Green Building Risk Management Presented by: Mark E. Rabkin, Director of Advocacy Northeast Ohio Chapter, United States Green Building Council An analysis of the high performance building industry and its unique risks

Shaw Development vs. Southern Builders The first case of Green Building Litigation – The Captain’s Galley Source: Stephen Del Percio, LEED AP, www.GreenRealEstateLaw.com

The first case of Green Building Litigation –

The Captain’s

Galley

Defining green building What is it? Who is building green? Where are they building? What are they building? Why are they building it? Green Building Risks Design Professional Liability Environmental Liability & Pollution General Liability Builders Risk Property Surety Overview

Defining green building

What is it?

Who is building green?

Where are they building?

What are they building?

Why are they building it?

Green Building Risks

Design Professional Liability

Environmental Liability & Pollution

General Liability

Builders Risk

Property

Surety

WHAT IS GREEN BUILDING?

Commercial, residential, industrial & infrastructure construction = $1.77 trillion a year (13.4% of US GDP) 37.9% of US primary energy use 38% of all CO 2 emissions 72% of all electricity 13.6% of all potable/drinkable water = 15 trillion gallons a year 40% of raw materials globally used in US (3 billion tons annually) 136 million tons of C & D debris (vs. 209.7 million tons of MSW)

37.9% of US primary energy use

38% of all CO 2 emissions

72% of all electricity

13.6% of all potable/drinkable water = 15 trillion gallons a year

40% of raw materials globally used in US (3 billion tons annually)

136 million tons of C & D debris (vs. 209.7 million tons of MSW)

What is “ Green Building ”? “ Green building is the practice of increasing the efficiency with which buildings use resources — energy, water, and materials — while reducing building impacts on human health and the environment during the building's lifecycle, through better design, construction, operation, removal and maintenance.” Source: en.Wkipedia.org

“ Green building is the practice of increasing the efficiency with which buildings use resources — energy, water, and materials — while reducing building impacts on human health and the environment during the building's lifecycle, through better design, construction, operation, removal and maintenance.”

How does the industry define “ sustainability ”? “ Meeting the needs of the present without compromising the ability of future generations to meet their own needs” (as defined by the 1989 World Commission on Environment and Development; the Brundtland Commission) Sustainable Cleveland 2019 Building an economic engine to empower a green city on a blue lake Visit and join online at clevelandsummit.ning.com

“ Meeting the needs of the present without compromising the ability of future generations to meet their own needs”

(as defined by the 1989 World Commission on Environment and Development;

the Brundtland Commission)

L eadership in E nergy and E nvironmental D esign ( LEED ) New Construction Core & Shell Existing Building Operations & Maintenance Commercial Interiors LEED For Schools LEED For Homes Neighborhood Development Retail (New Construction / Commercial Interiors) 'LEED' and related logo is a trademark owned by the U.S. Green Building Council and is used by permission.

New Construction

Core & Shell

Existing Building Operations & Maintenance

Commercial Interiors

LEED For Schools

LEED For Homes

Neighborhood Development

Retail (New Construction / Commercial Interiors)

WHO IS BUILDING GREEN ?

Who is building green? Education Office Government Hospitality Healthcare Residential Industrial Retail 80% of total

Education

Office

Government

Hospitality

Healthcare

Residential

Industrial

Retail

Higher Education American College & University Presidents Climate Commitment aashe.org 628 Total Signatories to Date

The Non-Profit Community The Cleveland Foundation Awarded over in grants in 2008 The George Gund Foundation Awarded in grants in 2008 Capital grants will be limited to US GBC’s “LEED-Silver” (NC) or “LEED-Certified” (EB) or higher. $85,000,000 $16,385,101

The Cleveland Foundation

Awarded over in grants in 2008

The George Gund Foundation

Awarded in grants in 2008

Capital grants will be limited to US GBC’s “LEED-Silver” (NC) or “LEED-Certified” (EB) or higher.

The Cleveland Foodbank Energy Star roof Retaining Pond Waterless Urinals Motion sensitive lighting 4,000 tons of concrete recycled

WHAT, WHEN, AND WHERE IS GREEN BUILDING?

