Filed Under:Agent Broker, Agency Management

Traditional E&O Risks Emerge From Sustainable Construction

So much is going on in the world of sustainable construction, green construction products, LEED (Leadership in Energy and Environmental Design) and other green initiatives--and all these activities appear to be moving fast.

Green-building codes have now been created for approximately 20 states. New "eco-friendly" products are being created on what seems to be a daily basis.

In addition, we recently saw the first class action lawsuit against the Green Building Council's LEED rating system, alleging fraudulent representation of the actual energy efficiencies and cost savings associated with LEED-certified buildings. (The lawsuit is described in an Oct. 22 article in GreenSource magazine, titled "USGBC, LEED Targeted by Class-Action Suit.")

We are also witnessing the changing climate of professional liability for architects, engineers and contractors.

Much is being written about the seemingly new "green" professional liability exposures for architects, engineers and contractors. In reality, however, these green risks are actually very similar to traditional construction or non-green construction exposures, with the exception of Building Information Modeling, or BIM, which we'll discuss later.

In fact, these risks are little more than traditional professional liability risks, which merely have been elevated by the innovative design, new or experimental products, and most importantly, much higher owner expectations for "living" buildings.

However, what is relatively new are the economic damages associated with traditional professional liability risk, such as the failure to realize the expected tax credits, "green" incentives offered through state programs, and other related damages associated with revenue that is lost when a building does not achieve a certain LEED or level of green.

As professional liability claims arise from sustainable design and construction, what we are seeing right now are traditional engineering risks with very little being "new." For example, a LEED-certified hospital was completed on time and on budget. After several weeks of occupancy, the administration reported warm and humid spots throughout the building. After several investigations it was determined that the heating, ventilation and air conditioning system was undersized and the ventilation system restricted flow to certain areas of the building--design and installation errors.

Are these "green" risks? Not really.

SO MUCH BEING PROMISED

Recently, a simple Google search of the words "green design or construction" yielded results that included statements such as "Green Design and Construction Will Save The World," "state of the art buildings that will make happier employees and that will produce better results," and "green design offers the potential to greatly improve the sustainability of new goods and services without sacrificing performance."

If this doesn't raise expectations, what will? However, in the grand scheme sustainable construction is a fine concept that does require more long-term data and research. The fact is history has shown that "good for us today" is not always the same as "good for us tomorrow."

The best and current example is Chinese drywall, which has made numerous headlines in Florida, Louisiana and Texas.

Due to its alleged high sulfur content, Chinese drywall has been known to create a low-grade sulfuric acid and impair the integrity of internal structures when exposed to moisture.

Whether or not the drywall will eventually be found to negatively impact indoor air quality or adversely impact human health, there is currently little doubt about the damage it can cause. Subsequently, it is an excellent example of an unforeseen risk--just like asbestos, which was considered a breakthrough fire retardant nearly 40 years ago, or lead-based paint that was used as a sealant.

As a result, owners must rely on qualified design professionals, contractors and product suppliers/manufacturers to provide the guidance and expertise necessary to deliver the expected outcomes.

The industry must also be wary of "green-washing," which is the process of overselling products, processes or design services that will never perform as advertised.

In another related example, the bamboo flooring of a "state-of-the-art" condominium project began to buckle near its completion. After an investigation, it was determined that the "environmentally friendly" flooring adhesive selected by the subcontractor was inadequate. Consequently, the bamboo flooring had to be totally replaced, which delayed the project by another 30 days and incurred additional expenses.

To further the thought, vegetative roofing systems, water walls, geothermal heating and cooling systems, and residential solar power systems are all innovative products that offer the potential for saving energy and costs. However, recent issues have surfaced in relation to the impact of weather on vegetative roofing systems.

In one recent incident, a commercial office building designed with a vegetative-type roofing system began to show structural problems after a particularly heavy rainstorm. The fact is that the system was not equipped to carry the weight of that much water.

BUILDING INFORMATION MODELING (BIM)

BIM is the use of electronic data to build a virtual model of a building or structure in three dimensions, also called digital or virtual design.

The implementation of BIM processes is not only gaining momentum in the areas of "green" and traditional construction, it is also providing a new level of professional liability to many contractors. This is because it pulls the contractor closer to the design process by requiring them to directly advise and consult on a variety of construction-related processes, such as constructability, means and methods, site preparation, and many times scheduling and the sequencing of work.

While contractors may have provided these efforts in the past, they were usually performed for internal use. Today, the risks are heightened since many other firms are now relying on the expertise provided by the contractor via the BIM process.

CAREFUL WHAT WE WISH FOR

As anyone in the risk management world can confirm, the biggest risks are usually the ones that remain unidentified until problems occur. No one can deny that building "green" is a developing and evolving area within the construction industry and can have a tremendous and positive impact on society. So as long as it produces the expected results, it will continue to gain momentum.

It also comes with risk, however. Much of that risk is identifiable and manageable based on past experiences.

Contractors who understand and manage these risks will undoubtedly be the true experts in this growing field of construction.

Jeff Slivka is executive vice president of New Day Underwriting Managers in Bordentown, NJ. New Day is a specialty intermediary for insurance agents and brokers with expertise in environmental insurance, environmental risk management and construction related professional liability. Mr. Slivka may be reached at jeff.slivka@newdayunderwriting.com.

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Green Terminology

What It Means To Be Green

The world of sustainable construction has created a new terminology that is increasingly familiar to architects, engineers and contractors, and insurers who cover their "green" exposures:

Green building generally refers to the practice of increasing the efficiency with which buildings and their sites use energy, water and materials and reduce impacts on human health and the environment.

The U.S. Green Building Council, a nonprofit agency composed of leaders from each sector of the building industry, is among the groups that have set green-building benchmarks that measure performance in several key areas of human and environmental health.

LEED certification levels under the USGBC's Leadership in Energy and Environmental Design guidelines are based on point values assigned in these areas:

  • Sustainable site development
  • Water savings
  • Energy efficiency
  • Material selection
  • Indoor environmental quality

Building Information Modeling is the use of electronic data to build a virtual model of a building or structure in 3D, also called digital or virtual design.

Water Walls are indoor/outdoor water features like waterfalls or fountains. They are used for aesthetics and their "soothing" sounds.

Geothermal heating and cooling systems use of the earth's natural power (internal cooling/heating) by extracting air from wells drilled into the earth's crust. Wells can range anywhere between 300 to 3,000 feet deep.

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