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The tallest green building in the United States rises above Philadelphia like a tribute to the sky. We have polluted you with our smokestacks and our seeping landfills for centuries. Take our glass and our steel, molded in your image. Please forgive us!

Of course practical business reasons were behindthe decision of its developer, Liberty Property Trust,to go green with the 975-foot so-called Comcast Center--environmental and energy benefits and, especially, improved worker productivity.

The REIT currently has 40 other green certified or registered properties in its portfolio out of more than 700--all pursued in this decade--which speaks toward Liberty's attitude to the movement.

"We think those buildings that aren't LEED will be increasingly obsolete," says Gattuso.

In other words, companies risk more by not going green with their real estate.

Liberty isn't alone in seeing this. As William Hazelton, senior vice president of environmental risk at ACE USA, explains, clients that he's dealt with have had "significant economic drivers" in spending more to get a building green certified.

Green certification is a way to gain third-party, independent and international recognition that a project produces less waste, conserves water and energy, supports the health of its occupants, stamps a smaller carbon footprint, and possesses socially responsible, warm and fuzzy benefits.

The two certification methods are the U.S. Green Building Council's LEED program and the Green Building Initiative's Green Globes program.

"We believe they're safer, better construction," says Steve Bushnell about green buildings. Bushnell is product director, commercial business, with Fireman's Fund, which pioneered special property coverage for them in 2006.

Marcel Ricciardelli, senior vice president of XL Insurance-Environmental, agrees that green can equate to well designed. (In fact, his company believed as much to build its new Exton, Pa., office space to meet silver LEED certification.)

Ashley Katz, a spokesperson for the USGBC, wields an array of facts and figures to support green building's economic benefits. She cites the 2000 study by William J. Fisk at the Lawrence Berkeley National Laboratory that suggests that $20 billion to $160 billion in annual savings can be had from the effect of better indoor work environments through improved worker performance.

Ann Butterworth, underwriter for Liberty Mutual's recently released Green Select property endorsement, is right there with her, calling up stats about how green buildings, versus regular ones, have as much as 9 percent lower operating costs, 7.5 percent higher building values, 3.5 percent higher occupancies and 3 percent higher rents.

Green builders can also enjoy government incentives, such as tax abatements and breaks.

And if positive reinforcement isn't your bag, you always can expect the negative from elected representatives. LEED initiatives exist in 78 cities, 24 counties, 19 towns, 28 states and 12 federal agencies, according to Katz. One of the newest mandates can be found in Chamblee, Ga., whose city council voted in March 2008 that all private development 20,000 square feet or greater must acquire LEED certification.

So you can really miss out on concrete benefits, let alone on looking cool and at one with sustainability, if you don't go green. Greater yet, talk to some folks, even in the insurance business, and they will tell you that they don't know of any risk exposures particular to green building.

GREEN RISKS

But keep on talking, until you reach people underwriting and brokering these projects. Then you get a sense for the known unknowns and perhaps the unknown unknowns when it comes to "green risks."

Many construction materials and building techniques are new, untested. Will they work as promised? Or will some of them turn out to be "green washing," as Butterworth puts it, a play off the expression white washing? Will developers end up having been sold a bill of goods?

Another thing to consider when building and underwriting such construction: it tends to cost more.

Or here's something to shudder at, mentioned by a number of sources: tendencies toward water damage and mold. Some of these buildings, for instance, could be built "tight," says Rick Craig, national environmental practice leader with Beecher Carlson. That means you won't feel a stiff breeze coming through a closed window like you would in an older building, which is great from an energy efficiency standpoint. But it's not good from a condensation and a mold growth standpoint, he says.

"New construction technology often will have unintended consequences," says Fireman's Bushnell. It's important to understand the interrelationship of all building systems ahead of time, he says.

Gattuso uses the Comcast Center's 120-foot-high winter garden entrance as an example. In a "regular building," one might cool this space by obsessively pumping in conditioned airflow. But in a green space, the same is achieved with a combination of wider window mullion for more shade, dark stone floor that wicks heat away from its surface, a radiant cooling system underneath, and an exhaust system above that allows hot air to rise and escape.

Of course, coordinating this interplay among building systems can also be tricky when using experimental materials in new ways.

