Pollution Legal Liability Insurance More Valuable as a Result of High Court Ruling

Insurance companies cannot recover environmental cleanup costs paid to their insured under the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, from another Potentially Responsible Party (unless their insured had first pursued a separate claim to recover the cleanup costs from that PRP). 

CERCLA was enacted in the wake of the discovery of toxic waste dumping such as Love Canal and Times Beach in the 1970s, The CERCLA process can be complex and toxic waste cleanup costs commonly run into the Millions of dollars, but the aim is the cleanup of toxic sites.

Insurance has become a mechanism for managing the risk of unanticipated costs incurred to clean up a property that an owner may have acquired not knowing it was contaminated or that may later become contaminated from migration of toxics onto the property. Among the most common of the insurance coverages is a pollution legal liability policy.

In this potentially far reaching case, the U.S. Supreme Court declined to review a decision of the Ninth Circuit Court of Appeals in Chubb Custom Insurance Company v. Space Systems/Loral, et al, leaving that decision in place.

Chubb had issued a pollution legal liability insurance policy to Taube-Koret Campus for Jewish Life covering, among other things, possible remediation costs related to certain pollution incidents on its property.

Pursuant to the policy, Chubb ultimately paid Taube-Koret $2.4 Million as reimbursement for Taube-Koret’s cleanup costs of contaminants that migrated onto its property. The gravamen of Chubb’s complaint was that Loral and others should be held jointly and severally liable for Taube-Koret’s costs because they released the toxic substances that migrated to Taube-Koret’s property from surrounding land that they owned and operated at various times.

The Ninth Circuit held that the insurance company lacked standing to bring suit under CERCLA § 107(a) because “it” did not incur any “costs of response” related to the cleanup of a polluted site, and because the common law principle of subrogation does not apply to § 107(a). The court held that the insurance company could not bring a subrogation claim under CERLCA § 112(c) because the company did not allege that the insured was a “claimant,” or that it had made a claim either to the Superfund or to a potentially liable party.

This is clearly among the most definitive CERCLA decisions in recent years. And the Supreme Court’s denial of certiorari review makes certain that the CERCLA statute allows recourse to recover money spent on environmental cleanups as expressly authorized by Congress when creating the law; and, having the result of making environmental insurance more valuable.   

Are You Sure Your Building is Certified?

If you ever question the value of green building certification, run a search for press releases touting LEED certification for new projects.  I see hundreds of these releases every week.  But if you are purchasing a LEED building or space, how can you ensure that it truly is LEED certified? 

Fidelity National Financial (FNF) created the LEED Project Certification Data Report (LEED Report)  to address this issue.  The LEED Report allows parties to "obtain data regarding a LEED project's certification status" for $1500 per project.  

In the image, you can see the categories covered by the LEED Report.  Of particular interest to me is the certification challenge status.  Could you imagine purchasing a property or space without knowledge that it was going through a LEED certification challenge?  The LEED Report presumably would prevent such a scenario.

I was also intrigued by the limited nature of the LEED Reports.  FNF makes it clear that the LEED Reports are not an insurance product: 

"The LEED Project Certification Data Report (Report) is not an insurance policy.  The purpose of the Report is to provide informational services, not to allocate risk. . . . [FNF] obtains data from the database used by the United States Green Building Council (USGBC) and Green Building Certification Institute (GBCI) and delivers the data to the Ordering Party for the benefit of the Principal.  [FNF] promises the Principal that the Report accurately reflects the information in the database.  If [FNF] provides information that does not accurately reflect what is in the database, [FNF] has limited liability and has no obligation to defend the Principal. . . . [FNF] has no other liability and under no circumstances, under any dispute, will [FNF's] liability to any Principal exceed $50,000."  

Fidelity National Financial is primarily known as a title insurance company.  Title insurance generally protects an owner from lawsuits arising from the ownership of a property.  But the LEED Reports are simply informational in nature -- they do not provide protection for an owner if problems arise out of a property's LEED certification.  

It seems there is an opportunity to create a LEED insurance product. 

What do you think? 

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:
 
 

Contractors Need Green Building Contracts Too

We previously reviewed a green building contract that can be used to manage the architect-owner relationship. But what about contractors?

As a member of the AGC ConsensusDOCS committee, I had the pleasure of collaborating on the ConsensusDOCS 310 Green Building Addendum, which was recently released:

On Nov. 10, ConsensusDOCS released the construction industry's first and only comprehensive standard contract document addressing the unique risks and responsibilities associated with building green projects -- the ConsensusDOCS 310 Green Building Addendum. The Addendum incorporates contractual best practices to identify the project participants' roles and responsibilities, as well as the implementation and coordination efforts critical to achieving a successful project using green building elements, particularly those seeking third-party green building rating certification. It was drafted to work well not only with the other ConsensusDOCS contract documents, but also with other form contracts.