Worldwide LEED Registrations and Certifications (Through August, 2009) Rating System Registrations Certifications Certified Silver Gold Platinum New Construction 16,704 2,097 631 688 660 114 Existing Building 3,815 334 115 102 91 23 Commercial Interiors 3,097 726 172 236 271 44 Core & Shell 3,039 279 36 120 106 14 LEED For Schools 942 12 3 2 5 0 Homes (Single Family) 313 0 0 0 0 0 Retail (NC & CI) 296 208 170 20 10 3 Neighborhood Development 238 12 3 3 6 0 Homes (Multi-Family) 100 0 0 0 0 0 LEED 2009 NC/CI/EB/Schools 996 1 0 0 0 1 Total 29,540 3,669 1,130 1,171 1,149 199

United States Registered Projects

WHY BUILD GREEN ?

How going green can keep you in the black Green buildings may cost less to operate and have an increased ROI Green buildings could command higher rents and occupancy rates Green buildings may have reduced absenteeism Green buildings could increase productivity Green buildings may be more attractive to tenants Green buildings should have fewer risks Source: Fireman’s Fund Insurance Company

Green buildings may cost less to operate and have an increased ROI

Green buildings could command higher rents and occupancy rates

Green buildings may have reduced absenteeism

Green buildings could increase productivity

Green buildings may be more attractive to tenants

Green buildings should have fewer risks

Motives for undergoing a green retrofit Source: Deloitte & Charles Lockwood, www.deloitte.com/us/responsibility

GREEN BUILDING RISKS

Design Professional Liability Also called Errors & Omissions Protects an insured from claims of negligence arising out of professional services rendered Excludes Bodily Injury and Property Damage Liability Includes (but not limited to): Architects Engineers Designers Consultants

Also called Errors & Omissions

Protects an insured from claims of negligence arising out of professional services rendered

Excludes Bodily Injury and Property Damage Liability

Includes (but not limited to):

Architects

Engineers

Designers

Consultants

Exposures & Risks Contractual & Ethical requirements Lost profits, increased energy costs, lost business opportunities, increased tax burden Warranties on outcomes Lack of proper green experience and qualification No control over subcontractors Setting expectations too high Source: Marsh, Inc., “The Green Built Environment in the United States”

Contractual & Ethical requirements

Lost profits, increased energy costs, lost business opportunities, increased tax burden

Warranties on outcomes

Lack of proper green experience and qualification

No control over subcontractors

Setting expectations too high

Other recent notable cases Developer sues architect for failing to achieve LEED Gold Water infiltration from Green Roof Cork Flooring resulted in water retention and sprouted mold Lack of product availability caused delays Health problems of tenants increased despite warranties that indoor air quality would improve

Developer sues architect for failing to achieve LEED Gold

Water infiltration from Green Roof

Cork Flooring resulted in water retention and sprouted mold

Lack of product availability caused delays

Health problems of tenants increased despite warranties that indoor air quality would improve

Environmental Coverage Pollution Legal Liability & Contractor’s Pollution Liability Pollution Legal Liability Bodily Injury, Property Damage and Clean-Up Costs caused by pollution conditions on a covered property Contractor’s Pollution Liability Bodily Injury, Property Damage and Clean-Up Costs caused by pollution conditions resulting from covered contracting operations

Pollution Legal Liability

Bodily Injury, Property Damage and Clean-Up Costs caused by pollution conditions on a covered property

Contractor’s Pollution Liability

Bodily Injury, Property Damage and Clean-Up Costs caused by pollution conditions resulting from covered contracting operations

The Market’s Perception Potentially less risky Recyclable materials More attention to health and safety Decreased environmental impact Airtight structures increase the potential for mold liability claims source – Liberty Forensics, Inc. , Orlando, FL; “The Hidden Risks of Green Buildings”

Potentially less risky

Recyclable materials

More attention to health and safety

Decreased environmental impact

Airtight structures increase the potential for mold liability claims

source – Liberty Forensics, Inc. , Orlando, FL; “The Hidden Risks of Green Buildings”

Commercial General Liability Bodily Injury and Property Damage caused by the insured’s negligence to a third party Includes Products & Completed Operations Liability for damages incurred after work has been completed

Bodily Injury and Property Damage caused by the insured’s negligence to a third party