Take living, or vegetative, roofs. They are exactly what they sound like: a roof with soil, sod, trees, bushes, flowers, and even animals left to live and be merry. They are attractive from a climate risk and sustainability standpoint, says Lindene Patton, climate product officer with Zurich, because they control heat, provide refuge for wildlife in the urban jungle and act as a carbon sink (or absorber).

But they also weigh a lot, as anyone will tell you who's lugged around bags of dirt in their backyard garden. So underwriters must take into account how well the roof is supported, she says.

And owners and tenants must also take into account whether or not they really want pigeons, mice and who knows what else running around on their roof.

Or, again getting back to mold, living roofs might leak. Patton says a liner system can mitigate against this. But Bushnell points to a number of buildings in British Columbia where this problem has already sprouted.

Speaking of water, that brings up the runoff from your roof and its environmental impact, says Patton. Or, say tenants want to recycle this "gray water" for landscaping. Are they adequately ensuring that they're not polluting the surrounding ecosystem when doing so?

Should I keep going? OK, here's another green question mark: liability. Bushnell suggests green building owners have to manage tenant expectations, or risk exposing themselves to errors and omissions claims if tenants don't see expected energy cost savings. The owner could also be liable if tenants degrade a building's certification by using nongreen finishing materials.

"Your building will start to lose its greenness," he says.

Bushnell and others with the California Sustainability Alliance released a "green lease" toolkit, to help lessors and leasees know what special provisions should be included to minimize their liability.

As for professional liability, Craig wonders aloud what sort of hook architects, engineers and contractors will be hanging on if the building doesn't perform as expected.

Patton, whom Craig defers to as an expert in all things sustainable, says such liabilities are contractual and don't necessarily need to be indemnified by a professional liability insurance policy.

As for an E&O issue, Zurich is covering green building designs in its standard architect and engineers E&O policy. Still, Zurich once also offered a warranty type product to support energy efficiency claims, she adds, and is considering bringing it back.

GREEN INSURANCE

If and when such a product comes out, it would join the growing ranks of new products with the word "green" in their name.

One such product on the environmental side is Sustain-a-Build from AIG Environmental, which formalizes the idea of giving premium discounts on pollution legal liability policies to green certified properties.

"What we've basically done is said, you're willing to do that with green products, or actually have a LEED certified building, then we're willing to give you a discount on the normal premium rates," says Joe Boren, CEO of AIG Environmental.

"Fixing the environment is up to everyone doing a part," he says. "There's not a magic wand that you can wave over the global warming problem and turn a pumpkin into a carriage."

Another reason AIG is willing to offer the discounts is because of the notion of these projects being better built, especially when it comes to indoor air quality.

The discounts are out there, too, because customers are asking for them.

"If somebody is going above and beyond the regulations, we're really pushing that with insurers at renewals," says Rick Hawkinberry, senior vice president of the Willis Environmental Practice, out of Pittsburgh, Pa. The angle: Maintaining such high green standards on construction also shows how well they are managing other aspects of their operation.

"We definitely have gotten people's attention," he says.

However buyers get their discounts, they're coming on existing environmental products, which still do the trick for green projects. Both contractor's pollution liability and premises pollution liability policies have been used to support LEED-certified projects, according to Hazelton at ACE.

Craig says that a CPL policy with mold and indoor air quality coverages built in can work to protect against the aforementioned water issues.

For new, dare we say innovative, products, it seems commercial policyholders are turning to their property carriers.

"My knowledge of the marketplace is, the property insurance market has probably done the best job at offering products that will respond if there's a loss and you have to rebuild using green, even if you didn't start with green in the first place," says the environmental broker Craig.

(Look on our Web site for more about these products from Fireman's Fund, Liberty Mutual and others.)

Whatever green products we're talking about, commercial policyholders are looking for them and even discerning among carriers based on whether or not they carry green products.

The carriers spoken with for this piece acknowledged that part of the reason that they're offering green products is because of the demand coming from clients.

"Insureds and prospects actually make it a qualifier: do you have a green endorsement?" says Butterworth at Liberty, adding that these commercial policyholders are happy to hear a "yes" even if they aren't building green just yet.

MATTHEW BRODSKY is senior editor/Web editor of Risk & Insurance®.

July 1, 2008

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