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)

There are two key questions for owners and design professionals to consider in connection with standard of care provisions in construction agreements: (1) has the design professional agreed to perform at a higher standard of care than that which prevails in the industry? and (2) has the design professional provided the equivalent of a warranty or guarantee to the owner with respect to the services that it will render? Language that obligates the design professional to satisfy “the highest standards of the profession” or “the standards of similar firms with extensive green design expertise” is ambiguous and may allow an insurance carrier to argue that the design professional agreed to perform with a higher level of care for which insurance coverage may be unavailable. This is because most professional liability insurance policies contain an exclusion for assumptions of liability that are not imposed by law (i.e., by agreeing to perform at a higher level than the prevailing common law standard, the design professional will not be covered for any resulting claims of negligent design services). Such language may also be construed by a court to be the functional equivalent of a warranty or guarantee in the event of a dispute; as set forth below, most professional liability policies exclude coverage for these types of claims as well.

Performance-based (i.e., “this design will achieve a LEED Gold rating” or “will reduce operating costs by 50 percent”) language in a standard of care provision may also be problematic if the insurer believes that the design professional has provided the owner with the equivalent of a warranty or guarantee. For example, in a case out of the Eighth Circuit, an engineer agreed to provide an owner with “[t]he necessary engineering plant layout and equipment design and the on-site engineering supervision and start up engineering services necessary for the construction of a hully by-product facility capable of reducing a minimum of 7.5 tons of rice hulls per hour to an ash and producing a minimum of 48 million BTUs per hour of steam at 200 pounds pressure.” Arkansas Rice Growers Co-op Ass’n v. Alchemy Indus. Inc., 797 F.2d 565 (8th Cir. 1986). The plant never operated as intended, and the owner sued the engineer. The court expressly held that the design professional had “warranted that a plant constructed according to the design was capable of achieving the performance criteria” and noted that “[t]he evidence is undisputed that the plant was never capable of achieving the performance criteria on a sustained basis.” Professional liability policies generally exclude coverage for claims arising out of the breach of a warranty or guarantee. Both owners and design professionals should thus review language in their construction agreements for provisions that could potentially be construed by an insurer as the equivalent of a warranty or guarantee, particularly with respect to the project achieving a certain level of LEED or other third-party certification.

It is also important to note that the form standard of care language in the AIA’s B101 Owner – Architect Agreement (2007), which is found in Section 2.2, states that “[t]he Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The Architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project.” This language mirrors the common law standard of care which a professional liability policy will insure against. However, exactly what constitutes the “professional skill and care ordinarily provided by architects (or engineers, as the case may be) practicing in the same or similar locality under the same or similar circumstances” is a much thornier question; this standard is, by nature, not objective but subjective; it changes periodically based on the prevailing level of competency of other similarly-situated professionals in the same geographic region.

Although professional liability insurance will track the prevailing standard of care, as we noted previously in an article over at gbNYC, and as attorney/architect Fred Butters discusses extensively in his article in Understanding the Business of Green, there is no question that LEED and green building practices generally are shifting the standard of care for design professionals to a higher level. For example, new obligations in the 2007 version of the AIA documents and Canon of Ethics require the architect to recommend sustainable design alternatives to the owner. Moreover, the proliferation of the LEED AP and other representations that many architects and engineers are making throughout the industry with respect to their sustainable design expertise is increasing the expectation that such design professionals will deliver a design that performs at a higher level than in the past. The danger here is for design professionals who are not sufficiently well-versed in green design; if the standard of care has increased, are such design professionals failing to satisfy the prevailing standard of care and thus exposing themselves to claims for negligent design work? This is not an insurance coverage question, but nevertheless an important consideration for both construction attorneys and insurance professionals to monitor closely in the months ahead.

Owners and design professionals must consider the foregoing standard of care considerations in connection with green building projects and should discuss the professional liability insurance coverage implications of such provisions with their insurance carriers if they have yet to do so already. A more general discussion of whether certain representations in standard of care provisions will be deemed by the carrier as raising the standard of care beyond the prevailing common law standard is also advisable. Regardless, it is critical for design professionals to keep in mind that because the standard of care is a moving target, paying careful attention to the language in such provisions during the course of construction contract negotiations for a green building project is imperative.