If you have an opportunity to review or work with ConsensusDOCS 310, I would like to hear your thoughts. Based on conversations with owners, contractors and architects, there seems to be a real need for standardized green building contracts. Simple modifications to your existing contracts are not enough.

What other relationships exist on a green building project that require a contract?

Related Links:

ConsensusDOCS 310 Green Building Addendum (AGC)

What Does A Green Building Contract Look Like (GBLU)

Green Building Litigation All But Certain

The primary theme of Green Building Law Update is green building litigation will develop.  To date, one of the rare examples of green building litigation is Shaw Development v. Southern Builders, a case that involved a project's failure to achieve LEED certification in a timely matter.  Other examples of green building disputes are sparse.

But I am confident the litigation will develop.  A recent article, "'Green' projects create new exposures", suggests others agree:

“There is certainly going to be litigation coming out soon around (green buildings) and insurance companies are waiting to see” the loss results before developing coverage products, (David) Cohen, [senior product director for commercial insurance at Fireman's Fund Insurance Co. in Novato, Calif.], said.

Fireman's Fund Insurance Co. (FFIC) was the first company in the United States to offer green building commercial insurance in 2006.  The availability of this type of policy further suggests the inevitability of green building litigation.

What factors do you think will eventually result in more green building litigation?

Related Links: 

Shaw Development v. Southern Builders (GBLU)

"Green" Projects Create New Exposures (Business Insurance)

Have You Ever Wanted To See A Green Roof Fire?

In light of our discussions regarding green roof fires and insurance, I thought you might like to see an actual green roof fire: 
 
 
Are you convinced?  

Related Links: 

LiveRoof:  Green Roof Fire Test (YouTube)

Green Roof posts (GBLU)

A Green Building Holy Grail: LEED Certification Insurance

Over the past week, we have been discussing AIG's .  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? 

The Value of Greenwashing Insurance

When I read about the AIGRMGreen Reputation Coverage, which covers bad press for green building projects, I immediately thought of allegations of greenwashing. From wikipedia:

Greenwash (a portmanteau of green and whitewash) is a term used to describe the practice of companies disingenuously spinning their products and policies as environmentally friendly, such as by presenting cost cuts as reductions in use of resources. It is a deceptive use of green PR or green marketing.

One particular type of greenwashing involves projects seeking or building to LEED standards. A recent Grist article detailed one instance of alleged greenwashing through the use of LEED:

Take, for instance, the highly controversial parking garage plopped in the middle of Atlanta’s Piedmont Park. Conceived and championed by the Piedmont Park Conservancy and the Atlanta Botanical Garden as a way to raise funds and provide parking space for folks attending the park’s special events (like the upcoming “Green Concert” starring Sir Paul McCartney), this “built to LEED standards” structure has been largely derided by neighborhood groups, including Friends of Piedmont Park (FOPP), as being a decidedly improper use of park space.

“We’re upset about the conversion of more public green space to cement and concrete,” says Jack White, a FOPP board member.

Grist is a very popular environmental website. After this story ran, other websites then picked up the story, resulting in substantial negative publicity for this construction project.

Is this the type of scenario that would be covered by the AIGRM Reputation Coverage? If the Piedmont Park had this coverage, would the Grist article represent a reasonable claim under the policy? And again, how would you measure the associated damages?

What's A Green Building Reputation Worth?

How did we all miss this?  While AIG may have had its problems recently, it certainly has created an innovative green building insurance product

The company says the casualty coverage for property owners and managers of green buildings consists of two coverages, AIGRMGreen Reputation Coverage and AIGRMGreen Indoor Environment Coverage.

The reputation coverage provides up to $50,000 in coverage, per occurrence, when a green building experiences adverse publicity. It also provides funds to employ crisis management specialists to manage adverse publicity; guide and counsel key company personnel; and provide other services to assist in restoring a company’s reputation.

Did you know you can get insurance to cover you if your green building project goes awry?  Obviously, I would have to read the exclusions (I haven't), but theoretically I could envision that the AIGRMGreen Reputation Coverage would cover your project if it failed to achieve LEED certification. 

In order to offer particular coverage, an insurance company has to be able to measure the risks and potential damages.  How do you measure the damages from bad publicity resulting from a green building project?

Any AIG readers out there?  I would love to talk to you about this coverage! 

