Green building insurance coverage, also known as “green upgrades coverage“, is a type of property insurance that specifically addresses insurance for green building improvements.
It can protect your green building – and potentially even add value – in three ways in the event of a claim.
Depending on your insurance carrier, this insurance applies to LEED, Energy Star, WELL, BREEAM and Green Globes certified buildings as well as any “green standards setter” or “green authority“, as defined in your policy.
If your building is certified, I describe below why you should consider adding green building insurance coverage to your property policy.
What Is Green Building Insurance Coverage?
Green building insurance coverage is a type of specialty insurance written to protect physical property related to energy efficiency, water efficiency, renewable energy and other green building efforts.
This specialty insurance policy language may found in your property insurance, or your business owner’s policy (BOP).
However, the broadest green building insurance coverage (the type that may add value) is most often found in an optional “green upgrades” endorsement that is added onto your property policy.
A green upgrades endorsement can help increase the value of your green building in three different ways.
- Expand the concept of “replacement cost”
- Include consulting fees and other soft costs associated with green building certification
- Increase your certification level possible when rebuilding after a loss
The green endorsement modifies your underlying property coverage and expands it – usually for a modest additional premium.
Green upgrades coverage may have a sub-limit included (eg. $100,000) and would be available as additional coverage beyond the underlying limits of property coverage in your policy.
Here is more information on the ways this specialty insurance can protect your investment:
1) Expanded Interpretation of Replacement Cost
The first way green upgrades coverage adds value is that it expands the concept of replacement cost to be something akin to a super “green building replacement cost”.1
For example, let’s say you have a fire in your green building and you lose all or part of your roof.
In such a situation, a conventional property insurance policy would pay for the cost to put on a new roof like the one that you had.
However, if you have green building insurance coverage, you may be able to replace the roof with a green roof or more advanced energy efficient roof.
This is a level of improvement for your building that goes beyond simple indemnification… You’re able to make the building more energy efficient and greener after a claim.
2) Covering Green Building Soft Costs
The second way green building insurance coverage adds value is by reimbursing you for the soft costs.
These are costs that you would have to incur in the process of having your building certified to LEED, WELL, BREEAM, Energy Star or Green Globes or whatever the certification standard is.
Soft costs may include LEED consulting fees, commissioning costs, energy modeling costs, engineering costs, etc.
3) Green Certification Level Upgrade
The third way this coverage may add value to your green building is by allowing you to upgrade to an incrementally higher certification level, if possible.
For instance, if you own a LEED Silver certified building and suffered a physical loss to your property, such as from a fire, you may be able to rebuild to LEED Gold certification (one level of LEED certification above Silver).
Green Building Insurance Example
The following is an example of the type of language you might encounter in a policy that covers green upgrades.
Green means products, materials, methods and processes certified by a Green Authority that improve efficiency, conserve natural resources, reduce energy, water or other resource consumption, avoid toxic or other polluting emissions or otherwise minimize environmental impact.
Green Authority means an organization, governmental agency or authority that produces or maintains guidelines related to green buildings, products, materials, methods, processes and/or practices.
A Green Authority may include, but not be limited to:
a) Leadership in Energy and Environmental Design (LEED®)
b) Green Building Initiative Green Globes®
c) Energy Star Rating System®
d) WELL Certified® Green Property Coverage
We will cover the reasonable and necessary additional costs incurred by the Insured, as a direct result of insured physical loss or damage: a) To repair or replace physically damaged insured property with material of like kind and quality which qualifies as Green.
b) To replace the insured physically damaged portions of insured roofing systems with a vegetative roof (aka "green roof"), that qualifies as Green, including but not limited to the addition of trees, shrubs, plants and plantings for that roof, if this Policy covers Real Property.
c) As part of Green reconstruction, to flush out the air in the area of the physically damaged insured property with 100 percent outside air, as per certification requirements, if any, and to provide replacement filtration media for the building’s ventilation system that controls the damaged area.
d) For an accredited professional certified by a Green Authority or commissioning agent (CxA) to commission or test building systems and building equipment following their repair or installation, and to participate in the design and construction for repairing or rebuilding the physically damaged insured property as Green.
e) For the process of certification or recertification of the repaired or replaced insured property as Green. If the building described in the schedule is certified as Green we will pay your expense to upgrade the building to the next level of Green certification for the same type (eg. LEED) of Green certification.
f) For Green removal, disposal or recycling of the damaged insured property.
Notwithstanding any other provision in this Policy, the Insured must repair or replace the insured real and/or personal property lost, damaged or destroyed as a condition of this coverage.
Green Coverage Exclusions:
As respects Green Property Coverage, the following additional exclusions apply. This Policy excludes:
a) Stock, raw materials, work in process, finished goods, merchandise, production machinery and equipment, electronic data processing equipment not used in the functional support of the real property, molds and dies, property in the open, property of others for which the insured is legally liable, personal property of directors, officers or employees of the Insured.
b) Any property adjusted on other than repair or replacement per the Valuation clauses of this Policy.
c) Any loss recoverable elsewhere in this Policy.
d) Leased personal property
Your green building insurance endorsement may include, not include or be silent on coinsurance.
Coinsurance is a type of exclusion that can impose a penalty on you in the event of a claim, if you are not insuring your building at – or close to – its full value.
As such, check your property insurance policy for a coinsurance clause and make sure the value of your property insurance limit is in-line with any coinsurance percentage requirement. You can use this coinsurance calculator to determine whether you’re in compliance or not.
Chances are your building will be more valuable after your green building upgrade and you don’t want to suffer a penalty in the event of a claim.
If you have questions about the property insurance for your certified green building, feel free to schedule an appointment with me.
Footnotes
- Most property insurance policies are written on a replacement cost or actual cash value (ACV) basis. Replacement cost means that you'll receive the equivalent of what you had at its value new. ACV means that the insurance company will take the value of the initial cost of the property and subtract annual depreciated value before calculating what you will receive to replace the property. As such, replacement cost is preferable in most cases.
