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Personal Lines Claims

"Green" Building Claim Implications

Elise Farnham | October 1, 2009

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An illustration of a modern green energy building

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.

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.


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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