Photo:  happymichaelchung

LEED De-Certification Raises Insurance Concerns

[Today, I am bringing you a guest post from Mark Rabkin.  I have been on Mark for awhile to write a guest post.  He is doing a tremendous job looking at the insurance and surety concerns related to green building.  Back when I was looking at alternatives for the D.C. Green Building Act bond requirement, I leaned on Rabkin's knowledge of the surety industry.  You may recognize Rabkin's post, which highlights surtey and insurance implications from LEED de-certification, because it was originally a comment last Friday.  Check out other posts from Rabkin over at Konstructr.com.]

Ok, time for me to finally chime in, here. As you attorneys begin incorporating new contractual requirements of energy performance to address LEED 2009's Minimum Project Requirements, please make sure to keep in mind that reporting the usage of natural resources and the subsequent efficiencies create unique risks and liabilities that my (insurance) community has yet to address.

As I have mentioned on numerous occasions, surety providers of performance bonds are underwriters based on the assumption of no losses. Should a contract contain language guaranteeing energy or natural resource performance/efficiency, the surety will exclude that language from their performance bond. In the event that a building fails to perform to a specified level of resource efficiency, should the surety be required to compensate the owner to rebuild the structure? That is not what they are in business to do and will not bond contracts guaranteeing efficiency and performance specifications.

The next question is if there is a situation in which a building is de-certified for either failure to report usage data or lackluster performance (should the program requirements change), than is their a potential for liability by a third party to the operation and maintenance of the building and has the owner incurred a financial injury due to de-certification. The plaintiffs will most likely argue that in fact, the building has lost value, but commercial general liability may not deem this as an occurrence caused by the negligence of their insured. Many professional liability contracts contain exclusions pertaining to guarantees and warranties, so who will provide the defense, what are the damages and what will the plaintiffs argue as their incurred damages?

The point is that we need to be proactive as our contractors enter the realm of performance contracting and they need to be clear as to how their liability insurance will and WILL NOT respond. Guarantees of building energy performance are not new, but they are UN-insurable. If you as a contractor or architect make these claims, you will be ON YOUR OWN if the building fails to meet the owners expectations.

 

How I Learned to Stop Worrying and Love LEED De-Certification

Love might be too strong of a word but you get the point.  The idea of LEED de-certification has touched off a firestorm of comments, some in support and others in objection.  I think a follow up post is warranted. 

First, I want to clarify one important piece of information as I noticed some were heading down the wrong path.  The LEED 2009 Minimum Project Requirements (MPR) require, among other things, that projects report energy performance data.  If projects do not report energy data, then LEED certification may be revoked (i.e. de-certification).  The USGBC has not stated that LEED certification will be revoked for poor energy performance itself.  Go take a look at the USGBC's MPR webpage if you get a moment.

Furthermore, the USGBC's decision to require energy reporting and threaten LEED de-certification makes sense.  Why?

The number of people complaining about LEED certified projects that were not reporting energy performance reductions was growing everyday.  Ever heard of Henry Gifford?  He actually engaged in an open debate with the USGBC in March 2009 about the merits of LEED certification.  This was not good press.  This was  not a good development for the USGBC.  

In response, the USGBC took a dramatic step to fix the problem.  The USGBC has taken what I think is only the first step to ensure improved energy performance.  Additionally, the USGBC used the only "stick" (i.e. enforcement mechanism) it had available:  LEED de-certification. 

On Wednesday, there was a great piece in ENR regarding the LEED energy reporting and de-certification.  Both an American Institute of Architects representative and a Building Owners and Managers Association representative came out in favor of the reporting requirements.  Of course, there was some criticism in the ENR article regarding LEED de-certification: 

The “bottom line” is, these conditions “may end up doing more harm than good for the future vitality” of LEED, says attorney Edward B. Gentilcore, a partner of Duane Morris LLP, Pittsburgh. “This would be a significant loss in light of the accomplishments to date,” he adds.

Mr. Gentilcore is a fellow construction attorney.  Us attorneys are going to be worried about any new requirement that creates additional risk and liability.  That is why we are here.  We are here to worry about your risks and liability.

The moral of the story?  As LEED 2009 changes are implemented, your contracts need to change as well.  Let us do the worrying for you.

Photo:  JonBen

This Post is Really Important and Is Not for the Faint of Heart

Disclaimer:  If you are sensitive to or frightened by new risks and liabilities in the green building industry, please skip this post.

On Monday, I highlighted the USGBC's decision to create requirements to ensure a building's performance matches modeled energy savings.  I finished the post by asking, what happens to projects that do not comply? 

Okay, brace yourself

NOTE: CERTIFICATION MAY BE REVOKED FROM ANY LEED PROJECT UPON GAINING KNOWLEDGE OF NON-COMPLIANCE WITH ANY APPLICABLE MPR.  IF SUCH A CIRCUMSTANCE OCCURS, REGISTRATION AND/OR CERTIFICATION FEES WILL NOT BE REFUNDED. 

