Insurance Association Develops Green Building Risk Options

The Wheaton, Ill.-based American Association of Insurance Services (AAIS) has developed new, standardized builders’ risk insurance policy forms that provide coverage for loss exposures related to the “green” certification of an insured project.

The forms appear in the Builders’ Risk section of the AAIS Inland Marine Guide, an industry resource of forms, rating procedures, and underwriting guidelines for the traditionally nonfiled classes of inland marine insurance will be available in all states. However, the forms must be filed for approval in 22 states that do not exempt Builders’ Risk forms from filing requirements. The proposed effective date is Dec. 1, 2009.

This AAIS initiative consists of two new endorsements and related schedules and underwriting information.

One new form, entitled “Green Building Coverage,” is a coverage part that can be endorsed onto a standard builders’ risk jobsite form. The green coverage part provides four additional coverages increasingly sought by insureds seeking to build structures that are environmentally sound and energy efficient:

-“Indoor Air Quality” pays costs to restore the air quality in a damaged structure to the standard set in an “air quality management plan” (to the extent that standard was achieved prior to the loss);

-“Recycling Debris” pays costs to divert debris of a damaged property from a landfill to a recycling facility;

-“Recertification” pays costs for recertification of a structure as meeting “green” standards of one of the leading environmental building organizations (up to the level of certification achieved prior to the loss); and

– “Electricity and Water Replacement” pays costs to purchase replacement electricity or water from a public utility due to insured loss to renewable energy generating equipment or water conservation systems.

Each of these coverages is triggered only by an insured loss covered under the base builders’ risk form, and each carries its own limit indicated on an accompanying “Green Building Schedule.” The green coverage limits apply separately from any limits in the underlying builders’ risk form.

The second of the two new forms is a “Delay in Completion Coverage Part – Green Building Form,” which can be used in place of a standard delay in completion form.

The new green delay in completion form incorporates the innovations introduced by AAIS in 2008 to clarify questions regarding what were loosely called “soft costs.” The AAIS 2008 Builders’ Risk forms established a distinction between additional “construction expenses,” such as fees, that are incurred in a lump sum, and additional “soft costs,” such as interest and taxes, that grow with time.

The green delay in construction form retains that distinction, and adds “Green Coverage Extensions” to pay for additional construction expenses, additional soft costs, loss of rental income, and loss of net income. Those extensions pay the added costs when a construction delay is extended because of additional procedures and processes required to meet the level of green certification that was incorporated into the project design before an insured loss.

In addition, the green delay in construction form provides a coverage extension for “Energy Generating Income.” That coverage pays for loss of income due to lost sales of surplus power during the delay period if an insured loss renders an insured’s renewable energy generating equipment inoperable.

AAIS is a national insurance advisory organization that develops standardized policy forms and rating information used by more than 600 property/casualty insurers throughout the United States. For information on affiliating with AAIS for use of its Inland Marine Guide, call 800-564-AAIS.

Source: AAIS

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