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While endorsements generally do a good job of covering green construction risks, gaps remain in what is covered by insurance in part because of the relative newness of the field, observers say.
Architects and engineers professional liability policies do not provide coverage should they make guarantees or warranties they do not fulfill l, and there is some question about contractors coverage as well, these observers say.
“There are always gaps” when it comes to green construction projects, said Jay M. Sheehan, senior vp at New York-based Preferred Concepts L.L.C., a program administrator and specialty insurance broker.
All insurers “have different polices that are worded differently. The intent behind the coverage is construed differently” and there are questions that are difficult to answer, Mr. Sheehan said. “You need to have a broker who understands how to negotiate the insurance contract to provide the broadest coverage possible.”
One potential issue is unmet commitments.
“Contractors and professionals in the construction industry who are participating in the green construction process and making representations about the product, the buildings, the services, say that they comply with certain standards and will create a building that ultimately will provide the green benefits,” said Linda D. Kornfeld, a partner with Jenner & Block L.L.P. in Los Angeles. However, “we've already seen that some of those representations haven't led to reality.”
“Even if you had it in your contract with the architect” that there is a guarantee of a particular certification by the Washington-based U.S. Green Building Council's Leadership in Energy and Environmental Design program, “the architect's professional liability policy may not cover that because their policy excludes guarantees or warranties,” said David Cohen, Novato, Calif.-based senior product director for commercial insurance at Fireman's Fund Insurance Co.
“There may be a few policies out there” that provide this coverage, “but I don't think it's widespread through the marketplace to cover that type of guarantee or warranty,” Mr. Cohen said.
There may be a way out of such a dilemma for building owners. If an architect were to represent that his services comply “with whatever green requirements may be relevant and, in fact, the building doesn't live up to the standards because of design issues,” Ms. Kornfeld said she would argue it is an errors and omissions issue, “which is exactly what a professional liability policy should cover.”
Claims of failing “to provide professional service because of an error or omission in the service provided…that's a covered event,” she said.
Edward B. Gentilcore, a partner at law firm Sherrard, German & Kelly P.C. in Pittsburgh, said he does not believe contractors' performance is covered in current professional liability policies.
“I think you have to look at essentially a more comprehensive contractual remedy, along with incorporating a performance bond, that would provide at least a surety assurance that the contractor's performance is going to be adequate, satisfactory and in accordance with the contract requirements,” Mr. Gentilcore said.
“In my experience, I do not see insurance providing security to the owner in terms of the actual objective of the project—from the construction side, from the design side,” he said.
“It's arguable (that errors and omissions) coverage would be answerable to the project defects or design defects that impact the projects or impair the projects, but I do not see from the construction standpoint that the typical, average insurance product out there really addresses the owners' construction concerns,” Mr. Gentilcore said.
While professional liability insurance never covers fraud, “short of that, there's always room to negotiate,” Mr. Sheehan said. He suggests that building owners develop a plan to ensure that exposures specific to the project are covered “and have the underwriter make a very educated and informed decisions as to how they're going to cover it.”
Mr. Sheehan recommends that building owners use just one broker to establish all coverage rather than “piecemealing it with different agencies and different brokers, because you want consistency.