Green Building

“Green building” is defined as the practice of creating structures and incorporating processes that are resource-efficient, relating to the conservation of water, energy, materials, and natural resources. In addition, Green building must be sustainable in terms of its environmental and human health impact throughout the complete life-cycle of a building, including its siting, design, construction, operation, maintenance, renovation and deconstruction. Some examples of Green building components or processes are water- and energy-saving vegetated roofs, the recycling of industrial materials or waste, enhanced indoor air quality, environmentally friendly storm water management, landscaping designed to preserve natural resources, energy efficient appliances, rooftop solar panels, geothermal heat pumps, natural lighting, and cogenerated power.

Background

Several notable environmental, economic, and social benefits result from Green building practices. In terms of environmental benefits, Green building can help to support biodiversity, conserve natural resources, and improve both air and water quality. In the U.S., buildings account for approximately 28% of primary energy use and 38% of all CO2 emissions. In the past several decades, society has been forced to confront innumerable challenges arising from scarce natural resources, particularly crude oil and gasoline. Since buildings represent a large share of energy use and CO2 emissions in the U.S., Green building has become increasingly popular for its environmental consciousness and energy-saving benefits.

There are also economic benefits associated with Green building, most notably the reduction of operating costs relating to lower energy consumption, and the emergence of an entirely new market dedicated to providing Green products and services. The social benefits of Green building include improvement in the overall quality of life, more aesthetically-pleasing landscapes, and a decline in the dependence on local infrastructure networks such as water and electricity transport systems.

Injuries and Damages

Damages such as leaks or structural problems as a result of Green building techniques may become obvious quickly and are expensive to repair. For example, roof-mounted wind power or co-generation equipment may put excessive load and stress on a “Green” roof or even be blown off in a windstorm. Vegetative roofs that are routinely watered can accumulate heavy ice accumulations in periods of unexpected freezing weather, damaging the roof. Some types of damage may be hidden until the problem becomes severe, such as Green flooring choices like cork contributing to mold growth. Clients may sue contractors and designers on the basis that their “certified Green” buildings fail to meet lower energy use expectations. The special equipment and materials required in Green building are more expensive and can be difficult to obtain. Large-scale recycling of debris under Green rules may be difficult to accomplish, and the demands of building “Green” can significantly lengthen construction time, adding to the expense.

Legislation and Regulation

Currently, two major certifications set specific standards for Green buildings: the LEED certification administered by the U.S. Green Building Council (USGBC) and the Energy Star program managed jointly by the U.S. Environmental Protection Agency (EPA) and U.S. Department of Energy (DOE). Both certifications apply to new buildings and existing buildings whose owners are seeking to reduce their environmental impact. The LEED certification is awarded to both commercial and residential buildings that are scored on energy savings, water efficiency, CO2 emissions reduction, improved indoor environmental quality and stewardship of resources and sensitivity to their impacts. Based on how many points a building receives out of 100 base points, it is awarded a specific LEED certification-Silver, Gold, or Platinum.

The Energy Star program addresses both energy efficient products and practices and construction in new and existing buildings. However, unlike the LEED program, an Energy Star rating is based primarily upon the energy efficiency of a building and does not take into account certain other practices that LEED measures. Energy Star qualified homes typically include some of the following features: an efficient home envelope, efficient air distribution, efficient equipment, efficient lighting, and efficient appliances. For commercial buildings and manufacturing plants to be considered Energy Star-qualified, they must rank in the top 25% of similar types of facilities based upon energy performance.

Several federal, state, and city requirements apply to Green new construction and rebuilding efforts after a fire or other destructive event. In March 2015, EO 13693, "Planning for Federal Sustainability in the Next Decade," was passed with the effect of expanding on the energy reduction and environmental performance requirements for certain Federal agencies. The Order was revoked by President Trump on May 17, 2017 in favor of an “Executive Order Regarding Efficient Federal Operations” which requires federal agencies to comply with statutory requirements related to energy and environmental performance “in a manner that increases efficiency, optimizes performance, eliminates unnecessary use of resources, and protects the environment.” Under the order, agencies are directed to “prioritize actions that reduce waste, cut costs, [and] enhance the resilience of Federal infrastructure and operations.”

Most state governments have adopted some form of Green building legislation. California has been at the forefront of mandating reductions in energy use and setting stringent Green building requirements. Some cities and counties have set Green building polices.

Liability and Insurance

Although environmental, economic, and social benefits are associated with Green construction, it may also create liability and insurance coverage issues. Professional Liability claims may arise when Green roofs cause leaks and other structural problems or encourage mold growth. In these situations, architects, engineers, and construction designers might look for coverage under professional liability policies. Contractors and design professionals may also seek insurance protection that addresses certification guarantees made to their clients. Typically, however, standard insurance policies do not cover the economic consequences when such guarantees or warranties are not met.

