Green building has grown exponentially in the past few years. As of March, 91 lodging properties had achieved the U.S. Green Building Council’s LEED certification. An additional 1,100 properties have registered to seek certification. This should come as no surprise to those familiar with trends in green travel. Ecotourism is one of the fastest growing segments of the global tourism industry.

According to marketing firm PhoCusWright, more than 40 percent of travelers now consider the environment when making travel choices. As part of a national survey, Travelzoo found that more than 90 percent of travelers prefer to stay at an eco-certified hotel if price and amenities are comparable to a non-certified hotel. AAA has even added an “eco” icon to its tour books.

But with new green initiatives, developers and hotel owners must learn to maximize coverage for changing risks and liabilities. For instance, if a lodging establishment suffers a loss during or after construction, will its insurance cover the replacement of or upgrade to green materials? What if an architect fails to deliver on an agreement to design a LEED project? And is there coverage when a building fails to achieve LEED-certification or is decertified?

To manage these risks, those in the hospitality industry should examine their current insurance programs for any “green gaps.” While insurers have been slow to respond to the untested risks of green construction, new insurance products are hitting the market as developers continue to go green.

Builder’s Risk and Property Insurance for Green Hotels
Lodging establishment owners and developers have a number of options for green builder’s risk and property coverage. Generally, these forms fund the replacement of damaged property using green materials and techniques. Fireman’s Fund and Liberty Mutual, for instance, offer coverage to replace traditional building materials with green alternatives. Zurich and Fireman’s Fund offer endorsements that specifically contemplate costs related to LEED certification. Some products even provide coverage for hiring LEED professionals.

To protect their investments, hotel owners and developers may want to explore these coverage options and consider requiring them as part of their controlled insurance programs.

LEED and Your Liability
Much of the risk associated with green building stems from the potential failure to achieve certification. Reported lawsuits regarding green building-related liability have been slow to develop, but will certainly arise. One such dispute, Shaw Development LLC v. Southern Builders, involved a building owner’s loss of tax credits when the building did not achieve LEED silver certification. While the case did not go to trial, many builders and architects have since refrained from guaranteeing LEED-certification.

In addition to risks surrounding architect and contractor failures to meet LEED certification standards, green hotel owners also may risk litigation associated with potentially misleading marketing claims. The government, through the Federal Trade Commission, recently increased its focus on regulating environmental marketing claims. Hotels marketing themselves as “LEED-certified” or as holding other green designations may be at risk if such claims turn out to be inaccurate.

To protect themselves, green hotel owners may want to explore insuring this type of liability. Chartis Risk Management’s Green Reputation form provides unusual coverage for a reputational crisis when a green project suffers negative publicity. This endorsement covers the cost of crisis management specialists to manage bad publicity, and other services to help restore a company’s reputation. However, the endorsement’s language has not yet been tested, and observers disagree about whether it will cover situations where green certification is not achieved.

Is Your Architect Covered?
Even now, years into the green building boom, design professionals have few options for transferring risk if they are sued because a building fails to meet LEED certification or is later decertified. From a hotel owner’s perspective, this could mean problems recovering on a judgment if the design professional lacks adequate funds.

The Green Architects & Engineers Professional Liability Policy, currently offered by Argo Insurance Group, may prove useful. This includes a green design endorsement and, particularly unique, appears to provide coverage for LEED certification guarantees. Hotel owners and developers may want to consider requiring their architects to carry such coverage.

Green building is here to stay. While green coverage options have been slow to materialize, insurers seem increasingly engaged as green construction becomes more prevalent. Hotel owners and developers should consult their insurance advisers about what coverage may be available to avoid any “green gaps” and maximize recovery.

Leslie C. Thorne is a member of the Business Litigation and Insurance Coverage practice groups in the Austin, TX, office of Haynes and Boone, LLP. She can be reached at leslie.thorne@haynesboone.com.