Green is gold, but may be risky

02/05/2013


Green litigation: Lessons learned                      

A seminal lawsuit in Green Building, Shaw Development v. Southern Builders, occurred in 2007. Brought before the Circuit Court in Somerset County, Md., the suit involved a condominium designed to be at least LEED Silver certified. Construction delays related to the certification involved significant costs and triggered suits brought by both the builder and developer. At issue was $635,000 in potential tax credits for obtaining LEED Silver.

The developer alleged the project manual and scope of work required Southern Builders to construct a “green building” that achieved a LEED “Silver Certification Level.” The case eventually was settled but illustrates the unique exposures when certification is required.

Subsequently, a 2008 decision in The Air Conditioning, Heating, and Refrigeration Institute, et al. v. City of Albuquerque (U.S. Dist. LEXIS 106706) gave the industry relief from local ordinances that exceeded federal green standards. Albuquerque passed three ordinances that imposed minimum energy-efficiency standards for commercial and residential buildings, which exceeded federal standards.

In this case, local, regional, and national manufacturers and distributors of HVAC products filed suit against the city alleging that federal statutes preempt it from passing the ordinances. The federal court held in favor of the plaintiffs, asserting that federal law may preempt certain state and local statutes that require higher standards.

A number of cases that have been cited by professional liability insurer Victor O. Schinnerer/CNA illustrate the types of thorny issues that can arise in green building projects:

· Daylighting: Daylighting design and potential security issues surfaced in a project involving a government contractor that provided military systems designs and terrorism identification services. The project featured a green design including extensive daylighting systems with windows and skylights. The federal government determined the features would place confidential information at risk and threatened to revoke the project’s security rating, cancel existing contracts, and prevent future consideration. The client sued the architect, citing that the standard of care was breached as the architect was aware of the security concerns and should have contemplated them in the final design.

· Mold: An insurance company wanted green products used in the redesign of its interior space. The design firm specified cork flooring in kitchen areas. Subsequent damage to cork flooring in high-traffic areas around sinks, ice machines, and coffee makers led to water retention and mold growth. Efforts to clean and seal floors with environmentally safe solutions proved unsatisfactory to employees, and the cork tiles were replaced with vinyl flooring. Although the design firm experienced lost productivity and deductible costs in defending against the company’s claims of negligent design, the client ultimately chose not to pursue the claim and absorbed the cost of resurfacing the kitchen areas. Nonetheless, in addition to the defense costs and loss of productive time, the design firm’s reputation in the commercial market was marred by the incident.

· Air quality: A university agreed to an architect’s design of an operable sash for its library, despite concerns about how untreated air might affect the building’s operations. The design firm stressed the importance of outside air for student health and alertness. When solar shading designed for energy conservation provided shelter for pigeons, students using the library began reporting respiratory illnesses. Controversy ensued and the architect was sued for negligence because of introduction of diseases contained in pigeon droppings.

· “Sick building” syndrome: Guarantees of indoor air quality carry significant potential risk. Lured by the promise of “healthier and more productive occupants” associated with LEED publicity, a tenant rented space in a LEED Silver certified building. However, after the first year of occupancy, the tenant’s records showed increases in sick leave and employee complaints about working conditions, and reduced productivity. The tenant demanded a rent rebate from the project owner based on promise of a healthful workplace and sued the architect.

Assessing insurance implications

In light of the unique exposures related to green building projects, engineers should:

· Review their insurance coverage carefully and ensure that the boundaries of this coverage are contemplated when taking on new work. No additional or specific “green” insurance is needed, but engineers should be aware of warranties and other contractual obligations that may not be covered by their insurance policies. Notably, professional liability coverage typically extends only to acts of negligence—and not to other contractual liabilities. This underscores the importance of a thorough contract review before proceeding and avoidance of contractual risks that the engineer would not have been responsible for in the absence of the contract.

· With respect to builder’s risk/property insurance, design professionals should check that such coverage is in force and that the insurance policy on the project covers extra costs associated with re-building green to achieve LEED certification. This relatively inexpensive property insurance protection can help prevent more costly claims against the design professionals.

· Check for a waiver of subrogation clause in the contract. This prevents the owner’s builder’s risk insurer from paying a claim and then turning around and suing the engineer.

· Engineers should work closely with their legal counsel and insurance advisor to address potential contractual issues and ensure that their insurance program is fully up to date in helping to mitigate related exposures.

Green building and sustainability are here to stay. With a well-coordinated program of insurance and risk management, engineers will be in the best position to take advantage of these expanding opportunities.


Dan Knise is president and CEO of Ames & Gough, an insurance brokerage and risk management consulting firm that specializes in serving the needs of professional services firms. Knise works directly with many of the firm’s larger design firm clients, as well as advising project owners on risk and insurance issues.


Sustainable project contractual considerations for engineers

Whenever a project owner expresses a desire to achieve certification (e.g., U.S. Green Building Council LEED or Green Globes) for a sustainable/green project, engineers must carefully review proposed contract language. Consider including wording that reflects the following:

· Owner recognizes that engineer, while incorporating green design, will perform services to traditional standard of care.

· Engineer should not accept any express warranties or guarantees regarding achievement of certification (as many aspects of rating scale are beyond the engineer’s control).

· Owner recognizes that many so-called green building products are untested and therefore carry some risk that engineer cannot warrant.

· Engineer cannot accept responsibility for consequential damages (e.g., loss of tax credits for green building) as risk-reward is out of balance.


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