Green Materials May Lead to a Rise in Construction Defect Litigation

The green building boom has increased the possibilities available to contractors to construct environmentally friendly projects, both in accordance with new government standards and their customers’ wishes. However, along with progress also comes uncertainty. Some of the newer environmentally advanced construction materials may not have much of a track record for safety. While there are no new definite risks that are currently known, the coming years will determine whether environmental advances in building materials will also be safe or have similar useful lives.

There are many variables within the green building boom that could affect the insurance market, both for the structures once they are built and for the professionals designing and building them.

Green Building Poses an Uncertain Future for Insurance Premiums

It is impossible to say at this point in time whether newer green building materials have increased or decreased risks of construction defects or other legal issues. They are too new to have acquired any sort of track record yet. However, insurance companies will be active in the space given the expanding activity in the green construction sector.

One example is with LEED certification, where the uncertainty varies by level of certification. At the basic level, LEED certification may not involve too much of a departure from traditional building methods. Many, contractors have been building to standards that would qualify for basic LEED certification for years, and there has been no known spike in construction defects. The risks arise when customers wish to have a project built to gold or platinum certification. At that point, the contractor may be asked to use more untried building methods, equipment and/or materials in the design and build process. As innovative as these methods may be, no one quite knows yet how such will perform throughout the life of the project. New technology does not automatically mean increased risk, but we’re still too early in the green movement to know exactly where this increased risk exists, if at all.

How Specific Green Technologies Could Impact Premiums

One example of a new technology that may raise questions is wind turbines. Some customers have taken to requesting mini wind turbines on the roof of a new project. However, there could be a risk that the building’s roof may not be properly designed to withstand the weight or movement of the turbines. Although these fears could turn out to be unfounded, it may take years to know whether there are any potential issues caused by wind turbines on a roof.

Another new technology about which there is little safety data is fuel cells. Some new projects have resulted in the installation of fuel cells directly outside a building’s property. These cells produce electricity by converting a source fuel into an electrical current and water. This conversion process can generate intense heat. There is always a possibility that this intense heat could result in increased fire risk. These technologies are too new to have generated any patterns or issues which would appear in their safety records, but the lack of incidents does not guarantee there won’t be any in the future.

There is one new green technology that has already resulted in an increase in insurance claims. Some projects have featured a vegetative roof. In some cases, buildings with these roofs have suffered water damage because drains on the roofs become clogged, are improperly installed and/or improperly specified drains. Additionally, membranes on the roof have become pierced, leading to water damage to the floors below.

One common way that a building technology becomes “green” is by materials and components being created out of recycled material. When a material is described as being made of recycled material, the origins may be unknown. A common follow-up question is, “Recycled from what?” Insurance companies ask this same question. Just because material is made of recycled material does not automatically mean it is safe or quality.

The unknown risk potential of new green technologies could also result in increased insurance costs while underwriters learn more about the technologies. To protect themselves, underwriters may be inclined to raise premiums while they do their due diligence regarding the safety of new technologies.

Green Buildings Could Become More Expensive to Insure

There is one reason why green building technologies will definitely raise insurance premiums. The emerging technologies cost more to build. Thus, an overall insurance policy will be for a higher amount, requiring higher payments. If green building materials prove to be riskier than traditional construction materials, the insurance premiums will be even higher. However, some insurance companies may offer discounts for green buildings.

That said, there are other reasons why premiums may not increase too much. Companies that invest in green technologies often have a track record of creating a culture of safety. They are more interested in the maintenance of their buildings and safe operation. These safety and preventative maintenance-conscious policyholders could lead to a small number of claims over time and potentially lower premiums.

Builders and Engineers May Need Their Own Insurance

Another potential area of liability is for builders. Companies are looking to hire contractors who can build a structure that would help them achieve certain green benefits, including LEED certification. Sometimes, a green building can fail to live up to its environmental targets even when there are no overt building defects. In one lawsuit, Southern Builders v. Shaw Development, the building’s owner (Shaw Development) sued its builder because, among other things, the “green” building allegedly failed to achieve certification in a timely manner, which allegedly cost the owner $635,000 in state tax credits. The case settled outside of court.

As more companies opt for green building technologies, litigation between developers and owners on one hand, and builders on the other, will increase. From a contractor’s perspective, they need to be careful about making any specific warranties and representations regarding their work. Architects and engineers may need to be specifically insured against any professional liability claims resulting from the environmental underperformance of their buildings.

In general, insurance premiums are a reflection of the risk taken on by an insurer to insure something or someone. Right now, there is not enough yet known about green buildings to reasonably predict what the future holds for construction defect litigation involving those buildings, and the cost of insuring them or the projects that helped make them green. For more information on construction litigation matters, contact MehaffyWeber.

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