1. How Green Was My Building - LEED Litigation Issues Seminar for BC RIMA – January 18, 2012 Paul A. McDonnell - pmcdonnell@millerthomson.com

2. LITIGATION ARISING OUT OF LEED ISSUES What is LEED? Revolutions in Building Science Revolutions in Building Claims Examples of LEED Problems LEED Underwriting and Coverage Issues

3. WHAT IS LEED LEED = Leadership in Energy and Environmental Design Designation for Individuals and Buildings What is it? –A rating system based upon the number of points given to elements in a building design –Made to LEED regulatory council –Points allocated on diverse building systems ie: provision of bicycle racks use of recycled materials use of local materials use of "non-emitting" adhesives use of HVAC systems which reduce emissions Certification Points range from 40 (low) to 80 (high)

4. LEED ACCREDITATION LEED accreditation not equivalent to professional designation Anyone can achieve LEED designation by –Paying fee –Taking course and become accredited LEED credentials growing in use –LEED Green Associate –LEED AP with a Specialty –LEED Fellow

5. PROBLEM SOURCES Today's Axiom: "Green is Good" Good Politics: Government keen to encourage –"green" design –reduced energy use –reduced greenhouse gases No current design "standards" to define what is "green" and what is not LEED certification used as unofficial standard Local building codes represent minimum legal requirements in buildings which are often different than LEED requirements LEED certification can result in –tax incentives –zoning benefits –expedited approval processes "Green" by-laws and ordinances may be in conflict with or are inconsistent with building codes Litigation in the US over conflicts in legal requirements

6. CONTEXT OF THE CONTROVERSY LEED "green" building perceived as a desirable thing Gifford Fuel Services commences a class action against USGBC alleging LEED system is fundamentally flawed, misleading and fraudulent Claim alleges that LEED certification is illusory and provides no real value Class action has now been converted into a regular action in New York Will "Green" system survive?

7. LEED PROBLEMS What kind of issues can we expect LEED Problem Analysis –Marketing –Materials –Budget –Systems

8. LEED Problems 1 - Marketing Project requires a specific and costly LEED certification level Projects must be marketed as a "green" building with a specific LEED certification Project as constructed achieves LEED certification, but, at a lesser level than required and advertised Litigation results in which designers are sued in negligence and breach of contract for failing to deliver the Project with the required LEED certification Project misrepresented in marketing as "green" having lower operating costs, etc. Costs are in reality the same as "normal" buildings The developer sues for breach of contract and negligent misrepresentation that the LEED certification would deliver unrealized benefits Purchasers/tenants may also sue based on negligence producing higher costs

9. LEED Problems 2 - Materials Real U S Case 1 Owner wants a flagship building with "green" character LEED certification leads to design decisions made at the expense of conservative design principles Design achieves highest LEED certification by specifying materials from recycled waste products and environmentally friendly adhesives Materials untested Materials fail to perform in service and deteriorate rapidly Deteriorated building elements must be replaced Real U S Case 2 Environmentally friendly kitchen cork floors promote mould growth after the use of environmentally friendly cleaners fail to actually clean Floors are replaced with standard vinyl floors after employee claims regarding health concerns

10. LEED Problems 3 - Budget Real Case Designers convince client to pursue "green" energy design Designers negotiate higher fee for the "green" design and LEED certification Client markets "Green" building (which is appealing as it was intended to house a day care centre) Construction cost actual bids are double budget "Green" design cannot be constructed by contractor Client successfully sues architect for damages associated with delays to its business plan and the wasted architectural fees

11. LEED Problems 4 - Systems Potential Case Designers promote innovative HVAC (heating, ventilation and air conditioning) designs as examples of sustainable and energy efficient Going "green" is needed to achieve LEED certification and the perception is that the LEED certification will achieve tangible "payback" The system is promoted as being capable of achieving reductions in energy costs of 50% despite being of higher initial capital cost The actual operation of the system is not 50% less, but, is about the same as other similar buildings Litigation over breach of contract and negligent misrepresentation

12. LEED Problems - Systems (Con't) Real Case "Green" HVAC system selected to achieve LEED certification Innovative design is selected which uses new techniques to heat and cool LEED certified building is marketed as being healthier/ "green" The new techniques fail to heat in the winter and cool in the summer Ventilation system does not function as perceived in theory resulting in greater absences from tenant employees Litigation arises over –costs to remediate the HVAC system to improve the air quality in the building –fund the complete replacement of the HVAC system with conventional system

13. LEED Problems 5 - The Green Roof Real Case - Largest Green Roof in World Collapses Concept is to provide a roof with "green" vegetation to: –provide environmental benefits –better insulation to the building reducing energy consumption Many local governments propose mandating "green roof" by-laws Tested codes and standards do not exist Potential problems include –failure to properly drain the roof leading to water infiltration and damage to structures and interiors –increased maintenance costs due to irrigation needs and –structural failures due to increased loads from water absorbing soil/surface materials

14. POTENTIALLY EXPOSED PARTIES Architects Engineers Contractors Equipment Manufacturers Materials Suppliers Construction Certifiers Municipalities/Building Officials LEED Certifiers Insurance Brokers

15. UNDERWRITING ISSUES To what extent are the insured professionals marketing themselves as LEED accredited and providing "green" designs? Are the insured professionals using "tried and tested" or "state of the art" designs or new and innovative techniques? Are insured professionals employing sub-consultants which are LEED accredited? Are these sub-consultants insured? Are the insured professionals engaging in projects which are subject to tax incentives based on LEED certification to a specific level? Are the insured professionals involved in RFP's in which LEED certifications are a condition of success in the bid or subject to liquidated damages for failure to deliver the LEED certified level?

16. UNDERWRITING ISSUES Are the insured professionals predicting or guaranteeing returns on the payback" of lower energy consumption or guaranteeing lower construction costs? Are the insured professionals specifying "green" products which are time tested or innovative? Are the insured professionals operating in a local jurisdiction in which "green" by-laws impose higher or different standards than the governing building codes? Are the contractors in the jurisdiction familiar with "green" techniques or are they learning as they go? Do they hold themselves out as "green" builders? If so, what qualifications? Is the insured professional holding him or herself out to a higher standard as a LEED accredited professional?

17. COVERAGE ISSUES Are the design professionals providing insured services (ordinarily and customarily offered by members of the profession)? Is the marketing of "green" services by the insured professional equivalent to a guarantee of performance? Is the agreement to design to a certain LEED standard a "guarantee" of performance or a "guarantee" of a financial return? Are damages for failing to achieve LEED certification (loss of tax or other benefits, penalties for failing to achieve LEED certification) excluded as damages or are they damages recoverable in law as special damages in breach of contract claims or as foreseeable in negligence actions? Potential for intentional acts in the event of over-zealous professionals ignoring state of the art designs to achieve/promote innovative "green" designs Can risk be transferred to material manufacturers?

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