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Insurance Goes Green

With new technologies comes new businesses and new products—and new insurance issues. As with so much else, the new color in property insurance is green.

Traditionally, property insurance has required the insured to rebuild with like kind and quality materials. This fit with the purpose of property insurance, i.e., to compensate for the actual loss sustained, not to put the insured in a better position than before the loss. 

The revolutionary aspect of “green insurance” is the option to rebuild conventional buildings using environmentally friendly materials and methods. Instead of rebuilding to yesterday’s standards, insureds with green insurance will rebuild to tomorrow’s standards.

Green insurance is now available for both homes and commercial buildings from a wide variety of insurers. Green insurance policies come as either stand-alone products or endorsements to existing nongreen policies. They provide increased coverage for replacement of damaged property with green materials.

Although there are considerable differences between policies offered by different insurers, some common features of green insurance include:

  • Replacing damaged or destroyed appliances, lighting, and electronic equipment with equivalent energy-efficient equipment;
  • Rebuilding the home envelope, including energy-efficient home sealing (insulation and air sealing), roof products, windows, doors, and skylights;
  • Upgrading heating, ventilation, and air-conditioning systems to energy-efficient systems;
  • Using certified wood for millwork, ceilings, siding, and framing, including bamboo flooring;
  • Using nontoxic, low-odor paints and carpeting;
  • Using water-saving plumbing fixtures;
  • Eliminating ozone-depleting refrigerants and fire extinguishing agents, and replacing them with environmentally friendly alternatives;
  • Recycling debris removed after damage to a home and diverting the debris from landfill;
  • Paying up to a specified dollar limit for green certification fees; and
  • Rebuilding up to one level of higher certification, for those buildings that were previously Leadership in Energy and Environmental Design (LEED) certified.

Green insurance coverage for property damage is in its infancy. Courts have yet to apply traditional insurance concepts to the unique coverage these products afford. Issues that are likely to become hot-button topics as the market for green policies expands include indemnification against potential future higher standards for certification, payment for recertification after a loss, and coverage for alternative energy equipment (e.g., solar panels and wind turbines).

For more on green insurance, check out CEB’s new book California Property Insurance: Law and Litigation, chap 17. My discussion of this new book with its contibuting editor, Tim Sullivan, is now up on YouTube. On green building, go to CEB’s California Construction Contracts, Defects, and Litigation, chap 4.

© The Regents of the University of California, 2011. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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