"Green" Building Claim Implications
October 2009
Conceived in 1994, and put into action in
1998, the Leadership in Energy and Environmental Design (LEED) certification
program was introduced by the United States Green Building Council (USGBC).
The LEED certification was created to recognize buildings that incorporated
sustainable design and to raise awareness of green building methods.
by Elise
Farnham
Illumine Consulting
The LEED program provides certification on a weighted scale for buildings
that incorporate sustainable design and construction methods. Today, an estimated
14,000 buildings in the United States and 30 countries have applied for or received
LEED certification, per Wikipedia.
The Move Toward Green Construction
The LEED certification process is "open source." It is growing and changing
as new techniques and processes are discovered. A portion of the certification
can be awarded due to new construction methods that have been incorporated into
a building’s design or construction, provided the method supports sustainability.
If the new method is accepted by the reviewing committee, points are awarded,
and the method published for use by other architects, designers, and builders.
Originally, sustainable building and construction practices were thought
to be too expensive to be attractive in the residential building market. However,
with the advent of the 2008 energy crises and distribution of Al Gore’s documentary
on global warming, "An Inconvenient Truth," the green building movement for
the home market has expanded significantly. Government incentives, environmental
concerns, and the desire for sustainable living have all fueled this interest.
Some communities have been out front on the issue, passing building codes
that require building repair methods, remodeling, and building additions incorporate
green building practices. Community standards have not stopped at the commercial
market, but have extended to the residential building market as well. This movement
will have significant impact on the adjustment of homeowners’ property loss
claims. Major renovation has been incorporated into the LEED rating system,
but certification is voluntary on the part of the homeowner—voluntary, except
where building codes dictate otherwise.
This will have significant impact on homeowners policies that incorporate
building ordinance and law coverage. While green construction costs can be lower
in some areas, overall, they are usually higher since they incorporate specialized
materials and construction methods. For residences without a LEED certification,
building ordinance and law coverage will play a key role in loss adjustment
and loss payment. For LEED-certified residences, coverage for renovation and
rebuilding is probably incorporated in the policy language, but can still be
affected by the local ordinances whose standards may vary.
Claim Considerations
When evaluating a homeowner property loss, the loss adjuster will need to
consider:
- Has the community passed green building codes, and will the green
ordinances apply in the event of major renovation or just to new construction?
- How does the ordinance define "major renovation"?
- Has the insured selected a contractor that is capable of completing
green construction methods?
- How will the new building methods fit in with the salvaged or remaining
parts of the building, i.e., will there be a difference in appearance once
repairs are completed?
- Does an appearance change result in an additional loss or diminished
value?
- How will repair time be increased over that which conventional methods
would require?
- How is the additional living expense coverage affected if longer repair
times are required?
- In the event of a catastrophe, will the ordinances be relaxed or will
the adjuster need to evaluate the cost of permanent repairs at a much later
date due to the lack of competent contractors and builders or qualified
materials?
- When repairs are a result of a catastrophe, will the recycling plants
be able to handle the increase in materials?
The LEED Factor
If the adjuster is faced with a loss to a LEED-certified residence, further
considerations are necessary, including an understanding of coverage and how
it applies. Insurance products meant to cover green building are only marginally
standardized, posing policy interpretation concerns, particularly for independent
adjusters who may represent a number of insurers utilizing different policy
provisions. Even with specific green building coverage in place, the loss adjuster
will need to consider the effects of existing building codes. There may also
be additional costs relative to green building methods, or alternatives since
the original materials cannot be duplicated or have been improved since initially
installed.
When a building is LEED-certified, major renovation will require the use
of a LEED certified project manager, builder, general contractor, or architect/designer.
These individuals have passed a stringent exam offered by the Green Building
Certification Institute and are awarded the Accredited Professional (AP) designation.
Their services may come at a premium, leading to increased labor or engineering
expenses in planning or making repairs to the residence.
The loss adjuster will need to determine the pre-loss LEED certification.
There are four levels, with the highest being Platinum, followed by Gold, Silver,
and Certified. There will need to be coordination of repairs with consideration
for local building ordinances but also with consideration for the building’s
certification level. Issues can arise if the renovation does not meet the same
certification level as the pre-loss construction.
When reconstruction precludes a return to the prior certification level,
coordination in design and architectural planning and construction are vital
in reaching a fair and equitable solution. Certainly, the adjuster and homeowner
will want to return the residence to the pre-loss certification, but there may
not be coverage for increased costs. This change in circumstances may occur
in the event of a catastrophe when building materials are scarce or when the
necessary natural resources of the area are no longer available.
On the other hand, LEED certification encourages recycling of construction
materials. Perhaps additional salvage recovery or decreased costs will be realized
as compared to conventional construction methods which toss away most refuse
to a landfill at a significant cost. Construction cost reductions will continue
as these new sustainable building methods become more commonplace.
Conclusion
The green building movement has significance for loss adjusters whether the
insurance company they represent issues a green policy or not. The green building
movement continues to gain momentum. Whether homeowners are seeking tax credits,
a cleaner environment in which to live, bragging rights in the neighborhood,
or simply trying to comply with local laws, the demand for green construction
continues to grow. Loss adjusters can expect to encounter claims involving green
building methods which will require careful consideration of all the issues
surrounding the movement and applicable insurance coverage.
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