Insurers Still Unsure of Green Building Risks
One of my very first Green Building Law Update posts focused on the insurance and surety industries' concerns related to green building. Nearly two years later, some in the insurance industry are still expressing concerns regarding green building projects. A recent P&C National Underwriter article highlighted numerous insurance-related concerns related to green buildings:
- Vegetative roofing—using soil and plants to insulate a roof—minimizes the loss of heat in the winter and reduces cooling expenses in the summer. However, the additional weight of soil and vegetation creates structural integrity and collapse potential. Rainwater accumulation adds additional weight to the roofing structure.
- Rainwater runoff in green buildings is often collected in cisterns used for on-site cooling and gray-water systems (that is, waste water—including rainwater—often used for irrigation). But properly channeling the water collection from the roof to the holding tanks might provide challenges beyond traditional gutter systems.
- Alternative energy generation systems common in green real estate—such as solar panels, wind turbines and geo-thermal heating systems—need to be insured properly. Whether property insurance coverage is provided under a commercial property or a businessowner’s policy, specific covered property should include damage to these alternative energy systems.
I often hear from architects, engineers and contractors who want to know what the hold up is in green building insurance and surety instruments.
The holdup is that the insurance and surety industries do not understand the risks associated with this fairly new type of construction. Insurance business models dicatate that insurers do not lose more than is paid out. In order to create green building insurance, you have to understand how often green buildings fail and result in payouts.
Until more green building data becomes available, it will be difficult to create green building insurance and surety instruments.
Photo: urbangarden
Related Links:
Is the Grass Greener For Insurers on the Sustainable Side of the Fence (P&C National Underwriter)
Amen, Brother. As a former insurance industry professional, I am well aware of the industry's activity (or lack thereof) regarding addressing the unique risks of green building. As stated in your article, the insurance companies do not have enough background actuarial loss data to effectively price for the risks presented above. As such, many carriers are quick to add specific exclusions until such data becomes available.
In the meantime, there are no specific products addressing green building liability apart from professional liability (e&o) that many trade contractors are remiss to purchase and many developers are hesitant to require. Even so, most e&o contracts exclude guarantees and warranties, so requiring certain aspects in a green building contract become uninsurable.
Also, liability insurance is triggered by the carrier's definition of an occurrence. In most cases, in the absence of direct bodily injury or damage to property caused by an insured party's negligence, traditional liability insurance will fail to respond and will invoke the professional liability exclusion.
Surety is another major sticking point, as surety providers provide a financial guarantee that a party will perform the scope of work as defined in the contract. If the contract contains language that makes the surety uncomfortable, they will either reject or line-item specific clauses.
The lack of a risk transfer vehicle puts tremendous pressure on the contract binding the parties to a green building project. Open discussion and integrative design are good risk management tools to mitigate risk.
I'm not in the insurance business so can't speak directly to those issues, but I'll be picky and lawyerlike and observe that a green roof does not really function as insulation--as a dynamic system its R value is extremely variable, and its energy benefits are mostly a function of the system's moderating of heat flux. Green roofs are more commonly installed as stormwater management measures (or, to be cynical, to chase LEED points).
A properly designed, installed, and maintained green roof does not undermine structural integrity. The weight of the assembly's components, including growing medium and plants, and the water that will be retained, should be factored in to calculations of the dead and live loads of the roof. Designers/specifiers should pull samples of components such as growing medium and have the product's characteristics, including saturated weight, confirmed by a reputable lab.
As a "current" insurance broker we have been on a learning curve about this subject for a while. It seems that rooftop wind turbines are also being overlooked for some reason.
If you are a roofing contractor be mindful that this is not considered "usual" roofing work. It is best to declare to your insurer the extent of your work that will involve Green/vegetated, photovoltaic and wind turbines. Furthermore it will be important to declare contract structures you are entering into and expertise you are involving etc., with an aim towards demonstrating risk transfer wherever possible.
The risk should be borne by the party most qualified to assume it.
Any contractor considering "Green" roof work as in all categories above, should carefully consider this. No doubt its time has come but one must develop risk management around the significant opportunity it represents, to assure you walk away with profit, rather than ending up embroiled in a long and painful liability suit.
Good luck and if you need any help, you know where I am.