Construction Claims Can be Dormant for Years – Two Real World Examples

Construction Claims Can be Dormant for Years – Two Real World Examples

Construction is a complicated endeavor, with a lot of moving parts. There are hundreds of things that can go wrong, possibly leading to a lawsuit, on even simple building projects. Contractors and subcontractors must be constantly on the lookout for problems not just with their own performance on the job, but with materials they order from their vendors, actions taken by their employees and subcontractors that may be dangerous, negligent or malicious, and the environment. An ill-timed rain on still-exposed drywall or other porous construction material could lead to legal problems long after you thought you were done with the project.

Here are a few examples from real life claims.

Multnomah County, Oregon

A Multmomah county builder called Swinerton Builders of Oregon was contracted to build a new multi-unit residential building by Wyndham Resort Development, Inc. Swinerton indeed built an eight-story, 415,000 square foot beachfront condominium called The Resort, located in the picturesque coastal community of Seaside, Oregon. The project was completed in 2003, and they began selling units. Swinerton moved on to the next project.

But according to Wyndham Resort Development and the condo association, a number of problems with the building gradually emerged:

  • Exterior surfaces were misaligned – allowing water and wind to penetrate the building, causing extensive damage to the roof and windows.
  • Dry-rot fungus, mold and mildew was pervasive.
  • Trims and fixtures began to warp.
  • Water damage destroyed insulation materials.
  • Metal fixtures were plagued by rust as a result of water seepage.

Ultimately, the developer and condominium association filed a $42 million lawsuit against Swinerton – five years after the project was completed.  The lawsuit alleged breach of contract, and breach of warranty for construction defects. Swinerton, the plaintiffs argued, had not built the resort in accordance with the drawings and manufacturers instructions provided to it. Swinerton also failed to conform to a number of building codes, the plaintiffs alleged.

Two years after the case was filed, it was settled out of court for an undisclosed sum.

This case illustrates the importance not just of carrying current construction liability coverage, but also maintaining coverage over many years. Risk can lie dormant for years before a problem emerges resulting in possible significant liability. It’s important not only to cover yourself against claims arising from your current work, but also to ensure your construction insurance policies cover you against claims arising from work you may have done many years ago.

Multi-Million Dollar Toxic Mold Claims

In the past, if you had a mold problem in your house, you spent some money and got some cleaning supplies and took care of it. If the mold problem was significant, maybe you hired a contractor for a few thousand dollars to do a thorough de-molding. Civil judgments and settlements involving construction liability generally centered around disputes over who  should pay the mitigation costs and attorney’s fees.

But in the early 2000’s, plaintiffs’ attorneys started attacking mold disputes not from a mitigation perspective, but from a personal injury perspective. Plaintiffs began claiming severe respiratory problems arising from toxic molds. Symptoms included everything from nosebleeds to asthma to prolonged, productive coughs to migranes. All of a sudden, the argument escalated from a few tens of thousands of dollars to claims for millions of dollars for lost wages, pain and suffering, disability and punitive damages – particularly if juries could be convinced to attribute the mold to negligence in the construction process.

In one California case, Gorman v. Komack and Bourgeois, et. al.,  (2005), the plaintiff alleged that his brand new custom-built home was infested with mold. As a result, he said, his son developed a severe developmental disability. Plaintiff’s attorneys convinced the jury – to the required standard of the preponderance of the evidence – that toxic mold can cause brain damage. The plaintiff sued the contractor and lumber suppliers involved in building the home.

The result was a $23 million dollar settlement – The largest ever awarded to that date in a toxic mold case involving a single family.

The potential liability, obviously, was far greater than any profits the companies involved could have made from building a single home. The escalation of mold cases from regular mitigation disputes represented a vast increase in the level of risk exposure on the part of builders and their vendors.


Few contractors can absorb a hit involving tens of millions of dollars. A judgment in that amount would quickly force a business into bankruptcy and endanger its very existence as a going concern. Adequate risk management is the most important thing that can be done since most liability policies do not cover construction defects and toxic mold, however there are some specialized policies that may address and cover these types of perils. This is why it is so important to sit down with your agent to review all these risk to see what options you may have.

Again, toxic mold is a delayed-onset risk. Mold problems can lie nearly undetectable to the casual observer for months or years – until the resident pulls up some carpet or works on the HVAC system. Once mold issues become apparent, some may be tempted to connect the mold with a variety of maladies, both real and imagined.

Construction risk management exists to protect you and your business and maintain your viability as a going concern. It may also be a very good idea to hire a risk management consultant who specialized in construction risk and a good builder will include these services and costs as part of the proposal.