By: Paul D’Arelli, Esq. and Ujjval K. Vyas, J.D., Ph.D

The sustainability revolution is upon us and as owners, developers and the design, construction, finance and insurance industries begin to grapple with the emergence of the unique legal and risk management issues inherent in implementing green building initiatives, deficiencies abound and thoughtful approaches are required. This article examines one example of the owner/developer’s dilemma of how to manage green-building risk when the insurance industry has not yet responded with the full suite of insurance solutions required to cover the attendant risks with green building.

Namely, as a developer of a sustainable building, if you succeed in getting your architect to guarantee that your building will attain a specific LEED^®1 or other third party rating, you may get more than you bargained for: a designer with deficient professional liability coverage.

When an owner or developer hires an architect to design a building with the goal of obtaining a LEED or other green building certification, a necessary negotiation point will be what level of contractual assurance or commitment the architect is making to ensure that the building as designed will obtain the desired rating or certification. If you ask the typical owner, he or she would probably prefer a firm guarantee that the project will achieve the sought after rating. After all, if the owner is seeking the rating or certification, it is because the owner ascribes some level of value to having the rating. On the contrary, most architects would probably prefer to steer as far away from a guarantee as possible since there are many factors downstream of the design itself that affect the potential for obtaining a sustainable building rating, including the lengthy construction and delivery of the project by a chain of contractors, subcontractors, and vendors, a process rife with inevitable change orders, substitutions and value engineering, and ultimately the judgment of a third party rating organization that may have limited accountability.

In practice, the relative bargaining position of the parties to the design contract and other factors could result in a myriad of potential contractual outcomes regarding the architect’s duty to deliver a building design that is consistent with or achieves the owner’s sustainable building certification objectives, outcomes limited only by the creativity of the drafters. For example, these contractual outcomes could range from a less stringent obligation that architect “…use reasonable efforts to endeavor to meet owner’s objectives of obtaining a LEED Gold certification…” to the more stringent obligation that “…architect shall design a building that obtains a LEED Gold certification.”

There are a significant number of variables that may drive the owner’s decision to seek a particularly high level of contractual assurance that the building will be designed to obtain a particular sustainable building certification. For example, the owner or a prospective tenant may have a corporate mandate to locate only in space that has a particular rating. Or, it may be a requirement of entitlement or financial incentives that the building achieve a certain minimum rating. Finally, a LEED, or other certification may be required as part of the local building or land development code. Similarly, there are numerous factors that influence an architect’s willingness to accept increased degrees of risk that go along with heightened requirement to deliver a building that obtains the desired rating, including the desire to maintain an existing client relationship or perhaps the lure of the marketing cache of participating in a high profile or signature project. As such, this article does not pass judgment on the prudence of any standard upon which the parties choose to agree, but only seeks to elucidate the professional liability ramifications of the decision of the owner to seek a guarantee from the architect as to the rating outcome.  

According to Robert Connor, J.D., a professional liability specialist with Suncoast Insurance Associates, Inc. in Florida, who has lectured frequently on professional liability issues related to sustainable design, “Typical professional liability insurance policies cover the architect for all sums for which the architect becomes legally obligated to pay as a result of a claim which arises out of a wrongful act.

A wrongful act can be defined as a negligent act, error or omission in the performance of professional services.” Therefore, the architect is covered for negligence and, errors and omissions made when acting in the scope of providing “professional design services” as defined in the policy. Given the typical policy language, a wrongful act that occurs in designing a sustainable building (though not necessarily the processing of the paperwork for obtaining certification) would appear to be within the ambit of this coverage, especially in light of the American Institute of Architect’s (AIA’s) 2007 Code of Ethics & Professional Conduct which seems to establish as inherent in the architect’s duty the advocacy for, and consideration of sustainable design in all projects undertaken by an architect as follows:

• CANON VI – Obligations to the Environment: Members should promote sustainable design and development principles in their professional activities.
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• Ethical Standard 6.1 Sustainable Design: In performing design work, Members should be environmentally responsible and advocate sustainable building and site design.
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• Ethical Standard 6.2 Sustainable Development: In performing professional services, Members should advocate the design, construction, and operation of sustainable buildings and communities.

Furthermore, the 2007 Update to the B-101 Contract – The Schematic Design Phase Services provides:

• 3.2.2  The Architect shall present its preliminary evaluation to the Owner and shall discuss with the Owner alternative approaches to design and construction of the Project, including the feasibility of incorporating environmentally responsible design approaches. The Architect shall reach an understanding with the Owner regarding the requirements for the Project.” (emphasis added).
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• 3.2.5.1 The Architect shall consider environmentally responsible design alternatives such as material choices and building orientation, together with other considerations based on program and aesthetics, that is consistent with the Owner’s program, schedule, and budget for Cost of the Work.

If the duty to practice sustainable design is now essentially the standard of care for the design professional with all buildings, and the typical professional liability policy would afford coverage for negligence and errors and omissions in the normal course of practice, where is the issue? The issue lies not in an architect undertaking the design of a sustainable building itself, but in contracting with the owner in a manner that promises or guarantees a particular rating or certification outcome. According to Mr. Connor, “…most, if not all, professional liability policies exclude claims based upon or arising out of liability assumed by the architect under any contract unless the liability would have existed in the absence of the contract. In other words, if the liability existed in negligence and contract, then it would be covered. If the liability existed only in contract, it would not be covered.”²

Accordingly, the contractual language in the design contract could provide the insurance company with ample opportunity to determine that the architect gave the owner a guarantee or warranty that the building would achieve a particular rating and to possibly deny coverage for claims arising out of the building’s failure to obtain such rating. At the least, it is likely that the insurance carrier will issue a reservation-of-rights letter flagging the possibility of coverage denial. The next question is, could the existence of such a “warranty” result in other claims being denied by an architect’s professional liability insurance company that are not related directly to the rating? The answer, according the Mr. Connor: “…unfortunately, it depends on the contractual language and the courts will have to make the determination as sustainable development continues to proliferate and these claims begin to emerge.”

