Building design professionals, contractors and others involved in green construction projects who adopt the mantra “beware of guarantees” are more likely to avoid errors and omissions claims.

As green building projects increase nationwide, experts say avoiding guarantees that promise certain energy savings, tax credits, certifications or other benefits that could fail to materialize will go a long way toward reducing the risk of claims.

Potential E&O claims could arise from a variety of directions. The use of improper materials or even those purchased from the wrong place can affect Leadership in Energy and Environmental Design certifications and result in a project's value being less than intended, while sloppy construction can generate a host of problems affecting LEED certification by the U.S. Green Building Council, sources say.

In addition, a green building project can lose its LEED certification, another potential source of E&O claims.

Claims already filed against design firms and contractors range from allegations of loss of tax breaks to the death of children who contracted a fatal illness from stagnant water (see box, page 14).

The biggest difference in sustainable projects and traditional construction is that there is “some level of functionality,” such as energy savings, that is intended in a sustainable project, said Garrett Koehn, San Francisco-based president of Crump Northwest, a unit of Crump Insurance Services Inc. “That's where you can run into some problems.”

For example, if intended savings from a project using solar energy don't materialize, claims could ensue, he said.

“We've seen contracts requiring guarantees,” and they can lead to problems, said Karen Erger, vp-director of practice risk management at Lockton Cos. L.L.C. in Kansas City, Mo.

Kevin Collins, senior vp at Victor O. Schinnerer & Co. Inc. in Chevy Chase, Md., agreed that guarantees are risky because LEED certification depends on a review by a third party. The Green Building Council has the final say on how projects are certified, which is out of the control of the design professional and contractor.

If a lower certification than promised is awarded and a building owner claims losses—such as rental income based on a higher certification—an E&O claim is likely, Mr. Collins said.

In some cases, however, policyholders will find themselves left bare against E&O allegations related to guarantees, experts said.

Architects and engineers, for example, will find that their professional liability insurance “expressly excludes coverage for warranties and guarantees,” Ms. Erger said.

Such risks require a vigilant eye on contract wording and careful communications among all parties in a green project, experts said.

“If you don't cull through and mitigate the exposure through contract-friendly language, you are putting yourself in the crosshairs,” said Joe Gallagher, risk manager at St. Louis-based construction company Alberici Corp.

Among the first steps risk managers should take in identifying the risk of a loss from a green design or construction error is to make sure qualified people are working on the project.

“Evaluate a firm's capabilities in this area,” Mr. Collins said. Building codes have begun to address green issues, and some are emphasizing that professionals working on sustainable projects should have certain qualifications and certifications, he said.

“Document expectations so that everyone is clear,” Ms. Erger said. “There has been a huge influx of information on the benefits of sustainable design that has inflated expectations,” she said.

Risk managers also need to be aware of other snares that could lead to claims, experts say.

Thomas Taylor, president of Vertegy, an Alberici unit that provides consulting services for sustainable projects, said the LEED rating system awards certification credits for design and construction that might not be obvious to everyone involved in a project.

The rating system awards credits for using recycled materials and regional materials in construction, Mr. Taylor said. “If those materials are not put into the design and the contractor is following the plan but doesn't achieve the credit, who's in error there?”

E&O insurers, meanwhile, should be aware of a whistle-blower provision in the LEED certification standards, Mr. Taylor said.

If someone with knowledge of a project reveals that LEED certification was based on the approval of requirements that actually were not met, the certification can be rescinded, he said.

“I can almost guarantee you that if an owner loses certification” under such a scenario, “someone is going to want to get compensated for that,” Mr. Taylor said.

Other emerging E&O claim triggers arise from an international green building code being developed by the International Code Council, Schinnerer's Mr. Collins said.

The ICC, based in Washington, is devising its 2012 International Green Construction Code and plans to publish it in March.

“Under this code, the bar could be raised as to what minimum standards should be” for green projects, Mr. Collins said. “That's one real big issue.”

Many green products and systems have little usage history. If they fail to live up to expectation, sources say E&O claims could result (see related story).

As for insuring the E&O exposure in green projects, some sources said innovative coverage is slow to arrive and insurers appear to be waiting on claims history and the outcome of litigation before offering comprehensive coverage.

“There's nothing terribly creative out there,” said Brian Casey, senior vp and head of insurance and risk management for Bovis Lend Lease Holdings Inc. in New York.

Crump's Mr. Koehn said coverage needs to be written with some “finesse” for E&O exposures on green projects, and coverage for traditional risks will come up short if used to insure a sustainable project.

“If you take an off-the-shelf E&O policy, there's a good chance that there will be gaps,” Mr. Koehn said.

“Markets on the E&O side are a little behind,” Alberici's Mr. Gallagher said. While they have tried to “get their arms around these sustainable insurance issues,” insurers' efforts have not led to much in the way of professional liability products that specifically address the green E&O exposure, he said.

Much of the coverage available for E&O exposures on green projects is through E&O policy amendments, sources said.

Insurers appear to be waiting for E&O claims to go to litigation so they can base policy language on the exposure that is revealed through lawsuits, Mr. Gallagher said.

Mr. Taylor agreed, but noted that in “looking from the other side of it, without precedent and no court settlements, how can they price the increased risk of E&O if that risk is not defined? How do they go to market or justify holding reserves?”