordingly, absent additional information, we don’t know what type of insurance Energy Ace typically procures or the scope of any discussions it had with its carrier in considering the coverage implications of announcing its guarantee. These are critical inquiries because, as you know, most professional liability insurance policies exclude coverage for claims arising out of the breach of warranty or guarantee. However, the notion that a limitation of liability provision in a contract for LEED certification services is novel is misplaced; most LEED consultants will typically limit their liability for such services to the total amount of their fee (and do not carry a corresponding professional liability policy).

Second, I also thought that the following quote from Mr. Robertson, sourced by Andrew Burr in CoStar discussing the Energy Ace guarantee’s genesis at a meeting where local stakeholders reviewed Atlanta’s pending LEED ordinance, was particularly interesting: “[o]ne of the senior architects [who attended the meeting] was saying that these mandates are putting us in a position to offer a guarantee and we can’t do that. And I’m thinking, yes we can.” For design professionals or LEED consultants who do maintain professional liability insurance, providing an explicit guarantee of ultimate certification level or other performance is indeed problematic on that basis. However, the more troubling possibility is that a guarantee in this context might also give a professional liability insurance carrier grounds to deny coverage for any other negligence claim arising out of the project but not specifically tied to the guarantee. Moreover, the concept of a guarantee is essentially representing perfection; anything less is a breach of contract, claims for which are similarly not covered by a professional liability policy (though the insurer may still defend under the policy but reserve its rights). Guarantees also elevate the professional’s standard of care beyond what is imposed by law; again, potentially triggering another another form policy exclusion that could lead the insurer to disclaim coverage. In short, absent confirmation from the carrier that coverage will remain available, it will continue to be dangerous for parties that maintain professional liability insurance to make the types of representations implicated by the Energy Ace guarantee.

Finally, putting aside insurance considerations, the question remains as to the extent a court would uphold a limitation on liability provision for LEED certification services where the economic losses sustained by the plaintiff for the LEED consultant’s negligence were disproportionate to the fee. In New York, at least, courts will review limitation of liability clauses with heightened scrutiny, particularly if they purport to reduce a party’s exposure to damages for its own negligence. If Energy Ace (or any other LEED consultant) breached a guarantee, the project failed to obtain certification, and certain financial incentives were lost or other damages resulted, a court might be inclined to strike the provision. For example, in Shaw Development, the owner’s counterclaims against Southern Builders included two separate counts for breach of contract and negligence for Southern Builders’ “fail[ure] to construct the Project in conformance with a Silver level of certification according to USGBC’s LEED system,” with both claims seeking damages for the project’s failure to qualify for $635,000 in state-level green building tax credits. Although in Shaw Development the receipt of formal LEED certification was not a prerequisite to the owner obtaining the tax credits, the Shaw facts do suggest the kinds of damages that could flow from the breach of a LEED certification guarantee in a jurisdiction where applicable legislation is tied to formal certification. A discussion of green building consequential damages is beyond the scope of this particular article, but it is important to note the possibility that they may arise and be quite significant.

• LEED Certification or Your Money Back (CoStar)