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)