Managing the Risks of Green Building

AWARENESS IS THE FIRST STEP

The global green building sector continues to double every three years, with survey respondents from 70 countries reporting 60 percent of their projects will be green by 2018, according to a Dodge Data & Analytics World Green Building Trends 2016 SmartMarket Report.

"Several years ago, contractors saw green building strategies as a way to grow their business by offering a unique approach to building, but today, energy efficiency, LEED certification and green buildings are more of the norm," says Erik Wenstone, ARM, vice president of CMR Risk and Insurance Services.

"Ninety-five percent of our projects are pursuing LEED certification or custom sustainability goals," says Jennifer Frey, sustainability program manager, Sellen Construction Company, Inc., an AGC of Washington member. "Clients are motivated to compete in their market against other LEED projects."

Two ways this green movement, however, can add to the liability risk for contractors are with greater performance objectives in a green building, as well as an emphasis on ever more sustainable new technologies and materials that push the envelope. Incentives meant to reward green building can also add a layer of risk. According to Wenstone, if the contract promises a Gold LEED rating but delivers a building with a Silver LEED rating, the owner could lose benefits such as tax credits, zoning allowances and other incentives tied to the higher rating.

The liability for green-related factors doesn’t end when the building is turned over to the owner. If the contract specified energy savings – if the design is modeled to achieve a 30 percent savings compared to baseline, but the building saves significantly less energy or worse is an "energy hog," for example – the fear is that an owner may claim fraud in advertising or negligent misrepresentation and come after the contractor. Although several factors may be in play when a building’s actual performance doesn’t match up to how it was modeled (e.g., changes in building use, higher plug loads, or deficient operations and maintenance), discrepancies will call into question what went wrong and who is responsible. Actual performance is expected to become more important as green building standards call for increased monitoring and measurement, and as building owners strive to achieve net zero energy buildings.

"Net zero is definitely the top trend and is becoming more feasible for medium-sized projects," says Hamp Sterling, environmental manager, W. G. Yates and Sons Construction Company, an Arkansas Chapter member.

Education is key, says Wenstone. "Minimize risk with education about green building practices and awareness of liability exposures in the contract that traditional building practices don’t typically incur."

Two ways green construction changes contractor risk include:

PROFESSIONAL LIABILITY

Wenstone recommends that while many contractors elect not to carry professional liability coverage, they should discuss it with their risk professional if they are seeking out green building projects. "Coverage for errors and omissions is considered essential for engineers and architects, but other non-design contractors don’t often feel the coverage is necessary," he says. Be aware that if a system or performance metric is not met, an owner can come back to all contractors who were responsible for the system.

When using a technology you have not used before, it’s important to review coverage and exposures with an insurance broker, suggests Wenstone. For example, a roofing contractor’s policy may exclude subsidence, which for the most part is not an issue for a traditional roofing contractor. However, putting in a vegetative roof can raise the issue of earth movement. "The additional weight of the vegetative roof could create structural integrity issues that could result in third-party property damage due to the weight of the roof or post-installation settlement that causes the building to move," he explains.

The use of new materials also can be an area of concern evidenced by the case involving the first-ever LEED Platinum building, which was embroiled in litigation for a decade in part over the unconventional use of a "green" material. Green building materials are advancing rapidly and growing increasingly transparent in the process. It is important to keep in mind, though, new movements toward greater disclosure – such as environmental product declarations or health product declarations – relate to how materials may impact the environment or human health and do not attest to how well a product will perform in a certain application.