It is time to introduce a new word into your green building vocabulary:  de-certification. 

Everytime I start thinking about the implications from de-certification, my head starts spinning and I have to sit down. 

It just happened again. 

I have definitely not uncovered all of the potential issues, but here are three that immediately jump to mind:

1.  De-certification makes regulations tied to LEED certification very difficult to enforce.  What does a jurisdiction do if a project is de-certified?

2.  Insurers and sureties are going to be extremely concerned about coverage issues after design and construction work is complete.  Could an architect or contractor remain on the hook for potential de-certification long after a project has been completed? 

3.  For you owners out there, the commitment to provide energy data must carry forward if a building or space changes ownership or lessee.  How in the world do you write this into a contract? 

The room is starting to spin again.  Please elaborate on any additional risks and liabilities implicated by de-certification in the comments.

Photo:  Kevin (iapetus)

Update:  Also check out Stephen Del Percio's detailed analysis of the Minimum Project Requirements

"What is Green Building Law?"

I like categories.  I like to categorize ideas, issues and thoughts in order to develop my understanding.  The same is true for green building law; I like to think of this emerging practice in terms of categories.

The other day I was asked "what is green building law?" by an environmental attorney.  I had never really been asked that question before so I reverted to my categories.  This is what I told the environmental attorney, almost word for word:

Green building law has both front-end and back-end components.  At the front end, you have the contract.  Additionally, you have to deal with financing, land use and real estate legal issues.

At the back end, green building law deals with potential disputes.  These potential disputes fall into one of three categories:  

(1) Certification - Disputes arise from green building certification when a project fails to achieve certification.  Which party will be responsible for the failed certification?

(2) Regulations - Regulations refer to those green building regulations that require or incentivize green building development.  Failure to comply with these regulations can result in green building litigation.

(3) Green building strategies -  Specific components of a green building  that can result in litigation.  The example I give is a green roof that leaks.  Who will be responsible for the leaking green roof?

Do these categories properly define green building law?  What am I forgetting?  Most importantly, do you have a better understanding of what a green building attorney can do for your business?  

Green Building: Opportunity or a Legal Quagmire?

Sorry, I won't be answering this rhetorical question today.  Instead, a group of construction, design and surety legal experts will attempt to address this difficult question at an upcoming symposium: 

What:  Trends in Green Building Seminar

Who:  Tom Mawson - The USGBC and Trends in Green Building; Chris Cheatham - The Emergence of Green Building Litigation; Bryan Phillips - Green Construction: A Legal Perspective, Dan Knise - Designing Green - With Reward Comes Risk, Geoff Delisio - A Surety Perspective on Green Building

When: Tuesday, December 2, 2008  9:00 - 12:00 AM

Where:  4301 Wilson Boulevard, Arlington, VA 22203

You can also download a complete invitation here

I will be speaking about the emergence of green building litigation with a focus on the Shaw Development v. Southern Builders case.  Other speakers will address green building issues from a construction, design and surety perspective.  Seating is limited so please RSVP by November 21 to Nancy Shipley at nancy.shipley@rutherfoord.com

Let me know if you have any questions regarding the event.  If you are going to attend let me know (chris@greenbuildinglawupdate.com) -- I would love to meet some of my readers!  
 

Guarding Your Green Building Investment

While GBLU has written extensively about green building bonds, a reader recently pointed out that green building insurance should not be overlooked.  

When you talk about green building insurance programs, you have to start with Fireman's Fund.  Back in October 2006, Fireman’s Fund had the foresight to launch three products for commercial green buildings, just ahead of the green building curve.  Below is a summary of three of the insurance programs offered by Fireman’s Fund as part of its “Green-Gard” insurance suite.  

•    Green-Gard Certified – If you have a loss on your green-certified property, Fireman’s Fund will pay to rebuild and replace to recognized green specifications.  This includes coverage for vegetated roofs, alternative power systems and alternative water systems.  

•    Green-Gard Upgrade - This coverage is specifically designed for those who have not yet made green upgrades, or have not attained green certification from the U. S. Green Building Council (USGBC). If you have a total loss, Fireman’s Fund will pay to rebuild your structure, from top to bottom, as a green-certified building.

•    Green-Gard Commissioning - For any loss that exceeds $10,000, Fireman’s Fund will pay for a professional commissioning engineer to oversee your building’s repairs and inspect new or repaired systems.

One interesting component of the Green-Gard Certified program is that if green building certification requirements have changed since the owner built or upgraded, the additional cost of meeting the new specification is covered.  GBLU has often wondered what will happen when LEED v. 3 is released in 2009 and cities have regulations on the books requiring compliance with previous LEED rating systems.  Fireman’s Fund has already accounted for this development.  

So what other green building insurance programs are out there?