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Companies and organizations that want their buildings to be “green” face a challenging set of exposures.
The intertwining risks can affect a company's financial, regulatory and legal well-being.
Risk managers also face exposures from a building's performance during and after construction as well from the consultants and advisers involved in bringing these often complex projects to fruition.
Insurers to a large degree offer coverage in this area—typically in the form of added endorsements, rather than through a separate “green” policy. However, some gaps in coverage may remain, which means risk managers and those overseeing such projects must proceed with caution.
Financial risks include additional costs associated with building green and possible repercussions if the structure promises that it will meet any requirements of the Washington-based U.S. Green Building Council's Leadership in Energy and Environmental Design certification standards for environmental performance.
On the regulatory side, the growing number of federal, state and local rules for buildings to meet green standards add to the potential risks.
Legal or standard-of-care issues include architects and engineers who participate in the project and make certain guarantees, which would not be covered under their professional liability policies. This leaves the building owner with little or no recourse for any unmet promises.
Companies also need to make certain that the consultants and advisers they select are well-qualified.
In addition, risk managers have to be concerned about whether the building continues to perform up to promised expectations long after the work has been completed.
Part of the problem lies in the relative newness of green construction. Being green means using new, relatively untried materials and procedures, observers say.
“If you're building a green structure with a vegetative roof, there's a lot of concern around the possibility that you'll end up with water intrusion and maintenance issues,” said Bruce Bitler, Dallas-based assistant vp, engineering line product underwriting for Zurich North America.
“Did the roof manufacture manufacturer have special installation instructions requiring special training or operating procedures to seal the roof properly?” Other issues include whether water barriers were placed properly and is the structure able to withstand the additional weight during abnormally heavy rain, snow or ice events.
Issues also may arise with wind turbines, which are used as a renewable energy source, said David Cohen, Novato, Calif.-based senior product director for commercial insurance at Fireman's Fund Insurance Co. Putting solar panels atop a roof or in a parking area is “pretty well-established,” but several builders are starting to put wind turbines on buildings, Mr. Cohen said.
“Then, you really need to be concerned about weight and the fact that these turbines rotate. What does that do from an engineering standpoint? That's something you really need to look at pretty closely that's not as established and as proven as solar,” Mr. Cohen said.
The use of bamboo, often in flooring, also can be problematic, said Rod Taylor, Windermere, Fla.-based managing director of Aon Corp.'s environmental services group. The requirement for green certification is that the bamboo derives from a renewable source, but much of the imported bamboo from foreign resources is a natural resource that is not renewable.
Contractual risk is another consideration, said Mr. Cohen.
“What are you trying to go after? What level of certification, for example? What level of energy or water performance of your building” is the goal “and if you don't achieve a certain level of certification, or don't achieve the energy performance you're expecting, what are the consequences of that? Perhaps you might not receive all the tax credits or financial incentives you were expecting,” he said.
Reputational damage from “greenwashing,” where promised green improvements do not materialize, is another risk, said Mr. Cohen.
On top of everything else, even the American institute of Architects acknowledges that the standard of care regarding green buildings is evolving, said Edward B. Gentilcore, a shareholder and director with law firm Sherrard, German & Kelly P.C. in Pittsburgh who asked, “How would you adequately deal with that, when it's an evolving issue?”
Jeffrey M. Slivka, chief operating officer at Bordentown, N.J.-based New Day Underwriting Managers L.L.C., said he believes there is some ambiguity as to what constitutes a green claim.
For example, if a hospital with LEED silver certification finds its ventilation system is not heating or cooling properly and was incorrectly designed, some might call that a green claim. “But that's not a green claim. That's a traditional mechanical engineering error,” he said.
Meanwhile, coverage generally is provided through policy endorsements rather than separate coverage, say observers.
Some insurers have their green features built into the actual policy, “but it really doesn't achieve anything different than just adding the endorsement,” said Dan Knise, president and CEO of Ames & Gough. “Those endorsements meet the needs of 98% of the clients out there.”