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December 5, 2008

Changes Coming to Green Building Insurance

As recently as this summer, P&C insurance companies were leery about green building. Casualty companies were worried – to give just one example -- about contractors inexperienced with green technology, such as the highly efficient HVAC systems that are being used in these buildings. Would faulty workmanship result in construction defect claims? To give another example, in the builder’s risk line, underwriters stressed over project delays because of the extra time necessary to procure special equipment as well as the time and the cost associated with flushing out a reconstructed space with fresh air.

The result was – until just recently -- a ‘see no evil, hear no evil’ approach to green building, Catha Pavloff, the Washington DC-based senior vice president in Marsh’s Construction Practice and leader of the firm’s Green Building Risk Management initiative, tells Bisnow.

There is definitely a thaw underway among insurers and their approach to green building. More insurers are introducing or getting set to introduce new policies specifically aimed at green building. Others are revamping existing standard policies to incorporate risks and requirements associated with green. Some are being proactive and developing training programs for contractors on LEED and other green certification standards.

For example, insurance companies for design firms are teaching their clients about proper contract risk management,” Pavloff says. “About two-thirds of current LEED credits are based on work done by design firms such as architects and engineers. They take on a lot of risk and if they don't have the proper insurance to back that risk their clients could end up being damaged financially.”

Most telling is that the insurance companies are showing a greater willingness to listen and learn. This January several of the major underwriters will be meeting informally with USGBC to gain a better understanding of the risks and benefits – to both them and their policyholders – of LEED certification.

This change is also being reflected in Marsh’s own analysis of the industry. It released a report in July, “The Green Built Environment in the United States: The State of the Insurance Marketplace,” outlining the cautious approach insurance companies were taking to green development. The environment has changed enough that, Pavloff says, Marsh is in the process of revising it. The new version will be released within the month.

These changes are happening gradually though; builders must still navigate tricky waters when negotiating policies with their insurance companies, Pavloff says. “For policy holders the message I would like to deliver is to take a close look at the scope of the coverage. All of the underwriter are addressing this is different ways, still. Some are very explicit about the risks they will cover; some are generic with a lot of wiggle room for both policy holder and insurance company.” It is important to compare and contrast the policy language, she points out. “There haven’t been enough claims to see how these policies respond in the real world.”

“No question insurance companies are thinking about this more and more,” Sean Dwyer, a partner with the New York City law firm of Havkins, Rosenfeld, Ritzert & Varriale, tells Bisnow. From his perspective, the change in thinking is not yet solidified around one particular school of thought. “There seems to be a split in the insurance industry.  “One segment of industry is saying this is the same type of loss that normally occurs but has a green bow. Other risk management professionals see potential areas where insurance companies could be on the hook for more losses than they expected. I have been approached by a number of different insurance companies with questions about pollution or contractor liability, for instance. Some think they should include additional coverage for those risks. Others want specific exclusion clauses.”

Dwyer, who has seen his fair share of policy language, advises companies to make sure policy will cover the specialized materials and services and soft costs associated with a green building loss. “For instance, look for coverage that provides trained experts for the HVAC system installed. “If there is a covered loss to the system it will require someone trained on it to replace it or recalibrate it. Also make sure that policy provisions will specifically replace green materials.”

FBI Goes Green in Prince William County

Peterson Companies has delivered a 200,000 SF LEED Gold build-to-suit office for 300 FBI employees at Innovation@Prince William Technology Park -- the first major federal facility in Prince William County, and, by extension, the first to achieve a Gold rating. Peterson Companies received the necessary points by recycling construction waste, using low emitting adhesives and sealants, certified wood and regional materials and achieving a 40% reduction in projected water use, among other strategies. Wisnewski Blair & Assoc. is the architect. Hitt Contracting is the general contractor.


The national rating system for the LEED-ND is open for public comment through January 5, 2009. The new standards, along with online public comment instructions, may be accessed USGBC’s Web site.


The International Sanitary Supply Association has joined USGBC. One of its objectives as a member is to see that green cleaning “maintains a significant presence” in the Energy and Environmental Design for Existing Building, or LEED-EB.
ISSA recently submitted comments to the USGBC protesting the proposed decrease in the number of points green cleaning activities presently contribute to LEED-EB certification.

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