By Susanne Scalfane, managing editor, National Underwriter P&C

An exclusion for claims arising from representations and warranties--which is contained in most professional liability insurance policies--could present real problems for architects involved in green-building design, warned one insurance brokerage that has taken steps to close that exposure gap.

Indeed, removing the exclusion is one key function of an endorsement crafted last year by Argo Insurance Brokers in Pleasant Hill, Calif., to customize professional liability or errors and omissions policies for architects, engineers, consultants and design professionals who work on green buildings.

"Although we'd never advise our clients to make any promises, at times design professionals might make assertions that they're trying to achieve certain levels of certification," noted Nate Brzovich, commercial insurance specialist at Argo.

He was referring to LEED gold, platinum or silver certifications assigned based on the Leadership in Energy and Environmental Design benchmarks set by the U.S. Green Building Council.

In many situations, a design professional doesn't even have to make an explicit assertion or warranty to incur an exposure, according to Linda Giffin, senior vice president at Argo. (Editor's Note: Argo Insurance Brokers is not affiliated with Argo International Group Holdings, a holding company with insurance underwriting operating subsidiaries in the United States, Bermuda and London.)

"The problem is that the owner comes in and he's decided that he wants to build to a certain level, whether it be silver, gold or platinum. The architect is now tasked with designing that building to reach that level," she explained.

"There may not be an explicit representation, but there's an implied representation," she added.

"It's an understanding," Mr. Brzovich said. "And in the off-event that they're not able to proceed to that point, there could be an issue between the design professional and construction individuals involved, as well as the actual owner of the project," he said.

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

One Maryland Circuit Court case--Shaw v. Southern Builders, filed in early 2007--has already given architects and design professionals cause for concern, however.

The case was actually filed by an owner against a contractor when the owner failed to realize tax savings that hinged on achieving a LEED silver certification, Mr. Brzovich said, noting that 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 to the [idea] that a building is supposed to perform a certain way, and...it doesn't," he said.

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

"You have all these parties working together," Mr. Brzovich said, referring to architects, contractors, developers and owners, "and then you have this other entity, the LEED AP [Accredited Professional] thrown into the mix that actually comes out and does the designation of the building."

"So although you're thinking the building is achieving these points, it doesn't," he warned. "It always comes down to the LEED AP at the end and what the point total is going to be for the level they're trying to achieve."

"There's a lot that goes into the certification process," said Giffin, noting that five- or six-page checklists in certain areas of review are used to determine point totals that are summed to indicate the overall designations.

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

Brzovich said traditional E&O policies may fail to respond to claims against professionals involved in designing sustainable buildings because they are subject to a heightened standard of care that isn't reflected in standard language of professional liability policies.

Separately, New York-based Marsh put forth a similar view in a report titled, "The Green Built Environment in the United States" (released in June 2008 and updated in December of the same year).

The report noted that the American Institute of Architects advocates sustainable design through its code of ethics and in contractual requirements directing architects to present environmentally responsible design alternatives to project owners.

Such requirements, the Marsh report said, "may have an impact on the legal standard of care, raising it above the traditional negligent standard that is covered by professional liability insurance."

Brzovich said the Argo Green Pro endorsement, designed by his firm and introduced in April 2009, puts specific green language into a professional liability policy--broadening the definition of professional services to include sustainable services performed by green design professionals, green-building consultants, architects and engineers. The policy form specifically "speaks to the issues we've been bringing up," arising from a failure to achieve a certification, he noted.

While most policies are "silent or gray" on coverage for claims related to certification, the Argo endorsement offers clarity, according to Ms. Giffin.

Brzovich noted that many design professionals are incorporating newer products into green-building plans "that haven't really stood the test of time," giving the example of one Argo client that used ground-up Levi's blue jeans for insulation purposes. "If that product somewhere along the line is faulty or doesn't perform to the level that it should, that's another place where our policy would respond," he confirmed.

Giffin said her firm--which has been a member and sponsor of the USGBC for roughly 3 years--recognized the need for the special policy endorsement after reviewing existing professional liability policies in response to concerns raised by architects who are also USGBC members.

"We clearly felt there were significant gaps in coverage," she said, noting that a Lloyd's syndicate has agreed not only to offer the Argo policy--crafted from bits and pieces of existing architects and engineers E&O forms, and customized with green-specific language--but also allowed the broker to offer premium discounts of up to 5 percent to USGBC members.

Argo also offers contract review services in conjunction with the green professional liability program, she said--explaining that a law firm can look at the language of representations included in service contracts before they are signed.

In addition to that help with proactive risk management, claims assistance is also available when a professional becomes aware of any incident that could give rise to a claim. "We've got counsel that will talk through some of the issues in hopes that it can be resolved before a formal claim is actually presented," Ms. Giffin said.

While the Argo Green Pro coverage is available to all types and sizes of firms, she said most of the architects and engineers dealing with her firm focus on commercial projects. Structural engineers are the only class which the Lloyd's syndicate will not entertain, Brzovich said.

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

Describing these consultants, Mr. Brzovich said they "more likely than not have gotten their LEED AP designations," but typically don't have the technical background of an architect or engineer. Instead they act as project managers or liaisons for projects--putting groups of people together to deliver the end-product.

Giffin said the primary coverage limit available from the Lloyd's syndicate is $1 million, but Argo can add additional carriers on an excess following-form basis for significant limits of coverage.

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

Susanne Scalfane is managing editor at National Underwriter P&C, part of Summit Business Media's P&C Magazine Group, which includes American Agent & Broker.

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Argo tackles architect, design risks with green building endorsement

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