The federal Fair Housing Act (“FHA”) and Americans with Disabilities Act (“ADA”) require property developers to provide reasonable accommodations for disabled individuals. In turn, property owners rely on their architect and engineer to design compliant projects. If a project is not compliant, it is typical thinking that the property owner will seek indemnification and defense from the architect or engineer who was paid and insured to make it compliant.
The federal courts prohibit this, however. That is because the national consensus is that the FHA and ADA preempt state contractual law. The courts have looked at the statutes for an express private right of indemnification by an owner against a negligent designer, and they have not found one. As such, they hold that the requirements of the FHA and ADA on property owners are “non-delegable,” and that the liability for their breach cannot be shifted on to any other party.
The recent case of The Chicago Housing Authority v. Destefano and Partners, Ltd., 45 N.E.3d 767, 2015 IL App (1st) 142870 (2016) is illustrative. There, a review by the United States Department of Housing and Urban Development (“HUD”) revealed a range of noncompliance issues at seven properties, necessitating over $4 Million in renovations and new work. The Housing Authority had worked with the architects and engineers expressly to achieve compliance, requiring compliance in the design contracts. The Housing Authority therefore sued the architect and engineer to recover the cost of achieving compliance, under both breach of contract and indemnity theories.
The Illinois Court reviewed a lead case on the matter, Equal Rights Center v. Niles Bolton Associates, 602 F.3d 597 (4th Cir. 2010), noting that the federal trend has been consistent that property owners cannot contractually delegate their duty to comply with the federal accessibility standards. The Illinois Court ultimately held that the Housing Authority had no recourse against its designers whose negligence had caused the noncompliance, because no recourse was provided for in the governing federal standards. Recently, contractors have also been taking advantage of this caselaw to further isolate developers when claims arise.
While it is surprising that developers cannot control this liability by contract, developers can take steps to protect themselves. First, it is the industry standard to hire accessibility consultants to review architectural documents specifically for compliance. This is a preventative step only, because adding an additional party and review layer does not relieve the property owner of the non-delegable duty. Second, developers should ask their insurance providers about coverage for these claims. With the ubiquity of FHA- and ADA-related lawsuits, developers should not wait until a claim is brought, and only then leave it to their insurance recovery lawyers to try to argue into coverage. There are examples of this, however, including successful arguments for defense and indemnity under “loss of use” of the property, or “personal injury” coverage sections in commercial general liability policies. Developers may also weigh whether to obtain their own errors and omissions insurance coverage for their activities as licensed developers, in addition to their builders’ risk and commercial general liability coverage.
In the absence of regulatory change, developers should remain aware of this doctrine and protect themselves by adding additional layers of oversight, and insuring against potential losses.