This may be troubling from an owner’s perspective because he or she bargained for the assurance from the architect that the building would obtain a particular rating and may have relied on that assurance in commitments to third parties such as tenants or government agencies. However, if there is a breach, the owner may have to seek redress from a party that has no insurance coverage. In effect, the owner/developer may be left pursuing an entity that not only does not have “deep pockets,” but perhaps has no pockets at all given the relative capitalization of most architectural firms.

The looming question then is what the development and design community can do to fill this void and manage their risks.

There are several possible alternatives to contracting for what may be an uninsured certification guarantee, each with pros and cons, including among others:

Contract for a rating guarantee with insurance negotiated to explicitly cover the risk of default. While this may appear to be a desirable approach for both parties as any increased premium for the extended coverage could be factored into the project economics, there are probably no insurance companies that currently write professional liability insurance for architects that will want or be able to underwrite such coverage because numerous downstream factors from the design make it difficult to evaluate risk. From the insurance carrier’s perspective, underwriting such a risk is very difficult to understand and therefore price properly. In fact, it may only be possible to price the risk properly after an adequate litigation history and/or more clarity of the legislative and regulatory outcomes.

Forget about seeking third party ratings and focus on performance metrics. Some would argue that the “chase” for points under a green building rating system, whether as a requirement or aspiration, could result in creating unnecessary risks in the design and construction process (e.g., encouraging the use of novel or untested products or technologies, etc.) and that a better approach is to forego pursuing the rating altogether and focus on the desired performance metrics for the building (e.g., energy and water efficiency targets, etc.) with a structured approached for the design and delivery of the project in a manner most likely to achieve the desired and specifically identified performance metrics. The contracts among the project parties could incentivize the meeting or exceeding of the metrics recognizing that the design professional may not play the primary role in delivering the performance guarantee.

In the same manner that the design professional cannot provide a guarantee for a rating certification, no guarantee of performance can be given. In fact, the lack of coverage for the rating system guarantee is a subset of the standard rejection of any performance guarantees within the scope of a professional liability coverage policy. The policy covers contracts for the delivery of “professional services” within the generally accepted competencies and judgments of a particular design professional. It is the failure of basic competencies or requisite judgment that is covered, not a contractually undertaken guarantee of outcomes.

Given this, it may behoove the owner/developer to seek out other ways in which to obtain the assurances that may be necessary. It may require obtaining assurances for performance from the general contractor, or engaging in a design-build delivery system, or some other mechanism. While abandoning the pursuit of certification may have its merits as well, in reality the green building certification may be of such import to a particular owner or tenant that it must be sought despite any attendant risks to the parties. All that can be done under such circumstances is to become as fully aware as possible of the risks involved.

Do not contract for a guarantee of green building certification from the architect; instead, make the certification a goal. Perhaps the more reasonable approach, if pursuit of a rating is required, would be to forego a contractual guarantee from the architect and instead make the desired third party rating a goal or aspiration subject to the designer’s normal standard of care. The owner/developer, and his counsel, would then concentrate their attention on other more appropriate parties or risk transfer mechanisms to bear the risk of a certification failure. This approach may leave the owner with less contractual comfort in relation to his architect (or other design professionals) since there is no written “guarantee” certification will be achieved, but any such guarantee may provide illusory comfort anyway since, first, many factors subsequent to the design may affect the rating outcome, and second, the design professional may find himself without coverage.

According to Robert Connor, “…the foremost underlying cause of claims against architects is missed expectations caused by poor communication with the owner or developer. With sustainable development, there may be an added expectation related to building performance or rating that can complicate the process. As such, regardless of the contractual approach negotiated by the parties, perhaps the most important step that an owner or developer can take to ensure a successful sustainable project is to meet and communicate frequently with the design and contracting teams from project conception to completion to manage the expectations. This will lead to better projects that meet the goals of both the design team and the owner or developer.”

The trend toward sustainable building is undeniable and owners and developers are increasingly interested in building and owning high performance buildings. However, as with any emerging industry trend that includes a change in traditional processes, risks emerge that require careful evaluation and management. In the case of architects’ professional liability insurance, owners and developers need to realize that their “negotiating prowess” that culminates in securing a rating guarantee from an architect may leave them with a claim backed only by the keys to the designer’s shop. SLDT

About the authors: Paul D’Arelli, Esq. LEED^® AP is with Greenberg Traurig, P.A., based in Fort Lauderdale, Florida. He can be reached at (954) 768-8248 or This e-mail address is being protected from spam bots, you need JavaScript enabled to view it Ujjval K. Vyas, Ph.D., J.D. is a Principal with the Alberti Group of Chicago, Illinois. He can be contaced at: 312.810.1008 or This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Footnotes:

1. LEED^® is a registered trademark of the U.S. Green Building Council.
2. A related issue not within the scope if this article is whether the architect’s completion and submittal of the credit templates for LEED certification to the US Green Building Council could be construed as a warranty or certification that could similarly result in exclusion.