Building Green: Potential claims against Construction and Property Professionals
Many industry sectors are taking steps to become more sustainable. The global construction sector must decarbonise almost completely by 2050 if it is to meet the goal of the Paris Agreement, the international treaty on climate change adopted by 196 parties in December 2015 at COP 21 to limit global warming to below 2 degrees compared to pre-industrial levels.
To achieve that goal, the sector must ‘build green’, reducing energy demand, using renewable energy or zero-carbon heating techniques, and addressing embodied carbon stored in building materials and produced by construction processes.
At the same time, demand for energy in buildings has nearly doubled since 2015, putting yet more pressure on methods and materials.
For construction and property professionals, the pressure to transform and adopt ‘green’ practices presents new risks:
‘Greenwashing’: Under the spotlight recently due to recent high-profile investor litigation concerning ESG claims made by corporations, ‘greenwashing’ claims may also arise against construction professionals as owners, developers and tenants focus on sustainability and energy performance. With high stakes, developers may make bold ‘net zero’ claims, with a resultant risk of litigation if those claims are not borne out by energy usage tests – and with no universal certification yet, ensuring the transparency and integrity of ‘net zero’ claims is difficult. Claims may materialise in the contractual chain where environmentally unsound materials are specified, or where products and materials which meet ‘green’ codes are produced by environmentally unsound processes. Works to improve heat or energy efficiency are not being up to scratch could lead to soaring utility bills or the withdrawal of energy grants or heat incentive payments, with the potential for significant claims for consequential losses. Energy consultants, architects or mechanical and engineering contractors modelling energy predictions may be exposed to claims if lower energy usage is not realised. Where claims that a product has a positive environment impact do not stand up to scrutiny, consumers may bring claims for breaches of the Competition and Markets Authority’s ‘Green Claims Code’.
Competing priorities: The drive to ‘build green’ against a backdrop of raw material shortages and inflationary pressures means architects and design professionals will need to advise their clients on the competing priorities of sustainability, cost and timing. Problems can arise when contractors find that ‘green’ products are unavailable, creating a delay that can impact on completion dates, so may install non-green products instead. Extreme weather events, sea level rises, heat waves and water scarcity may further impact on the cost of production, causing further pressures on the supply chain. If claims do materialise, loss levels can be exacerbated by material shortages and inflationary pressures, as costs of remedial works are driven higher.
The role of ‘smart technology’: Connected devices and smart technology can help the drive to ‘build green’, whether by improving the efficiency of energy usage or predicting when maintenance will be required. The drive to install smart technology is driven by regulation too – from June 2022, all new residential buildings in England and Wales will be required to have electronic vehicle charging points. As buildings become ‘smarter’, the potential for things to go wrong becomes greater, and new and innovative technologies present a potential claims risk. The use of smart sensors to produce safety critical data could lead to claims against product designers if systems do not operate correctly and cause loss, damage or personal injury. Technology which purports to comply with environmental best practice may have hidden environmental costs – for example, where smart systems use blockchain technology, the increased energy efficiency achieved may be significantly outweighed by the hidden carbon costs generated by the blockchain and cryptocurrency transactions: some estimates suggested that emissions from Bitcoin mining could reach 96 million tons of Carbon dioxide annually and raise global temperatures by two degrees. There may be exposures for architectural and engineering firms guiding their clients on new technologies and construction, and novel exposures – for example, professionals working on ‘smart’ buildings may face claims for damages for infringement of intellectual property rights if proper licence terms are not agreed for the use of technology.
Supply chain management: Construction professionals under demand from stakeholders to ‘build green’ may rely on claims made by subcontractors about their methods or materials, or on manufacturers’ sales information in the supply chain. Start-up companies may make bold promises about new technology or methodology – and very significant claims can arise when ‘green’ plant or technology fails to perform as claimed or specified, with the resultant remedial costs and consequential losses. Assessing the functionality of various allegedly green products and technologies may not be straightforward, while a lack of established professionals in the marketplace may make sub-contractor due diligence more challenging. This presents novel exposures, and the failure to properly investigate and verify claims about ‘green’ methods or materials can expose professionals to claims upstream, with recovery downstream in the supply chain not always certain or straightforward. Due diligence, the need for comfort around contractual relationships, and proper consideration of the insurance arrangements in place through the supply chain is paramount.
The above examples are just some of the possible risks which might arise in this fast-moving space. As the frontiers of green technology continue to develop, new claims exposures will continue to grow, and our Specialty and Professional Indemnity Claims group will continue to support and work with our customers in dealing with these new challenges as they emerge.
