Green Ache(rs): Insuring Your Sustainable Construction Project Green Ache(rs): Insuring Your Sustainable Construction Project

Green Ache(rs): Insuring Your Sustainable Construction Project

“Green” construction means different things to different people, but it seems every owner, developer, property manager, elementary and higher education campus, employer and board room wants a “green” building. Contracts and insurance products need to be tailored to be certain your project’s goals are insurable.
 
The Place to Be
 
Green buildings attract tenants willing to pay premium rent, students willing to choose that school and alumni willing to support it, desirable employees willing to join that company and investors willing to invest in that company’s venture. Public support is so strong that industry form agreements, building codes and even code approval processes have changed to reinforce and further fuel demand for sustainable design and construction. Sustainable design is more than a trend or a change in vocabulary. It represents a literal change in the demands and expectations of design and construction.
 
Spreadin’ Out So Far and Wide
 
Nearly every element of construction is potentially implicated – windows and skylights, roof systems and “green roofs,” mechanical systems and plumbing fixtures. New products and applications leap to the market promising sustainability, cost recovery, conservation of resources, lower cholesterol and permanent relief from back pain, but the products have not reached any critical mass in market share or use. While the built environment still strives to keep water out and the inside comfortable, sealed buildings, complicated mechanical systems and innovative, untested applications make every project more complicated than the last one. Architects and engineers study the new products and take a leap of faith in specifying them. For these reasons, contracts, case law and insurance claim experience tend to follow years behind new designs and products. 
 
Drucker’s General Store
 
Unless modified by contract or conduct, design professionals are judged by a standard of reasonable, ordinary care, meaning that an architect or engineer needs to be as careful as the next a/e, but not perfect. Insurance covering an a/e’s professional liability therefore insures ordinary care, but not perfection. Warranties and guarantees of performance are not insurable – promising LEED Gold certification, for example. If your architect signs an agreement in which she warrants perfection, you’ll have a nice argument for the jury, but no insurance to back up any court victory. 
 
Contractors and suppliers of materials and systems for your project are judged by their written warranties and whether their performance was workmanlike or in conformity with the plans and specifications. Manufacturers can always claim poor installation. Installing contractors can always claim they merely followed the plans, specifications and installation instructions. Moreover, defective work may not be insured at all without some sudden or calamitous event or damage to property.
 
The Chores
 
Find the specialists. When contracting for the newest and greenest, seek counsel (lawyers and insurance professionals) with construction expertise. Your legal and insurance advisors may be the best in the world for your business, but may not be construction specialists. Find the specialists, seek their advice and match your contract’s expectations to the best the insurance market can offer. Who will have contractual responsibility for each element of LEED certification (no one controls all of them)? What if LEED certification falls short of the goal or adds a year to your schedule? Most important, if someone breaches, will your damages be covered by insurance? There is nothing more expensive or less productive than an uninsured construction law victory.
 
Test innovative applications. Insurance is good, but avoiding the problem is better. If you are trying something new, ask questions and find out as much as possible before bolting it to your building or burying it in your land. Green roofs reduce rain water run off and cool the city and your building, but where does the water go, how much does the dirt weigh and is it really a good idea to put your state of the art computer lab directly underneath it? Make sure someone is anticipating water infiltration and planning for its safe exit from the structure. Visit other projects where the product or system has been installed, visit the factory and have your advisors study the warranty. Is the company standing behind its claims? Are its headquarters and insurers in tangible places or are sales offices here, with “management” in islands or countries without extradition treaties?
 
Watch Reality Shows. Mock-ups are usually a good idea, but must themselves be designed to represent reality rather than ideal lab conditions. Whatever it is, freeze it, thaw it, blow on it, boil it or burn it, but make sure you do it often enough, long enough and under enough different scenarios that someone can bless the product’s claimed virtues. Make certain the mock ups presume some flaw in installation or performance. The green roof does fine, assuming perfect installation, but how will it do with a membrane perforation or following a 100-year storm?
 
Hire Mr. Haney. The contractor becomes quarterback during the construction phase, but don’t bench the design team or testing labs. Owners may be tempted to save some fees by skimping on the a/e’s construction administration services, but this is usually short sighted. An a/e’s fees are usually a very small percentage of the total construction cost, and an a/e’s absence during the construction phase can be very expensive. A good contractor can help a troubled design, and a good a/e can help a troubled contractor, but an absent a/e helps no one. 
 
This is especially true for so-called “value engineering” and product substitutions. Things generally cost less for a reason. Maybe there was a flawed design assumption, but only the design team can properly analyze what was specified versus what the contractor proposes to do differently. Cheaper mechanical systems are available, but may be less efficient or user-friendly. Some owners want mahogany finishes because you can see them, but HVAC is HVAC, right? Why not use a two-pipe system instead of a four-pipe system? Will there be an impact on efficiency, serviceability or the useful life of the system? Will it affect points toward LEED certification? Will you be the person receiving the screaming phone calls twice a year during the change from heating to cooling, and back again? 
 
You will need a “Mr. Haney” for your completed project too. Your existing building engineer may not have the experience or training to drive your new green building. Make certain you have the necessary operations manuals and training, and if you are hiring new staff, find people familiar with your system or systems like it. Consider retaining your a/e to prepare maintenance specifications or annual audits to make certain that system is operating as intended. There was an infamous Illinois courthouse closed for “sick building” symptoms shortly after construction. Years later, following millions of dollars of remedial design and construction work, the design team successfully defended the owner’s claims by demonstrating that the building’s engineers improperly operated and maintained the ventilation system. If only the County had hired Mr. Haney.

Eric L. Singer is a partner with Ice Miller LLP’s DuPage County, Illinois office. His practice concentrates in construction law and in the representation of design and construction professionals, owners and lenders in all aspects of design and construction agreements, counseling, claims and dispute resolution. Hansel Rhee is a partner with Ice Miller LLP’s Columbus, Ohio office. His practice concentrates on all aspects of construction law and general business litigation matters. Please reach out to Eric.Singer@icemiller.com or Hansel.Rhee@icemiller.com for further information.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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