An exclusion for claims arising from representations andwarranties–which is contained in most professional liabilityinsurance policies–could present real problems for architectsinvolved in green-building design, warned one insurance brokeragethat has taken steps to close that exposure gap.

Indeed, removing the exclusion is one key function of anendorsement crafted last year by Argo Insurance Brokers in PleasantHill, Calif., to customize professional liability or errors andomissions policies for architects, engineers, consultants anddesign professionals who work on green buildings.

“Although we'd never advise our clients to make any promises, attimes design professionals might make assertions that they'retrying to achieve certain levels of certification,” noted NateBrzovich, commercial insurance specialist at Argo.

He was referring to LEED gold, platinum or silver certificationsassigned based on the Leadership in Energy and Environmental Designbenchmarks set by the U.S. Green Building Council (www.usgbc.org).

In many situations, a design professional doesn't even have tomake an explicit assertion or warranty to incur an exposure,according to Linda Giffin, senior vice president at Argo. (Editor'sNote: Argo Insurance Brokers is not affiliated with ArgoInternational Group Holdings, a holding company with insuranceunderwriting operating subsidiaries in the United States, Bermudaand London.)

“The problem is that the owner comes in and he's decided that hewants to build to a certain level, whether it be silver, gold orplatinum. The architect is now tasked with designing that buildingto reach that level,” she explained.

“There may not be an explicit representation, but there's animplied representation,” she added.

“It's an understanding,” Mr. Brzovich said. “And in theoff-event that they're not able to proceed to that point, therecould be an issue between the design professional and constructionindividuals involved, as well as the actual owner of the project,”he said.

Since green building is a relatively new trend in theconstruction world, there isn't much experience to point to thetypes of lawsuits that will arise and how insurance policies willrespond, noted Mr. Brzovich.

One Maryland Circuit Court case–Shaw v. SouthernBuilders, filed in early 2007–has already given architects anddesign professionals cause for concern, however.

The case was actually filed by an owner against a contractorwhen the owner failed to realize tax savings that hinged onachieving a LEED silver certification, Mr. Brzovich said, notingthat architects could easily face similar allegations.

Whether the specifics involve tax credits, energy cost savings,water savings or something else, “it all pretty much boils down tothe [idea] that a building is supposed to perform a certain way,and…it doesn't,” he said.

Ms. Giffin and Mr. Brzovich noted that that comprehensiveness ofthe certification process might increase the likelihood thatconstruction projects will fall short of desired levels.

“You have all these parties working together,” Mr. Brzovichsaid, referring to architects, contractors, developers and owners,“and then you have this other entity, the LEED AP [AccreditedProfessional] thrown into the mix that actually comes out and doesthe designation of the building.”

“So although you're thinking the building is achieving thesepoints, it doesn't,” he warned. “It always comes down to the LEEDAP at the end and what the point total is going to be for the levelthey're trying to achieve.”

“There's a lot that goes into the certification process,” saidMs. Giffin, noting that five- or six-page checklists in certainareas of review are used to determine point totals that are summedto indicate the overall designations.

Although all parties in the construction process may have agreedto go for gold, if a LEED AP finds the building falling below thegold standard, the property might lose value, prompting an owner tofile a claim against the design professional, she said.

Mr. Brzovich said traditional E&O policies may fail torespond to claims against professionals involved in designingsustainable buildings because they are subject to a heightenedstandard of care that isn't reflected in standard language ofprofessional liability policies.

Separately, New York-based Marsh put forth a similar view in areport titled, “The Green Built Environment in the United States”(released in June 2008 and updated in December of the sameyear).

The report noted that the American Institute of Architectsadvocates sustainable design through its code of ethics and incontractual requirements directing architects to presentenvironmentally responsible design alternatives to projectowners.

Such requirements, the Marsh report said, “may have an impact onthe legal standard of care, raising it above the traditionalnegligent standard that is covered by professional liabilityinsurance.”

Mr. Brzovich said the Argo Green Pro endorsement, designed byhis firm and introduced in April 2009, puts specific green languageinto a professional liability policy–broadening the definition ofprofessional services to include sustainable services performed bygreen design professionals, green-building consultants, architectsand engineers. The policy form specifically “speaks to the issueswe've been bringing up,” arising from a failure to achieve acertification, he noted.

While most policies are “silent or gray” on coverage for claimsrelated to certification, the Argo endorsement offers clarity,according to Ms. Giffin.

Mr. Brzovich noted that many design professionals areincorporating newer products into green-building plans “thathaven't really stood the test of time,” giving the example of oneArgo client that used ground-up Levi's blue jeans for insulationpurposes. “If that product somewhere along the line is faulty ordoesn't perform to the level that it should, that's another placewhere our policy would respond,” he confirmed.

Ms. Giffin said her firm–which has been a member and sponsor ofthe USGBC for roughly three years–recognized the need for thespecial policy endorsement after reviewing existing professionalliability policies in response to concerns raised by architects whoare also USGBC members.

“We clearly felt there were significant gaps in coverage,” shesaid, noting that a Lloyd's syndicate has agreed not only to offerthe Argo policy–crafted from bits and pieces of existing architectsand engineers E&O forms, and customized with green-specificlanguage–but also allowed the broker to offer premium discounts ofup to 5 percent to USGBC members.

Argo also offers contract review services in conjunction withthe green professional liability program, she said–explaining thata law firm can look at the language of representations included inservice contracts before they are signed.

In addition to that help with proactive risk management, claimsassistance is also available when a professional becomes aware ofany incident that could give rise to a claim. “We've got counselthat will talk through some of the issues in hopes that it can beresolved before a formal claim is actually presented,” Ms. Giffinsaid.

While the Argo Green Pro coverage is available to all types andsizes of firms, she said most of the architects and engineersdealing with her firm focus on commercial projects. Structuralengineers are the only class which the Lloyd's syndicate will notentertain, Mr. Brzovich said.

The coverage is also available to green-building consultants,the brokers said.

Describing these consultants, Mr. Brzovich said they “morelikely than not have gotten their LEED AP designations,” buttypically don't have the technical background of an architect orengineer. Instead they act as project managers or liaisons forprojects–putting groups of people together to deliver theend-product.

Ms. Giffin said the primary coverage limit available from theLloyd's syndicate is $1 million, but Argo can add additionalcarriers on an excess following-form basis for significant limitsof coverage.

While the Argo brokers believe their Green Pro form is the firstE&O coverage of its kind, Ms. Giffin also believes otherbrokers are working on similar coverage offerings. “A lot of thecalls we've gotten have been from other brokers asking us aboutit,” she said. “I'm sure there will be other products behind this.This is the wave of the future,” she said.