A Green Building Holy Grail: LEED Certification Insurance
Over the past week, we have been discussing AIG's AIGRMGreen Reputation Coverage. I had speculated that this insurance might cover bad press resulting from allegations of greenwashing.
Turns out, AIG's insurance product covers more than just bad press.
Mark Rabkin, my green building insurance guru, located a copy (PDF) of the AIGRMGreen Reputation Coverage. From my reading of the policy, it would actually cover a green building project that failed to achieve LEED certification. Come along with me as we read an insurance policy. Don't worry, I have only picked out a couple of sections:
So what is considered an "adverse green claim"?
I have been clamoring for this type of insurance policy for awhile. I thought it would take much longer to create. This is an important first step to properly insuring owners, contractors and architects involved with projects seeking LEED certification.
We will definitely be discussing this policy in more detail. Take a look at the policy (PDF) if you get a moment. What do you think?
Let me know if you want me to locate someone within the company that can answer specific questions as to the interpretation of the language used in the contract (particularly the term "negative" pertaining to the publicity following a building's failure to achieve certification).
It doesn't appear that the policy will pay the costs associated with certifying a building that initially fails, rather it is set up to pay to hire a PR professional to help mitigate the public fallout.
Note that there is coverage for green legal expenses in the event of a subsequent lawsuit but these costs are capped and included within the per occcurence limit of $50,000. This coverage is reimbursed to the policy holder should the case be found for the defense.
Thank you for posting this new AIG CGL policy endorsement. It has some unique features but definitely does not offer coverage for failure of a building to achieve LEED certification.
The key term here is the definition of "green building" which is defined in a manner that requires the building to already be certified by an authority such as GBCI or Green Globes before it is scheduled for coverage under a particular schedule of "recognized" green buildings. If the building is not yet certified, it does not meet the definition of "green building" in the policy and will not qualify for inclusion in the referenced schedule of covered buildings.
One unusual feature is the "advancing" of defense costs with the proviso that the insured will pay the insurer back if it is not entitled to it "under the policy". Typically, payments from carriers do not come with such strings attached. Don't know how that will be enforced. If there is an adverse decision at trial for the insured, does it have to pay the green defense costs back? What happens in the far more common instance of the case settling between filing of claim and trial?
I have been a "reputation crisis consultant" for 19 years. Can I get on AIG's preferred provider list?
@Mark Rabkin - all excellent points that I need to bring out in another post. Or could I interest you in another guest post?
@Michael Gibbons - That is a great point! Although, I think there is a conflict in the contract language. I will elaborate in a later blog post. Nice catch. What does a "reputation crisis consultant" do? Can you elaborate?
Chris,
I'm a construction lawyer. The reference to "reputation crisis consultant" was made with tongue firmly planted in cheek (as was the request to be on AIG's list ; based on the AIG policy endorsement language, it will have a problem with my hourly rate).
How to read an insurance policy:
1. Read the insuring agreement - what they will pay for: We shall pay reasonable and necessary "reputation crisis consultant" expenses yada yada yada. It's linked up there, so go pull it up.
2. Read the exclusions - what it doesn't pay for. In this particular case, the general liability exclusions are not amended by this particular form.
3. Read the conditions - what you have to do in order for them to do what you think they will do.
4. Definitions - the most crucial part of the form. Any term in quotes is specifically defined to remove any doubt as to what is the intent of the actual policy. You really need to bounce back and forth between the insuring agreement and the definitions in order to get a good feel for how the policy should respond.
To reply to Michael's comments above, the policy is triggered by an "adverse green publicity event." This is defined as "negative media reporting" regarding a "green building" or a circumstance(s) that could reasonably be expected or is expected to result in "negative media reporting" as determined by "key company personnel." The second part of this definition is where the coverage would kick in for a building that is not yet certified.
Fun stuff, right? You attorneys write it, so you only have yourselves to blame if you don't understand it...
Mark,
The "negative media reporting" definition itself incorporates the "green building" requirment. The endorsement defines "negative media reporting" with the express proviso that "the insured location [i.e., certified green building on the schedule] is specifically named and the negative reporting is related to a "green building".
Each of the two triggers for coverage (i.e., "adverse green claim" and "adverse green publicity event") requires the presence of a listed and scheduled "green building". In turn, this means that there is no coverage for a building that is not yet certified.
@Michael Gibbons - You are all over interpreting this insurance! I am not certain I see the requirement for a project to be "certified" in order to be covered. But it is clear that this policy is somewhat confusing and can be interpreted numerous ways. Thanks for your input.
Chris,
The requirement of having a building already certified seems to be under the "Green building" definition that requires the building to comply with "green building standards by an industry recognized establishment or authority...", and that AIG has such compliance on record.
So if you have LEED certification, or whatever it may be, you are not covered unless AIG has this on-file and accepts it as a valid compliance tool.
I am not a lawyer, but this is what I read.
BTW, I really find your forum, among a couple others, fascinating reading on the topic of green building law.
Thanks for the interesting read and illuminating commentary. I have to agree with Michael's first point above, and hang my hat (or this policy) on the definition of "Green building." Construction lawyers and their clients are looking for insurance that would cover the cost of bringing a newly constructed building into LEED compliance in the event they are not certified ex post, or cover the impending litigation over this issue.
If the building must be certified green before coverage applies, then what exactly does this policy cover? A negative PR event stemming from disclosure that the building uses more energy than the owner or builder claims it does? What media outlet would report this information, the Earth Liberation Front blog?
I would hasten to guess that the opaqueness of the LEED certification itself is the main factor in the insurance industry delaying the marketing of this type of product. If the "Green bulding" standards were more reasily defined, they would also be more readily insured.