(December 2022)
This endorsement is used to recognize the rapidly developing "green" initiatives in building design, operation, and construction to maximize energy efficiency and minimize negative effects on the environment. This optional coverage endorsement amends various coverage provisions to address anticipated green upgrades to buildings and certain personal property and their related expenses.
AG 04 46 is a supplement to replacement cost coverage. It is used to settle property claims when the named insured plans to upgrade any building or business personal property damaged in a loss with more energy-efficient and environmentally friendly materials, products, or design methods in construction, operations, and manufacturing that are recognized by specific "green" standards.
The endorsement is not a standalone coverage form. All terms and conditions in the coverage form apply unless modified within this endorsement.
This analysis is of the 04 13 edition of this endorsement. Changes from the 10 10 edition are in bold print. This analysis does not address editorial or format changes that do not affect coverage.
This schedule must be completed because the coverage applies only as scheduled. If the schedule is not sufficient, an endorsement is needed to enter the required information.
Required entries on the endorsement schedule are:
The maximum amount of coverage for Green Upgrades for:
When building and business personal
property are not subject to the same percentage, enter the items as two
separate entries. (04 13 addition)
Covered Business Personal Property can be limited by identifying and describing it in the space provided. (04 13 addition)
Different increased cost of loss percentages may apply to Building and Business Personal Property. In that case, separate lines on the schedule are used to identify the percentages. (04 13 addition)
This information may be entered on the declarations if it is not on the endorsement schedule.
The terminology used in this endorsement is specific to it and does not apply to the rest of coverage on this policy.
1. The
amount of coverage on the endorsement schedule is the maximum amount available
for the total of all Green Upgrades costs for the type of property involved. If
covered direct physical loss or damage occurs, the amount the insurance company
pays for all Green Upgrade costs is based on the following formula:
Step 1: Determine the amount of loss or damage that would be paid without any green upgrades at the covered location and for the specific coverage before applying the deductible. This does not include amounts for loss or damage to property that is not subject to this endorsement. Certain types of personal property are not eligible for this coverage. They are listed under A. 9. below.
Step 2: Multiply Step 1 by the Increased
Cost of Loss percentage on the endorsement schedule. (04 13 change)
Step
3: (04 13 change) If the amount of the direct damage loss is greater than the
deductible, go to Step 4.
If
the loss is less than the deductible, use the following steps:
Step
3a: Subtract the amount of the direct damage loss from the amount of the deductible.
Step
3b: If the cost of green upgrades is less than Step 3a, stop calculations because
no payment will be made.
Step
3c: If the cost of the green upgrades is more than Step 3a, the least of the following
is paid:
Step 4: The insurance company pays the
least of the following:
Note: The steps above do not follow the
endorsement outline but instead organizes in an easy to follow format. Step 3
tracks with paragraph d. while Step 4 tracks with paragraph c.
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Examples: The Hickory Ham’s policy is written with a $5,000 deductible, a
Building Green Upgrade of 50% with a maximum of $600,000, and a Business
Personal Property Green Upgrade of 50% with a maximum of $250,000. Hickory sustains
the following losses:
Step 1: $4,000 Step 2: $4,000 X .50 = $2,000 Step 3a: $5,000 - $4,000 = $1,000 Step 3b: $3,000 is greater than $1,000 Step 3c: Payment is the lesser of $2,000
($3,000 actual cost - $1,000 deductible difference), $2,000, or $1,000,000.
In this case, $2,000 is the amount paid. Step 4: Skip
Step 1: $50,000 Step 2: $50,000 X .50 = $25,000 Step 3: Skip because the direct loss is more than the deductible. Step 4: Payment is the least of $40,000, $25,000, or $500,000. In this case, $25,000 is the amount paid. |
2. Green standards-setters are organizations or governmental agencies that study green products and practices and generate guidelines related to them. Examples are:
a. The U. S. Green Building Council's Leadership in Energy and Environmental Design (LEED) program
b. The joint program of the U. S. Environmental Protection Agency and the U. S. Department of Energy known as ENERGY STAR
c. The Green Building Initiative's program known as Green Globes
3. Green is defined. It is the enhanced energy efficiency or use of environmentally preferable, sustainable materials, products, or methods in design, construction, manufacture, or operation. One of the green standards-setters must recognize it.
4. Only buildings and/or business personal property written on a replacement cost basis are eligible for Green Upgrades Coverage.
5. The Loss Payment Loss Condition in the policy is amended to include Green Upgrades. Unfortunately, this item does not explain exactly where these included Green Updates are to be placed in the condition. Because it appears to be a standalone item similar to Party Walls, a logical approach may be to view it as item d. of the coverage form Loss Payment Loss Condition, and it could read as follows.
d. Green Update
The additional costs that are needed to repair or replace damaged or lost covered property with materials and/or products that are considered green are covered. This is subject to all of the following:
This condition does not apply to any property that was considered green by a green standards-setter prior to the loss.
