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Making sure the result lives up to the advance billing

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Does an environmentally friendly building live up to its advance billing?

That's a longer-term exposure that risk managers and others overseeing green construction face in weighing a structure's actual performance, tapping several measures to make their conclusions.

Issues of concern include just how energy efficient heating, air conditioning and ventilation systems are, as well as the extent to which products incorporated into green buildings live up to their energy-saving promises.

Once energy-saving systems in a building are installed, you can't “just walk away,” said David Cohen, Novato, Calif.-based senior product director for commercial property insurance at Fireman's Fund Insurance Co. Such systems need to be tuned up on a regular basis, he said.

Rod Taylor, Windermere, Fla.-based managing director of Aon Corp.'s environmental services group, said green performance standards generally include factors such as energy and water usage, waster generation and recycling.

“Those are the things you typically promise,” which are a financial risk for the building owner. However, “You can get more exotic performance requirements, particularly if you have some sort of more advanced heating system,” such as a geothermal system or solar panels, Mr. Taylor said.

When it comes to green construction, “you're expecting energy efficiency gains and water usage efficiency gains,” said Dan Knise, president and CEO of Ames & Gough, a McLean, Va.-based insurance broker and risk management consulting firm. The U.S. Green Building Council, which established the Leadership in Energy and Environmental Design program, is putting more emphasis on tracking efficiency gains in buildings with a silver, gold or platinum certification.

This clearly creates the potential for litigation, Mr. Knise said. While there has not been a lot of litigation on this issue to date, “down the road, we're pretty convinced there will be litigation.” because some supposedly green buildings are not living up to their promised energy efficiency.

Edward B. Gentilcore, a shareholder and director with law firm Sherrard, German & Kelly P.C. in Pittsburgh, said.

“To the extent there are these emerging or innovative technologies” regarding heating, air conditioning and ventilating systems or heat recovery or heat pump units, “if those systems do not ultimately perform,” and operate more efficiently than the average systems, “then it's going to come down to an issue about whether or not that's from the design of the units,” their construction “or the actual units themselves.”

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Keith Jurss, Chicago-based senior vp of professional liability for the national construction practice of Willis North America Inc., said collecting damages from those involved in choosing or installing a lighting or HVAC system that does not meet efficiency expectations may be difficult.

“Unless the manufacturers of those products are giving you some kind of warranty or guaranty, it's a little bit of a challenge. I don't think the contractors and consultants are going to be able to do that and have it insured,” Mr. Jurss said.

Risks associated with various new products that are incorporated into the green building process are “huge,” said Jeffrey M. Slivka, chief operating officer at Bordentown, N.J.-based New Day Underwriting Managers L.L.C.

“A lot of them may not be proven. A lot of them may be used incorrectly” because people “are not familiar with how to use them and they may not work,” he said.

Some manufacturers, though, may be able to insure some of this risk, Mr. Jurss said.

“Sometimes, for specific products, it's easier for them to get insurance that might back their deal,” Mr. Jurss said. “I think you've got to look to the manufacturer of the products, contractors and consultants to make sure you understand what's guaranteed and what's not.”