Insurance Implications of California Home Builder Air Pollution Mitigation Law

The Supreme Court has declined to hear an appeal challenging a local/regional home developer mitigation law which could have ramifications in the construction insurance market.
The appeal of a lawsuit by the National Association of Home Builders (NAHB) challenging a California law requiring home developers to mitigate carbon emissions from building projects was recently declined by the United States Supreme Court. Many emission-related risks and mitigation-related risks may not be covered by the standard insurance policies typically used in the construction industry today.

Home developers must mitigate the carbon emissions generated by their projects under the law.
Adopted by the San Joaquin Valley Unified Air Pollution Control District, the law at issue forces those involved in housing development projects to mitigate the carbon emissions generated by their efforts. Mitigation can be either by specific green initiatives, or through payments to the District to fund general pollution mitigation projects.

The NAHB originally filed suit to invalidate the law in 2006, asserting that the District did not have the jurisdiction to regulate the environmental requirements of home developers. Both the federal district court and the United States Court of Appeals for the Ninth Circuit disagreed, indicating that local and regional air pollution controls are permitted by the U.S. Clean Air Act.

The standard construction program typically provides contractors liability insurance, builders risk insurance and workers compensation.
A standard construction insurance program typically provides contractors liability insurance, builders risk insurance and workers compensation. Generally, this program would provide protection from third-party claims for damages, damages to the project during construction, and medical/disability payments for injured employees.

Pollution liability insurance is typically a specialized coverage that is not always included in standard construction insurance programs. Additionally, standard pollution liability insurance endorsements may not cover risks related to emission mitigation efforts, risks and/or litigation.

New endorsements specifically designed to cover these mitigation risks could emerge.
To the extent that local and regional governmental authorities continue to impose environmental mitigation requirements on home developers under the Clean Air Act, insurers serving the construction industry will likely be forced to adapt. New endorsements specifically designed to cover these mitigation risks could emerge. If the mitigation requirements become more pervasive, standard construction insurance programs could evolve to incorporate mitigation risk coverages as a standard feature.

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10 comments:

  1. Just read your post and would like to thank you for such a nice blog....Thanks

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  2. This is some interesting information, it must get very expensive when home developers/builders have to be covered for so many different things. It sounds good in theory, but the authorities should find some middle ground.

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  3. The construction industry need to reassess its insurance terms. There are flaws in the implemented coverage.

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  4. From what I read, the Carbon Mitigation standard would be very costly. Which is why a lot of HOAs are opposed to it.

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  5. The flaws in the coverage might have rooted from over-assessed factors.

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  6. In my opinion, there's a need for developers to pay to offset the air pollution caused by their construction equipment to protect public health. It looks like other air regulators in the Bay area will adopt a similar rule.

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  7. It's good that California is getting polluters and will be charging them for carbon emissions, but what about pollution for building demolition? For example, a very small percentage of waste concrete is currently being recycled.

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  8. Air pollution, unlike many people, is an issue fluffed up than it should be. It is a problem, but not as big as environmentalists say it to be.

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  9. I agree with the previous comment that Carbon Mitigation is expensive. Many home owners are opposing this law. However, this law is for the good of the environment, so if I were to vote, I would go with the Mitigation Law.

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  10. I might vote for the side of the Mitigation Law as well. I think that the government will not impose such law if it's not for the good of the environment. I just hope that the people will never be charged with an additional tax just to implement this.

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