Green Building Movement Raises Some Construction Defect, Claims Concern | Insurance Journal

Link: Green Building Movement Raises Some Construction Defect, Claims Concern | Insurance Journal

    New insurance products <a href="http://www.insurancejournal.com/news/national/2010/03/30/108563.htm" target="_blank">to protect innovative green construction products</a> such as wind turbines, fuel cells and vegetative roofs are on the rise. But even those closest to the situation admit to being a bit, well, green, about the risks behind some of these environmentally-friendly and energy-efficient products and about some of the promises green builders are making.

The newer and more sophisticated the green building designs and products, the greater the uncertainty about the risks.

“While green buildings have many positive benefits, there is also strong evidence surfacing to suggest a direct correlation between new products and innovative design with building failures,” says Paul Roecker, an attorney with Orlando, Fla.-based Roetzel & Andress, who focuses his practice on environmental litigation.

“From a risk perspective obviously there are a lot of products coming to market very quickly that advertise themselves as green. Many of them have not been ‘tried and true’ tested,” he said. “They are new so in their applications of their efficacy ? their potential to actually create a risk is really unknown.”

Construction Defect Problems

David Cohen, senior director of real estate for Commercial Insurance at Fireman’s Fund Insurance Co., sees construction defect issues as one area of concern with green construction.

“What everyone always historically or traditional associates with construction risk is construction defects. Down the road, will there be any construction defect?” Cohen asked.

“I think it really depends on exactly what you’re doing in terms of your building,” Cohen said. “If you’re building to the more basic level of LEED certification, for example, LEED certified or Silver level, you’re probably not doing anything exotic in terms of the building’s system or technology.” In such cases, Cohen believes the building would pose no more risk for construction defect than a traditional building.

However, as builders move up the chain for LEED certification to Gold or Platinum levels, more sophisticated and unproven technologies come into play. “Certainly any time you have new technology you’ve got that unknown potential risk or construction defect risk,” Cohen said.

While some alternative energy technologies, such as photovoltaic panels or solar panels, have become more commonplace today, Cohen says other new technologies such as wind turbines or fuel cells are less known ? and so are their risks.

“Now people are starting to move beyond the solar engine, installing wind turbines either on the side of their building, on the roof to their building, in plazas, and that can create some potential risk,” Cohen said.

For example, Cohen said if a commercial builder installs a mini-wind turbine on the roof of a building, underwriters would question whether the roof was engineered not just for the weight of the turbine, but also for the additional force added as the turbine spins. Even if the turbine is installed on the side of a building, similar issues might arise.

Cohen referenced Adobe System’s triple LEED Platinum corporate headquarters in San Jose, Calif., as a commercial building leader in the green market. In January 2010, Adobe installed 20 Windspire wind turbines on the building’s 6th floor patio, which doubles as the rooftop garden above a parking garage. The Windspires will generate renewable energy through the wind tunnel that exists between Adobe’s three towers. The Windspires stand 30-feet tall and operate on a vertical axis, which differs from traditional propeller-style wind turbines. The Windspires will put off enough energy to power 10 average size homes per year, Adobe says.

Cohen says Adobe Systems has always been one of the leaders in commercial green building standards and always pushes the envelope in green technologies. “They were one of the first buildings that I’ve seen to put that number of turbines in a plaza area,” Cohen added. “It will be interesting to see how that plays out.”

Another newer alternative energy that Cohen is keeping his eye on is the use of fuel cell technology, which generates electricity through an electrochemical cell that converts a source fuel into an electrical current and water. Cohen says fuel cells typically are installed right outside the building and create high temperatures as they produce energy. “It will be interesting to see if there are any increased claims” from fuel cell usage, he said.

A Few Concerns Already

Wind and fuel cell energy in green buildings is still in its infancy stage and risk exposure is a bit of an unknown, Cohen says. While he hasn’t seen claims or losses resulting from their use, he says it’s something that the insurance industry will keep an eye on.

Rod Taylor, managing director of Aon’s Environmental Group, said for the most part, the materials used in green buildings aren’t that different from materials used in regular buildings but a few problems are already cropping up with green technologies.

One increasingly common green building element that creates concern from a risk management standpoint is vegetative roofing, according to Taylor. “We’ve already had claims resulting from leaks from vegetative roofs,” he said. The claims involved a commercial property with a vegetative roof. The building was under construction when something happened to cause a leak in the vegetative roof. “It caused a tremendous amount of damage inside the building,” Taylor said. “That kind of technology causes concern because it really hasn’t had a lot of history.”

Bruce Bitler, assistant vice president of Property for Zurich Commercial also has concerns over vegetative roofs. “My concern might be with regard to vegetative roofs which have a potential for water damage claims,” Bitler said. Claims could range from vegetative roof membranes being pierced to having the drainage systems clogged inadvertently, he said. “We haven’t seen any claims but that’s one of the concerns I’m watching out for.”

Taylor also said that certain green certified construction materials that are said to be recyclable or made from recycled materials are raising concerns as well. “I’ve seen a number of claims, and there are now, I think, some certification standards for some of the bamboo surfaces that are being used,” Taylor added. “There are a lot of claims about where those materials come from, and now some claims over materials, which apparently were fraudulently represented.”

Performance Promises

Environmental liability attorney Roecker says there are some not-so-obvious risks when it comes to green building to consider as well, including the failure of new products or the green building to meet promoted performance levels.

Attorney Roecker says if an architect designs a green building or the general contractor that builds it promises it will meet a certain standard, either a certain LEED certification level or will meet a certain energy reduction level, there could be liability if the building or product doesn’t deliver on that promise.

Guaranteeing or promising a certain level of performance can be a potential exposure, as well as guaranteeing or promising a certain level of certification, says Fireman’s Fund’s Cohen. “If you’re an architect, engineer, or contractor, and you’re guaranteeing to your client that the building will be Gold certified by the U.S. Green Building Council, you’re opening up a pretty big can of worms,” he said.

One example, involves a case in 2007, Shaw Development LLC vs. Southern Builders in the Circuit Court of Somerset County, Maryland arising from the project’s failure to achieve LEED Silver certification. The building owners did not receive certain tax credits because the building did not meet criteria for the LEED certification level. While the case never proceeded to trial, further green building litigation is expected.

Cohen advises the design and build community to pay special attention to their contracts when it comes to such promises. “I think it’s really important that they don’t guarantee or warranty a specific level of certification or a specific performance of the building,” said.

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