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Reactions to Green Building Industry’s First LEED Certification “Guarantee:” Implications for Insurance Coverage & Limitation of Liability Provisions

As you likely know by now, Atlanta-based Energy Ace, Inc. recently announced that it will offer what the company is calling the green building industry’s first LEED certification guarantee. According to Energy Ace CEO Wayne Robertson, the firm “can offer clients a certainty that their project is going to be certified and remove that anxiety.” The specifics of the guarantee are as follows: clients retain Energy Ace pursuant to a standard service contract under which the firm performs LEED administration, fundamental building commissioning, and energy modeling. It holds a LEED charette and, if everything is satisfactory, the contract will be amended to “guarantee” certification. That guarantee, though, actually reads in substance much more like a limitation on Energy Ace’s liability; if the project fails to earn its target level of certification (i.e. Gold or Silver) or is not certified at all, Energy Ace will refund its LEED administration fee to the owner (which is typically between 30 and 45 percent of its total fee). Although there are a number of additional facts that would be helpful in analyzing the implications of the Energy Ace initiative more comprehensively, I do think it provides us with a timely opportunity to review a number of important general construction contract and insurance coverage considerations, many of which we have considered here at GRELJ during the course of 2009.

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Victor Schinnerer: New LEED AP Program Raising Standards of Care, Changing Risk Profiles

Victor Schinnerer’s most recent quarterly report has some interesting commentary on the increased risk that the new LEED Accredited Professional (“LEED AP”) program may be creating for professionals that participate on LEED projects. Specifically, on page 4, the report notes that the new LEED AP program, which divides LEED APs into three tiers of increasing expertise, from LEED Green Associate, to LEED AP with specialization, and up to LEED AP Fellow, “has significantly changed the value of the program and the risks to [the] program’s participants.” However, although the report acknowledges that “[m]embers of the upgraded LEED AP [Fellow] program now will face a higher standard of care for their services,” it also states that “[c]urrently this increased exposure is a manageable risk. Current claims information does not indicate a need for additional insurance premiums to cover the exposure created by the higher standard of care.” I think that this latter point is critical- as I wrote previously here at GRELJ, most professional liability insurance policies contain an exclusion for assumptions of liability that are not imposed by law (i.e., because the LEED AP Fellow designation implies that the design professional will perform at a higher level than the prevailing common law standard, the design professional may not be covered for any resulting claims of negligent design services arising out of disputed green design services). It seems to me that if the LEED AP fellow designation implies a higher standard of care than is prevalent in the industry, this type of form exclusion would come into play. Accordingly, I am very curious to see if there is any reaction from insurance industry professionals on this crucial issue.

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USGBC: Legal Risk in Building Green Is “New Wine in Old Bottles”

In early March, USGBC released a white paper titled “The Legal Risk in Building Green: New Wine in Old Bottles?” The eight-page paper, which was presented as a panel discussion between four attorneys, concluded that “[p]erhaps surprisingly, in light of the increased attention in seminars and workshops . . . much of the discussion among the attorneys [in the paper] suggests that many of the legal theories advanced in those venues to suggest novel liability associated with building green are, instead, simply new wine in old bottles.” While the paper does not appear on the USGBC’s web site, it was circulated by individual chapters; I accessed a copy through our New York chapter’s weekly email blast and have included a link to download the paper from the USGBC-NY homepage below. I applaud USGBC for taking a critical step towards acknowledging the liability implications of green real estate development and construction, but do think it is important for attorneys practicing in this space to digest the paper’s conclusions. Although the paper does identify and discuss many important legal issues, I think that it ultimately falls short of elevating the analysis of such issues to the level necessary for legislators and stakeholders to make completely informed policy- and project-related decisions. Specifically, by suggesting that “[c]onjecture, anecdote, and even rumor swirl around recent presentations, workshops and discussions circling the question of what legal claims may be based on the design, development, and construction of sustainable buildings,” the paper seems to be an effort to sweep many of the thornier legal issues that may indeed ferment into “new wine” under the rug.

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Green Construction Claims Demonstrate Need for Design Professional Due Diligence

Yesterday, I gave a presentation to a local architecture and interior design firm on current trends in green construction law. I was impressed at how willing the firm’s design professsionals were to listen to my thoughts on the emerging risks associated with green design. In addition to suggesting a number of other legal issues, I selected a handful of claims reported by Maryland-based attorney Frank Musica at the 2007 AIA National Convention in San Antonio to open up a discussion on form contract language – particularly from the AIA documents – and suggested how certain applicable provisions might be amended to reduce the architect’s risk when rendering green design services. The claim that made the biggest splash with my audience yesterday was where Musica reported how an architect failed to perform sufficient due diligence in crafting green building specifications for a particular project and specified what turned out to be a patented solar shading system. After the project was complete, the patent holder approached the owner and demanded a licensing fee for its use of the system. The owner pointed a finger at the architect and sought indemnification under the terms of the parties’ agreement.

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Shaw Development v. Southern Builders: America’s First Green Building Litigation

Over the past two years, I have written extensively over at gbNYC about the potential for litigation arising out of green construction projects. The country’s first reported green building litigation – Shaw Development versus Southern Builders – is an excellent example of how hidden green building risks can present unconventional legal issues to construction industry stakeholders and their counsel. It is critical to note that the case does NOT discuss the contractor’s failure to achieve LEED certification on behalf of the owner (as many articles referencing my original post at gbNYC have incorrectly asserted). Rather, it suggests the importance of accurately translating green building regulatory requirements into construction documents.

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Green Insurance: Number of Climate Change-Related Products Doubles in 2007

Ceres is a non-profit coalition of investors, environmental groups, and other public interest organizations that works with companies as they negotiate the issues implicated by sustainability and climate change. Last week, it released From Risk to Opportunity: 2007, Insurer Responses to Climate Change, a comprehensive overview of presently available climate change-related insurance products. The report […]

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