Note: That means that the already green items are automatically repaired or replaced with green because that is what would meet the like kind and quality aspect rule.
6. When the insurance company concludes that it must replace a building component or building system following a loss, both of the following apply:
7. This endorsement does not provide coverage to
bring a building up to minimum ordinance or law standards. The only minimum
standards it meets are those necessary to satisfy Green Upgrades. If the
green upgrades also happen to help meet ordinance or law requirements, this
endorsement does not disallow them.
8. The insurance company does not pay any additional costs to repair or replace damaged property when the only reason to do so is to accumulate certification or recertification points for the property by a green standards-setter.
9. With respect to Business Personal Property, Green Upgrade Coverage does not apply to:
Note: Item 10 in the 10 10 edition of this endorsement was about vegetated roofs. This item was eliminated because the 04 13 edition of the AG 00 01 coverage form covers vegetated roofs, so the prior item 10 is no longer required. The following numbers were therefore changed too.
10. Under this endorsement’s terms, the insurance company does not pay unless the property is actually repaired or replaced. The rebuilding can be at the same location or a different one. The named insured has up to two years to make repairs, but it must make them as soon as reasonably possible after the date of loss or damage. The insurance company may extend the two-year period. If it does, it must do so in writing.
If the property relocates to another location, the insurance company does not pay more than the cost of the Green Upgrades at the location where the loss or damage occurred. This is subject to all of this endorsement's other terms and conditions.
11. Under this endorsement’s terms, the insurance company does not pay for certain costs associated with enforcing or conforming to any standards that require:
12. The named insured may have Green Upgrades Coverage and decide not to exercise that option while it makes necessary repairs of or replaces damaged property. If it does, the insurance company settles the loss to the affected property according to the coverage forms terms and conditions and disregards this endorsement.
The insurance company pays the Related Expenses outlined below only if both of the following apply:
The most
the company pays for the total of all Related Expenses is the amount on the
endorsement schedule that applies. If another coverage in the policy applies to
these Related Expenses, the amount for Related Expenses on the endorsement
schedule is excess over such other coverage.
1. Waste Reduction and Recycling
The insurance company pays the named insured's expenses to reuse or salvage building materials and contents and to extract and transport reconstruction waste to appropriate recycling sites. The named insured may receive income from such waste reduction and recycling activities. If it does, the amount the insurance company pays is reduced by that amount.
2. Design and Engineering Professional Fees
The insurance company pays reasonable and customary accredited engineer or architect fees for necessary engineering or design recommendations associated with repairing or replacing damaged sections of a covered building.
3. Certification Fees and Related Equipment
Testing
a. The insurance company pays fees a green standards-setter charges for its work to determine that certification or recertification is appropriate according to its standards.
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Example: Ollie's Organic Onions policy is endorsed to include Green Upgrades Coverage and Related Expenses. A tornado rips through his property, damaging both building and business personal property. Ollie exercises his option to upgrade the building during the rebuilding process to include a number of green features and hires Eduardo’s Engineering to arrange the details and incorporate them into the reconstruction. This coverage paid the fees Eduardo charged for his services. |
b. The company also pays the named insured's reasonable expenses to test building equipment and systems after they are repaired or installed as replacements. Such testing must be done in conjunction with the certification or recertification process.
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Example: Continuing the example above, Eduardo worked with the green standards-setter to make sure Ollie’s project met their standards. Even so, testing of several of the green systems was required to prove that they had met or exceeded standards and qualify for certification. Ollie hired Ted's Tireless Testing to perform the required tests. This coverage paid the fees Ted charged Ollie to conduct the tests. |
c.
The company does not pay for any additional modifications if the building
is not certified or recertified or does not meet a specific level of
certification.
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Example: Concluding the example above, one of Ted's tests determined that an air exchange unit failed to move the required air volume and had to be replaced so the building could receive certification. The insurance company would not pay the cost of the replacement air exchange unit that provided the proper capacity. |
4. Building Air-out and Related Air Testing
The insurance company pays the named insured's reasonable expenses to flush out renovated spaces and/or test the air quality of such spaces after repairs are complete or rebuilding is done. The expenses it incurs must be to mitigate deficiencies in indoor air quality due to repairs or rebuilding and according to a green standards-setter's recommended procedures.
When the policy provides business income and extra expense coverage, this section applies.
1. The period of restoration extends to include the longer period of time needed in conjunction with the coverage that Paragraph A and/or Paragraph B above provides. The time extension is limited to 30 days. The number of days can be extended beyond 30 by entered a higher number in the endorsement schedule.
2. Business Income and Extra Expense–Extended Business Income begins after the period of restoration established in item 1 ends.
3. The increase in the period of restoration does not increase the business income and extra expense limit of insurance.
Note: A careful review of the business income and extra expense limit should take the impact of green updates into consideration.
The Coinsurance Additional Condition does not apply to this endorsement's coverage. It continues to apply with respect to the amount of coverage on the declarations for the Covered Property that this endorsement insures.