Includes Products & Completed Operations Liability for damages incurred after work has been completed

Key Risks Faulty workmanship and/or construction defect claims Lack of appropriate experience New & untested products, materials & processes May not have the durability of traditional material New roofing systems Structural damage and water infiltration New HVAC systems Performance and air quality issues

Faulty workmanship and/or construction defect claims

Lack of appropriate experience

New & untested products, materials & processes

May not have the durability of traditional material

New roofing systems

Structural damage and water infiltration

New HVAC systems

Performance and air quality issues

Contractor’s E&O Documentation to earn LEED Credits Standard of care doctrine Misrepresentation of qualifications Points could be denied due to improper documentation Resulting in failure to achieve desired certification level Claims of economic loss and financial injury

Documentation to earn LEED Credits

Standard of care doctrine

Misrepresentation of qualifications

Points could be denied due to improper documentation

Resulting in failure to achieve desired certification level

Claims of economic loss and financial injury

Builders Risk

Soft Costs Costs incurred due to project delay Additional interest expense on construction loan Realty tax and assessments Advertising and promotional expense Additional legal, accounting, architectural, artisan, or consulting expense Lease renegotiations Building commissioning Restore indoor air quality Divert debris for recycling Registration and certification fees

Additional interest expense on construction loan

Realty tax and assessments

Advertising and promotional expense

Additional legal, accounting, architectural, artisan, or consulting expense

Lease renegotiations

Building commissioning

Restore indoor air quality

Divert debris for recycling

Registration and certification fees

Property Insurance

Insuring your building Determine proper values reflecting current, actual replacement cost Building ordinance & law coverage Upgrades per new building codes Business interruption and extra expense Alternative power generating equipment “ Upgrade to green” endorsements

Determine proper values reflecting current, actual replacement cost

Building ordinance & law coverage

Upgrades per new building codes

Business interruption and extra expense

Alternative power generating equipment

“ Upgrade to green” endorsements

Green Upgrade Coverage Interior finish materials (wall & floor covering) with lower emissions, are sustainably produced, rapidly renewable, or include recycled content. Interior plumbing systems to increase water efficiency Lighting & HVAC systems to increase energy efficiency Additional coverage for: Vegetative roofs Alternative power generating equipment Alternative water systems Recycling expenses Reconstructed space flush out Certification, commissioning and professional expenses

Interior finish materials (wall & floor covering) with lower emissions, are sustainably produced, rapidly renewable, or include recycled content.

Interior plumbing systems to increase water efficiency

Lighting & HVAC systems to increase energy efficiency

Additional coverage for:

Vegetative roofs

Alternative power generating equipment

Alternative water systems

Recycling expenses

Reconstructed space flush out

Certification, commissioning and professional expenses

Surety Financial Stability, Experience Performance-based contracts Guarantees of energy efficiency and LEED Certification Notable legislation: Green Building Act of 2006 (Washington, DC) Arlington County Green Building Policy

Financial Stability, Experience

Performance-based contracts

Guarantees of energy efficiency and LEED Certification

Notable legislation:

Green Building Act of 2006 (Washington, DC)

Arlington County Green Building Policy

The Top 5 Legal Issues to Consider on Green Construction Projects Negotiate and draft contracts that reflect each stakeholders role in the process Utilize professionals that are familiar with sustainable design, green rating systems and the certification process Verify the availability and performance of materials, systems and products Review all federal, state and local legislation Identify new, non-traditional challenges for all stakeholders

Negotiate and draft contracts that reflect each stakeholders role in the process

Utilize professionals that are familiar with sustainable design, green rating systems and the certification process

Verify the availability and performance of materials, systems and products

Review all federal, state and local legislation

Identify new, non-traditional challenges for all stakeholders

There’s hope on the horizon… Some commercial lenders recognize the increased value of sustainable construction and have committed to giving preferential treatment for “green” buildings

People Prosperity Planet Consider the triple bottom line as your performance calculator

Sustainable Cleveland 2019 Building an economic engine to empower a green city on a blue lake Visit and join online at clevelandsummit.ning.com

Presented By: Mark E. Rabkin, Director of Advocacy US Green Building Council Northeast Ohio Chapter Working to help clients protect their short-term shareholder value and maximize their long term stakeholder value.