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.
The paper is essentially divided into five sections: (1) general points about whether risk exists for real estate stakeholders in connection with green building projects; (2) a brief overview of some emerging regulatory concerns; (3) whether increasing concerns about achieving LEED certification are valid; (4) a discussion of new products and technologies as risk concerns; and (5) how knowledge, experience, and contracts can help green building project stakeholders mitigate green building risk. The paper unquestionably provides a good legal primer with respect to each of these issues but injects a tone of commentary into the discussion that unnecessarily trivializes many of the legal issues that the green construction bar continues to grapple with. For example, the paper starts out by stating that “[a]ccording to insurance professionals . . . there have been very few claims reported arising out of sustainable design to date, despite concerns to the contrary. The risks to architects in ‘building green’ are essentially the same as the risks on other projects.” Standard of care and insurance coverage issues, for example, have many design professionals, their insurers, and even owners concerned about the availability of coverage in event of a claim that arises out of disputed green design services. While general principles of construction law will always apply to every project, calling their application in novel contexts to be simply “old bottles” suggests that there is no additional risk for project teams to consider or attorneys to address in contract documents.
One specific point made in the paper that’s also worth noting relates to the factual posture of the Shaw Development case. The paper incorrectly states that Maryland’s green building tax credit program which was at issue in the lawsuit was “limited to qualifying LEED projects and restricted to a set window of time. The project did not have LEED qualification within the window of time and Shaw sued for damages for the loss of the tax credits.” As you’ll recall, the issue in Shaw was the parties’ failure to understand the applicable tax credit program, which required a certificate of occupancy by a certain fixed date in order for a LEED-hopeful project to take advantage of tax credits; formal LEED certification was not required. Shaw emphasizes that legislative schemes are among the fundamental drivers of green building risk and must be clearly understood and accurately reflected by controlling contract documents.
Additionally, on page 5, the paper states that “[w]hile some commentators recommend avoiding guarantees, a precise contract can appropriately define the guarantee and mitigate risk.” However, there is no detailed discussion of exactly how stakeholders might begin to craft such provisions. More critically, the paper fails to discuss why even the appearance of the equivalent of a warranty or a guarantee or an elevated standard of care may be problematic from the perspective of a professional liability policy (i.e., these are form exclusions to the standard policy which most architects and engineers are required to procure on every project by contract). The Marsh end-of-year report from 2008 makes it clear that professional liability insurers are keenly monitoring this area of activity with heightened scrutiny. While standard exclusions to a professional liability policy are indeed traditional components of construction law, it is also clear that the rapidly moving standard of care for design professionals is unprecedented, and its implications should not be understated by attorneys who represent architects and engineers.
I want to emphasize that I am not criticizing USGBC’s effort to foster discussion about these important issues; rather, I think it’s extremely positive that the organization has taken this initial step towards engaging the legal industry in refining the parameters of green building risk management. As I noted last November over at gbNYC, this was a major shortcoming at last year’s Greenbuild and it’s encouraging that USGBC has started to move in a different direction. However, I think it is troubling that the paper chose to characterize green building law as “new wine in old bottles.” In my opinion, the reasons why many of the issues noted in the paper are creating a new paradigm meriting the attention of both legal scholars and practitioners are four-pronged: regulatory activity at the federal, state, and local levels is moving more rapidly than anyone can track in sufficient detail; the insurance coverage implications for claims arising out of green design have been largely unremarked upon; the insurance industry itself has acknowledged that the standard of care for design professionals is changing more quickly than at any time in history thanks to the proliferation of the LEED AP and green design obligations in the new AIA construction documents; and preliminary data suggesting that green buildings may not perform at the higher level generally anticipated by most project teams may have significant consequences both in terms of litigation and future policymaking. These are a set of completely new and emerging legal issues that will have a major impact on how attorneys create risk management strategies for their clients as green construction practices continue to proliferate. Suggesting otherwise will likely damage the long-term prospects of the green building movement, particularly if it encourages stakeholders not to take these emerging risks seriously and engage counsel capable of assisting them in navigating unchartered waters.
The paper is a quick read and I hope you will print it, review it, and share your thoughts in the comments below.
- The Legal Risk in Building Green (USGBC)