To date, the most significant impact that Green building has had on the insurance industry has been in the property coverage lines. Green building has resulted in increased exposure under time element or business interruption provisions or Ordinance and Law coverage. Uncertainty in managing tasks such as acquiring special equipment, building commissioning (required under LEED), and bringing debris to approved recycling sites may lengthen reconstruction time and increase costs. Similarly, new federal, state, or city construction codes will have a direct impact on losses under Ordinance and Law coverage which, when added to a property policy, covers the cost of reconstructing a building to meet current codes following damage caused by a covered peril. Along with Ordinance and Law exposures, replacement cost values for Green buildings are often difficult to determine due to the rapid emergence of new Green building materials and technologies. An issue that may arise is whether, in total loss situations, buildings need to be re-certified under current standards or under standards that were in place at the time of the original certification. Some question whether the building would still be certified in the case of a partial loss to a building originally certified under LEED New Construction guidelines.

Green construction also creates casualty concerns, notably in general liability and workers’ compensation. Contractors performing Green building tasks for the first time may lack the experience or qualifications necessary to construct a safe and efficient Green building. Because standards like LEED are relatively new and are constantly being updated, contractors may have difficulty developing or sustaining expertise. Training, which is currently provided by several organizations, is not standardized. This enhances the potential for claims relating to construction defects caused by flawed workmanship. A common example arises when an under-qualified contractor installs a Green roof that may not be able to withstand storms. Solar panel systems, small wind power components, or co-generation units require a contractor to carefully account for the additional load and stress to the roof and structure. The potential exists for higher frequency of products liability and completed operations claims stemming from new and untested technologies and techniques. Certain porous materials or the air-tight environment in some Green buildings may promote the growth of mold. Green materials like bamboo and cork require higher flammability ratings. Finally, the combination of new technology, manufacturing processes and Green construction practices creates the potential for workers’ compensation claims if something goes wrong.

Surety carriers have expressed concern about unclear contractual terms and the risk of a builder unintentionally guaranteeing a certain level of LEED certification or water and energy efficiency. Green materials also may involve added expense or may be difficult to obtain on short notice, placing additional financial pressure on contractors already stressed by economic conditions. An increase in contractor failures would have a direct impact on surety writers.

Litigation

Southern Builders, Inc. v. Shaw Development, LLC, No. 19-C-07-011405 (2007), filed in the Circuit Court of Maryland for Somerset County, was the first major Green building case. The suit involved a $7.5 million condominium project on the Eastern Shore of Maryland that was intended to be certified as LEED Silver. The owner, Shaw Development, sued the contractor, Southern Builders, to recover $635,000 in allegedly lost state tax credits available through Maryland’s Green building program. For Shaw to receive the tax credits the project needed to receive both the LEED certification and the Maryland Energy Administration’s Final Credit Certificate within a stated period. Shaw asserted that it could not claim these tax credits due to Southern’s failure to complete the project on time. Eventually the case was settled out of court, so there is no appellate ruling to provide guidance on Green building issues, but the pleadings are instructive.

The lack of appellate judicial review of Green building matters may reflect that most disputes are governed by sophisticated contract documents that do not allow litigation for dispute resolution. For example, certain contracts used by the American Institute of Architects for design, construction and related services mandate mediation and arbitration.

Future Outlook

Although there are several significant exposure and liability issues relating to Green construction, the popularity of Green building also creates (re)insurance opportunities. The Insurance Services Office developed a coverage option for commercial property owners who buy standard property policies but may wish to rebuild damaged property in a Green way. The form provides an additional insurance limit to repair or replace broken property using LEED or Energy Star accepted materials or processes, related-expense coverage for extra expenses associated with Green upgrades, and a business-interruption clause that covers loss of earnings during the time necessary to repair a building.

Also, commercial entities may be able to add coverage on new Green construction, renovations, or rebuilding after a loss. Some insurers offer endorsements to protect against the cost of hiring an engineer to install or inspect Green HVAC, electrical, and plumbing systems, rebuild in accordance with LEED guidelines, or order the more expensive Green materials. Other Green building policies that may be available include builders’ risk coverage with Green endorsements, to cover costs associated with maintaining a certain level of Green certification. Some insurers have introduced insurance for crisis management consultant costs incurred to deal with public relations issues if a Green building damages the company’s reputation, and coverage of bodily injury claims if the injury is caused by a chemical that originates from equipment intended to improve water or air quality. For homeowners, some insurers will discount policy prices if the homeowner installs environmentally friendly options such as solar panels. Industry observers expect this emphasis on Green building coverage to continue.

In the News

2016

• ‘Net Zero’ Green Building Certification Coming Soon - Jessica Lyons Hardcastle, Environmental Leader (07/12/2016)
  

  In an effort to reduce emissions from the building sector, the World Green Building Council is launching net zero building certification and training.

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