Wood-frame construction: Risks and liabilities

What's rotten? Wood frames are susceptible to temperature extremes, pest infestations, moisture and humidity.

“More than 90% of American homes are built with wood frames,” reports the construction education company MT Copeland. (Photo: Michael Flippo/Adobe Stock)

Wood framing is a $24 billion U.S. industry that covers the “new construction, alterations, maintenance, repairs and additions” of both residential and commercial structures like mixed-use facilities, according to research from IBISWorld.

Although recently impacted by the pandemic, labor and material shortages, supply chain issues and project delays, a 2022 ThinkWood survey found that the latest low carbon, hybrid, prefabrication, mass timber and low-cost housing trends were likely to spur the further growth of wood design and construction projects. This is mainly due to the simplicity, ease and speed associated with wood construction.

The truth is that “more than 90% of American homes are built with wood frames,” reports the construction education company MT Copeland. As for the commercial front, “wood has been a staple in building single-family homes and apartment complexes of up to 85 feet in height for decades.”

In fact, wood-frame construction is so common that alternate, pre-manufactured types of wood are becoming more prevalent in the construction world as builders seek to avoid some of the concerns mentioned here. (Note that these alternate types of wood carry their own claim-related concerns.)

Potential pitfalls

Like all structures, load-bearing issues related to weight, wind, rain, snow, vehicles, equipment and the like must be taken into consideration. But unlike concrete and steel, wood frames are especially susceptible to temperature extremes, pest infestations, moisture and humidity. These concerns can be even greater in areas that suffer from such extremes on a year-round rather than a seasonal basis.

Mold and the warping, sagging and rotting of wood frames caused by an overabundance of rain and/or humidity are not only a leading concern of contractors and developers, but also for insurers. That’s because issues like these can be filled with costly, time-consuming and difficult to resolve delays. They can also occur quite rapidly. While mold is commonly thought of something that happens over time, a contractor in the Northeast learned differently when $2 million of mold damage appeared only days after an intense rainstorm blew through his project area.

As a result of the ongoing reoccurrence of exposures like these, carriers, in our experience, are becoming increasingly particular about not only the project’s liability but also the contractor or construction firm’s background, experience and credentials. While mold is one significant issue, others include problems that can negatively impact the structural integrity of wood frames and even their possible collapse. All of this can lead to steep exclusions or even coverage denials. That’s why every word in an insurance policy counts. This is especially true for the terms and conditions outlined by each carrier’s Contractor’s Pollution Liability (CPL) policy, which can differ drastically among the 40 or so markets.

Purchased primarily to cover the pollution conditions resulting from the contracting operations performed by or on behalf of the named insured, CPL claims, in our experience, have risen steadily in the six to seven-figure range for a wide variety of mold, bacteria and emergency response-related incidents.

But there is some good news: We have seen the market’s capacity remain strong with several individual carriers providing stable rates and up to $50 million in per claim/aggregate limits. Another advantage is the availability of two- and three-year policy options for monoline pollution products, although we have seen project-specific programs become the popular alternative for large projects requiring substantial limits of liability or prolonged completed operations time periods.

Then again…

There are exclusions, which we have seen become increasingly stringent for wood design and construction firms developing hotels, condominiums, apartments, for-sale homes or even contractors whose businesses consist of 10% or more of wood framework. Other restrictions have also been applied to the mold, bacteria and communicable disease coverages offered to the businesses supporting specific industries like nursing and assisted living homes and/or working within the geographic regions heavily affected by climate change issues.

So a contractor’s goal is typically to protect both the profitability and integrity of projects with appropriate risk management solutions. This could include a heavy emphasis on due diligence as well as a detailed review of the CPL coverage terms and conditions offered by the available insurance markets. Again, there is no substitute for foresight, especially in an ever-changing environment filled with severe and unpredictable storm fronts, pests, moisture and long periods of humidity.

Drew Rothman (drew.rothman@rtspecialty.com) is a senior consultant and Mitch Cohen (mitch.cohen@rtspecialty.com) is a vice president in RT Specialty’s Environmental and Construction Professional Practice (RT ECP).

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