Designer’s Professional Liability Insurance Issues

By Greg Zimmerman, Executive Editor  
OTHER PARTS OF THIS ARTICLEPt. 1: Responsibilities Must Be Spelled Out In a Green Building ContractPt. 2: This PagePt. 3: Determining Damages in Green Building Lawsuits

There's another answer to the question about what owners can reasonably expect designers to agree to: Only things designers' professional liability insurance will allow them to agree to.

"Design professionals have become much savvier regarding what issues can be in the contract," says Del Percio. "This protects them, but it also protects the owner because it keeps the insurance policy in play." The limits of a designer's professional liability insurance are fraught with technicalities, but it is an issue owners should be aware of, especially if working with smaller design firms whose only major asset is its expertise.

One important limitation: A breach-of-contract lawsuit is not covered by insurance. Imagine that a firm agrees to guarantee a LEED certification because it's desperate for work, but then that certification doesn't pan out. The owner may win a breach-of-contract lawsuit because the contract was specific about the legal grounds for the suit, but the legal victory may bring nothing more than office furniture and a few computers.

Professional liability insurance coverage is limited to the "ordinary standard of care." What this means is that designers cannot make any guarantees or claims beyond what is normal in the industry, and still be covered. Guarantees or warranties are automatic, or "form," exclusions for professional liability insurance, anyway, says Del Percio — another reason owners usually won't be able to get a guaranteed level of LEED certification in a contract.

One of the biggest questions in the industry right now is whether green buildings in general or LEED specifically are covered in that ordinary standard of care. No one seems to know. "The idea of what the ordinary standard of care is has not yet been litigated," says Vitiello. Adding further confusion is that, according to Del Percio, the ordinary standard of care varies based on geography.

To avoid voiding their professional liability insurance, designers may push for a contract clause that limits liability to a designer's fees for particular strategies, like LEED certification. One firm that does this is Georgia-based consulting firm Energy Ace. The firm offers a LEED certification guarantee, but Wayne Robertson, the firm's president, says that the contract explicitly limits its liability to the fees if, for some reason, the building doesn't make it to LEED. And there are several other conditions Robertson says must be present before he'll offer the guarantee. First, the firm must already be under contract for LEED administration, commissioning and energy modeling. Second, Robertson says he must have "a good general feeling" about the project team. Third, there must be a 10 percent cushion in LEED points the team is trying for. "We have limited our exposure," he says. "We'll offer a full return of our fee. That's specific to our contract. The contract also says they can't sue. When I inquired about how this would work with my professional liability insurance, they said if I can't be held liable, offering that guarantee is fine."

Lawsuit Takes Aim at LEED

In early October, a group of plaintiffs led by an engineer named Henry Gifford sued the U.S. Green Building Council for $100 million. The class-action lawsuit claims damages for consumers, taxpayers, and building design and construction professionals because, according to the suit, USGBC, via its LEED rating system, has created a monopoly and misled the industry into constructing buildings that don't perform as energy efficiently as designed, or even as energy efficiently as their traditional counterparts.

Legal experts say the challenge of the suit lies in getting class certification, which essentially means a judge must agree that a class (or in this particular suit's case, classes) of people actually has been damaged.

"The chances of Gifford's suit going anywhere on a legal front aren't clear," says Vicki Harding, an attorney with Pepper Hamilton, LLP. "But some of the points he's raising are legitimate."

Though Gifford's suit doesn't point to a particular building, breach of contract or negligence in certification, it's the first lawsuit to take on the legitimacy of LEED directly.

— Greg Zimmerman

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  posted on 11/29/2010   Article Use Policy

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