The Unique Risks of Green Building

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

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

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)

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

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

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.

WHO IS BUILDING GREEN ?

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

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 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

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

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”

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

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

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”

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

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

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

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

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

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

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

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

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.

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The Unique Risks of Green Building

by Mark Rabkin on Oct 13, 2009

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The Unique Risks of Green Building — Presentation Transcript