Environmentally friendly construction, often called "green" construction, is increasing across the United States as building owners seek to reduce energy use, cut emissions, and lower operating costs.
A green building is one that meets requirements for Leadership in Energy and Environmental Design (LEED) certification. The U.S. Green Building Council developed LEED as a way to help building owners identify practical, measurable designs and construction, operation, and maintenance practices that are more energy- and water-efficient and that support healthier indoor environments.
Some states and municipalities have adopted building codes that require elements of green construction, such as higher water-efficiency or stricter energy-use standards for large buildings. The impact of these requirements on construction costs will vary by location and by the scope of required changes.
Green construction can require specialized materials and methods, and in many areas contractors with the necessary expertise are still relatively scarce. That can increase the cost and time required for repairs and rebuilding after a loss.
Factors that influence an insurance claim
- Whether the green building code applies only to new construction or also to major renovations.
- How the code defines a "major renovation" (some codes use a percentage of area or value threshold).
- How green materials will affect the building's appearance and market value, which can influence an owner's repair decisions.
- How new materials will interact with existing building components and whether integration adds rebuilding time or cost.
- Availability of qualified contractors and potential wait times for specialized materials.
- How the building code is applied after large catastrophes when many properties are damaged at once.
- Potential delays in debris removal and inspections after widespread damage.
Standard personal and commercial property insurance policies typically provide limited coverage for ordinance-or-law losses—the extra costs required to meet a new or changed building code.
Additional coverage options are available for ordinance-or-law exposures, and property owners in areas with green building codes should Property and Workplace Risk Topics for Insurance and Green Construction and Workplace Safety when evaluating options.
Before a loss occurs, owners should review policy language and consider extra coverage to address higher compliance costs. For specific policy options and to understand how coverage would apply to a particular property, talk to an agent.
Research and industry reporting indicate growing demand for retrofitting and rebuilding to meet green standards, so these coverage questions are likely to arise more frequently in the future.
Frequently Asked Questions
What is ordinance-or-law coverage?
It helps pay the extra cost to comply with building codes or ordinances that apply when repairing or rebuilding after a covered loss.
Will my standard property policy automatically cover green upgrades?
Standard policies usually provide only limited coverage for code upgrades; dedicated endorsements or extensions are often needed for full protection.
How do building codes affect repair decisions after damage?
If a repair triggers code compliance requirements, owners may have to use newer materials or methods, which can increase cost and time to restore the property.
What should I ask my insurance agent about green building risks?
Ask whether ordinance-or-law coverage is included, what limits apply, and whether additional endorsements are available to cover higher compliance costs.