Encinitas resident Dan Cassel is building his very own castle, a 6,000-square-foot mansion in the exclusive development of Meadows Del Mar. "You can't miss it," he says -- but not because of the project's size.

It's because the house is being built out of blue wood. And yes, a couple of the neighbors have been over to inquire.

The wood used to frame the two-story house is a new product called BluWood, a trademarked coating developed by a team of scientists at WoodSmart Solutions in Florida three years ago. It comes with a warranty that it will prevent mold, rot, fungus and insects, including termites.

Featured on a number of segments of ABC's "Extreme Makeover" this season, Bluwood is not applied at the building site like some anti-mold or anti-termite treatments, but in the factory.

"Everything else that is on the market right now is sprayed on the lumber after the building is framed," said Doug Niel, the San Diego sales representative for BluWood. "And when it is sprayed at the site, all the studs that are nailed into the shoe plate and the joints are not coated. That is especially important at the foundation, because that's where the termites and mold usually enters."

At the factory, BluWood is coated on all six sides of the boards with a two-part chemical treatment. The first step is to apply a water repellant that controls moisture absorption while it still allows the wood to breathe. The second application is of a substance called disodium octaborate tetrahydrate, a wood preservative, a fungicide and insecticide.

The fact that BluWood arrives at the building site already coated gives the lumber added protection. "It can take a month to six weeks while the lumber is sitting out a site -- and even longer if it is sprayed. And during that time, moisture can enter the lumber or if termites are swarming, they can enter the lumber, and it is still waranteed for the life of the structure," said Niel.

The distinctive blue color, the company says on its Web site, provides visible assurance that the complete surface has been treated. The coating is said to be non-corrosive, odorless and does not leach into the soil. The company also notes that BluWood has been listed in the GreenSpec Directory, a listing of environmentally preferable products.

BluWood, as with other products using chemically treated wood, seeks to address a fast-growing concern in the construction industry about the costs of protection against mold and moisture control litigation.

As president of Cassel Financial Group and a real estate developer on the side, Dan Cassel says he knows firsthand how costly protection from mold and termites can be. "We have deals that don't close because of mold issues -- there are always mold issues," he laments. "Mold is a lot like termites and that saying, 'If you don't have termites, you will.'"

Cassel heard about BluWood when he met Steve Conboy, the owner of Southern California BluWood, at a men's Bible retreat and they got to talking about the product. "It just made a lot of sense," he said.

Cassel said he has read on the subject and learned that lumber, often harvested in Canada and in the Pacific Northwest, can stay outside in damp conditions for long periods, where it can contract mold there or on the building site. "They're harvesting wood so fast, and it may already get mold properties even before the house is built," he said.

Since nearly all homes in Southern California are wood-framed, termites and mold are two of the industry's most costly challenges. It is estimated that termites caused more than $1 billion in damage in U.S. homes each year and in 2003, the Insurance Information Institute estimated that $3 billion was paid out in mold claims.

"Products come in response to public outrage," said Hamid Arabzadeh, lecturer at the Center for Occupational and Environmental Health for the College of Medicine at UC Irvine, noting that there are many products aimed at making wood more resistant to moisture and insects, though he is unfamiliar with this specific one. "Generally, I am always leery of applying more chemicals," he said.

In 2002, a $20 million lawsuit filed by television personality Ed McMahon alleging insurers and adjusters did not do enough to remedy mold after a pipe burst in his Beverly Hills home started a flurry of mold lawsuits. His case settled out of court for $7.2 million, but in its wake, California and many other states responded by passing laws allowing insurance companies to exclude mold from coverage, which is typical now.

"Before, if it took $50,000 for mold repairs, it was no problem because of the insurance companies' deep pockets," said Peter Sierck of Environmental Testing and Technology in Encinitas, who added that many mold-related claims began to taper off about four years ago when insurance carriers stopped paying for mold problems.

"I really think it (mold litigation) has really slowed down, partially because insurance companies have eliminated or limited their coverage," Arabzadeh said, adding that even now, attorneys will sometimes summarily add mold claims to construction-defect complaints just for good measure.

Change in the wording of policies may have protected insurance carriers from the threat of mold claims, but it has done nothing to shield the builders' liability. Enter products with extended warranties, like BluWood.

"I know for one that builders love this kind of stuff because their insurance carriers exclude mold coverage, and a warranty from the company -- for 10 to 20 years -- limits their exposure to liability," said Sierck. But it does nothing to protect builders and homeowners from mold that grows in drywall.

"There are always two sides of the coin," said Sierck. "If the wood has been treated so that if exposed to long-term water exposure, mold will not grow, then it will have a benefit. On the other side, if you really look at what is most affected by exposure to moisture, it is the drywall that is usually most affected.

"Yes, it works for the wood, but most of the damage -- probably 95 percent -- occurs in the drywall."

Arabzadeh agrees. He said insulation, wallboard, dry wall and wallpaper are all very good sources for mold. "When you add all these layers, it can take just one leak and a poor plumber to cause $100,000 in damage," he said.

"Mold is not a new issue, only new to the public," he said, adding that remedies for treating mold can be found in the Old Testament. "A lot of our homes are wood-framed, and if we would build them properly and plumb them properly, most mold problems would not exit. If you prevent moisture, you wouldn't have mold."

Cassel is involved with a 16-unit condo conversion project in El Cajon and said that his 10-year policy against construction defects cost him $40,000. "Builders are always working under the threat of litigation and skyrocketing insurance costs," said Cassel, adding that many of these costs are passed onto the consumer.

"Anytime you have a major home-building explosion, it is harder to have quality control," Arabzadeh said. "If mold has done one thing, it is that it has put property managers and builders on their toes a little bit."

Cassel said the higher price for BluWood, about $1.25 a square foot, is money well-spent. "I talked to a lot of people and I think its going to take over the whole market," he said.

Doug Niel said the Encinitas condominium complex he lives in was just recently tented for termites. "It cost nearly $1 a square foot," he said. "And that was only guaranteed for one year. So for BluWood at $1.25 to $1.50 more a square foot, it's a no-brainer."

Contact staff writer Ruth Marvin Webster at (760) 740-3527 or rwebster@nctimes.com.