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08/11/2010

Are Your Clients Keeping Up with New Trends in Building Green?

by William C. Ferree

GREATER STANDARD OF CARE FOR DESIGN PROFESSIONALS

A March 2008 study by the New Buildings Institute measuring the energy performance in Leadership in Energy and Environmental Design-New Construction (LEED-NC), Version 2, buildings confirms what many already assumed: building green is more than a marketing pitch - it's a way for developers and owners to positively impact both the environment and their bottom line. In a post-occupancy study of 240 LEED-NC buildings, the average energy usage was reduced by 25% to 30% when compared to traditional buildings. As more buildings seek certification and consent to these types of studies, the USGBC will be able to adapt current certification levels to more positively impact building performance. In short, this is only the beginning.

Much has been written about insuring these types of high-performance buildings. But not much attention is paid to the professional service providers who make these buildings possible: architects, engineers, scientists, certification specialists, and other design professionals. How does their professional liability insurance product respond to this green movement? After all, a building owner who makes an up-front investment in sustainability most certainly would demand that the building meet certain certification levels, and deliver cost efficiencies and energy savings.

However, Harvard Law School's Environmental Law & Policy Clinic has just released a report that outlines the potential legal risks and liabilities in green building and provides a blueprint for avoiding such pitfalls. While there are benefits to building green, the study by Harvard Law School and its sponsor - Manko, Gold, Katcher & Fox, LLP - finds that there are significant legal liabilities, creating risks for developers, architects, builders, investors, insurers, and others.

THE GREEN MOVEMENT MAY HAVE THE UNINTENDED CONSEQUENCE OF INCREASING LITIGATION BETWEEN DESIGN PROFESSIONAL AND OWNER

Furthermore, the government is getting into the business of building green. As of 2003, all new U.S. General Services Administration (GSA) building projects must be certified through the LEED Green Building Rating System of the U.S. Green Building Council and Silver LEED rating is encouraged. While there may be many opportunities for design professionals, there is much risk.

Professional liability insurance is a policy that protects the "insured" (architect, engineer, etc) against allegations of negligence by a third-party for economic loss as a result of a failure to perform their professional services. Speaking in layperson's terms, the greater the "standard of care," the greater the potential liability for the professional. A building owner who makes an up-front investment in sustainability would demand the building meet certain certification levels, and deliver cost efficiencies and energy savings.

MAKE CERTAIN THE RISK MANAGEMENT TECHNIQUES ARE SOUND

The most important step any design professional can undertake is to adhere to proper risk management techniques. Most obviously, it is wise to have a qualified lawyer review all contracts. If a claim is alleged, the contract will be a principal document in determining culpability. All design professionals should avoid "guaranteeing" or "providing warranty" that a building will perform a certain way and/or reach specific certification levels. Remember, unlike the standard Commercial General Liability coverage, a professional liability contract does not include contractual liability coverage. Therefore, the language must be read carefully to confirm that the insurance policy has actually transferred the exposure to an insurance carrier.

Second, design professionals should train their employees on what they can and cannot say to clients. The most common claim against a design professional is for a "delay" in project completion, which results in economic loss to the owner. It is very important to manage expectations.

Third, design professionals should secure a professional liability policy that contemplates all the professional services in which their firm engages - traditional and green.

REVIEW THE PROFESSIONAL LIABILITY POLICY

The primary risk transfer mechanism utilized by design professionals is professional liability insurance. It is paramount that design firms analyze their policies to determine where gaps may be filled. Unlike Commercial General Liability policies, which are generally based upon ISO "standards," professional liability policies are not based upon a "standard" form. Therefore, policies vary widely, in scope and pricing.

For a copy of the Harvard Law report or to learn more about exclusive insurance programs for architects and engineers, contact William Ferree, CIC or Linda Giffin, CIC at 800.669-3140 or visit us at www.argogreen.com