PARTNER WITH INSURERS WHO UNDERSTAND INDUSTRY NEEDS
BY MITCH COHEN, PE
ASSISTANT VICE PRESIDENT
NEW DAY UNDERWRITING MANAGERS LLC
Architect-engineer-contractor (AEC) professional liability insurance policies typically cover negligent wrongful acts, errors and/or omissions as long as the AEC is actually found negligent by a court of law for the wrongful or erroneous service provided to the client. However, it is yet to be fully determined if some forms of negligence related to green construction are actually covered under typical professional liability insurance policies. Green construction is a term used for construction practices and materials used that are less harmful to human health and the environment, are sustainable and are energy efficient.
This is especially true when the completed project accompanies guarantees for energy-efficiency. Such is the case with Leadership in Energy & Environmental Design (LEED) certification. What happens when a given project achieves gold rather than platinum LEED status? This could be an issue when the owner markets platinum LEED buildings to high-end residential buyers or tenants, and the achievement of only a gold level certification, which is still excellent, causes buyers and/or tenants to sue for breach of contract.
Another issue involves the use of new eco-friendly products. Green construction costs, which sometimes include LEED-certification assurances, usually cost more upfront due to the specification of wide varieties of newly introduced environmental products, systems and processes. Unfortunately, many of these products are being developed far too quickly and then rushed to market without the proper “battle testing.” In other words, these newer products have not been in use long enough to identify potential performance challenges. In such instances, the designer, architect or general contractor could be placed in litigious situations for simply specifying the green products in the first place.
As a result of situations like these, some insurers have developed coverages that insure against economic loss and damages to project owners resulting from the use of flawed environmental products or the inability to attain guaranteed levels of LEED certification. This also includes types of insurance that extend to the hire of experienced engineers or professionals contracted to make the necessary green building repairs. Going forward, policies that contain broader definitions of liability protection against green construction and LEED-certification issues should include language that reads something like…
Services that the Named Insured, a Design Professional, or a subcontracted Design Professional, are qualified to perform for others as an architect, engineer, construction contractor, landscape architect, construction manager, a LEED accredited professional.
Furthermore, when looking for the proper form of professional liability insurance, general contractors need to make sure that the insurer does not have any green construction or LEED-exclusionary language. This includes discussing the standard contractual/warranty language applying to the failure to reach designated LEED certification levels as well as design modifications that extend to the inability to provide promised energy-efficiency savings. These stipulations could be crucial to finding the proper insurer for a given project. An example of the language highlighting LEED exceptions could be:
Insurer will pay all sums the Named Insured is legally obligated to pay as a result of third-party claims first made against the Named Insured for Professional Services performed by or on behalf of the Named Insured , due to the project failing to reach a specific stated certification level of Leadership in Engineering and Environmental Design (LEED).
Another important modification that covers the damages resulting from the failure to comply with energy savings in a green project could read as:
The Insurer will pay on behalf of the Named Insured for Loss of Energy Savings Damages or Claim Expense because of a Loss of Energy Savings Claim in a green construction or LEED project.
While green construction services continue to evolve, so will many of the risks associated with the use of new, eco-friendly products as well as the guarantees accompanying LEED certification. Time will help alleviate some of these risks as the next generation of design engineers become more accustomed to green building design and construction techniques. But in the meantime, it’s best to better manage the risks of today by aligning with insurers that are committed to meeting clients’ needs with coverages specifically written to manage green construction exposures.
Mitch Cohen, PE is an assistant vice president at New Day Underwriting Managers LLC (www.newdayunderwriting.com). He possesses nearly 30 years of experience working as a professional civil / structural engineer, environmental and construction consultant, environmental contractor and insurance broker. Located in Hamilton, New Jersey, New Day is a specialty intermediary for insurance agents and brokers with expertise in environmental insurance, environmental risk management and construction related professional liability. Mitch can be reached at 609-298-3516 Ext. 107 or firstname.lastname@example.org.