Net Zero Building: Adding Professional Liability to Address New Risks

By: Brian Robertson, CIC, CRIS

Brian Robertson specializes in advising commercial and residential developers, home builders, remodeling contractors, trade contractors, and landscaping contractors.

green building trends affect builder insurance programsNet zero building and green remodeling are the future for Massachusetts’ construction industry. If you’re not up to speed on what’s changing, now is a good time to review Mass.gov’s zero net energy building summary and what it means for your insurance program.

What is net zero building?

In simple terms, net zero building is the design and construction of a structure that produces as much energy as it consumes. Zero-energy structures use renewable power sources like wind and solar to fuel themselves. They’re also equipped with “tight envelope” features (next-generation walls, windows, doors, roofs), and energy-efficient systems (lighting, appliances, and HVAC)—all of which translate into lower energy consumption.

In the residential market, net zero homes may alternatively be labeled as “zero energy ready homes,” “passive houses,” or “high performance homes,” though that last term can have implications beyond energy efficiency.

In past years, zero-energy homes and commercial buildings were niche interest projects driven by environmentally-conscious individuals or corporations. Increasingly, however, cities and states are borrowing on net-zero standards to inform local building codes. And that means knowing how to build greener won’t just be a nice-to-have skill, but an essential one.

What are the added costs associated with net zero building?

Experts estimate that net zero building costs about 10% more than a comparable project built traditionally. But of course, every project is unique and comes with cost variances. To provide some context:

According to HomebuildersDigest.com, the building cost for an “average” 2,600-foot home is roughly $150/square foot. Comparatively, Architect Magazine recently profiled several options in net-zero homebuilding that ranged from $180-$150/square foot. While the end product isn’t necessarily comparable, these figures prove net zero building options are expanding outside high-value home markets.

From a remodeling standpoint, MA DOER features a series of energy retrofit case studies. These studies highlight examples of new building envelopes, advanced insulation, PV systems, etc. In one case, the energy efficient upgrades totaled $88,000 more than standard siding and roofing replacements would have, but the energy savings proved dramatic. See below.

What are the consumer savings associated with net zero building?

The Department of Energy estimates an average homeowner could save between $4,000 and $24,000, over the course of a 30-year mortgage, in a house built to 2015 energy-efficiency codes, as compared to 2009 codes. That’s just a six-year difference. Retrofits on older homes could yield exponentially larger savings—not to mention the massive reduction in air pollution.

Why is net zero building a priority in Massachusetts?

Massachusetts is a leader in reforming building energy code. The Bay State was named the most energy-efficient state in the country in 2019. Many lawmakers remain committed to advancing our sustainability policies.

When will Massachusetts adopt net zero building requirements?

Many groups would like to see this happen sooner than later. Already, cities like Boston, Brookline, Cambridge, New Bedford, Somerville and Worcester are taking steps toward establishing net zero building requirements within their borders. But clean energy advocates say the path to statewide adoption starts with an updated “stretch code.”

Here’s a bit of history on Massachusetts’ base code versus stretch code:

In 2008, Massachusetts passed the Global Warming Solutions Act (GWSA), which aimed to eliminate 80% of greenhouse gas emissions by the year 2050 (based on 1990 levels). A big part of the plan involved proposals for greener buildings. Expressly, the state’s Clean Energy Plan found that, “energy efficiency in new construction is the most cost-effective way for the building sector to reduce emissions between [now] and 2050.”

So, in 2009, Massachusetts created the country’s first “Stretch Code” –an above-code appendix to its regular building regulations and standards. The stretch code made it possible for MA towns and cities to voluntarily adopt more environmentally-conscious building practices than those prescribed in the state’s standard “base” code. As of January 2021, 287 Massachusetts municipalities (more than two-thirds of the state) have adopted the stretch code.

By now however, more than a decade later, energy-efficiency technology has vastly evolved. The state attempts to keep pace with stretch code updates, the most recent taking effect in 2017. But the latest planned update (IECC2021, MA 10th edition) has been delayed by the COVID-19 pandemic, and is not expected to become law until the summer or fall of 2022.

How does net zero building design affect your insurance program?

Net zero is (or soon will be) a state statute. Builders who don’t meet current or future requirements need to understand their professional liability insurance (a.k.a. errors & omissions coverage). General liability policies do not address some of the common issues associated with green building and remodeling, including:

  • Subpar equipment performance due to installation mistakes
  • Replacement systems after building specs called for the wrong ones
  • Labor costs associated with correcting the above

Contractors need to start the conversation with their insurance agents, whether they’re already tackling net zero jobs or not. Across the industry, E&O claims related to energy building will become a larger risk as we approach 2050.

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