Self-Imposed ADA Audits: The Developer’s Best Option

Another recent lawsuit, Chicago Housing Authority v. Destefano (2016), resulted in a ruling that project owners and developers may not allocate liability for Americans with Disabilities Act (ADA) claims to architects, contractors or other project participants.  Though the ruling defies contract law and common sense, several courts across the country have similarly refused to let owners seek indemnity from those who commit ADA errors. 

The ADA is a federal statute enacted in 1990. The goal of the ADA is to provide remedies for discrimination against disabled individuals and to prevent discrimination in the first place. Despite the lack of clear language to this effect, the ADA is viewed by the courts as pre-empting conflicting state laws, including contractual or common law indemnity.

Owners are not ADA experts.  They pay designers and contractors to comply with the ADA.  When compliance is not achieved, like with any other violation of the contract documents, owners enforce their contract rights and ask for repairs.  This generally works in other areas.  Even with building code violations, where many requirements are aimed at life/safety concerns, owners are permitted to seek contribution and indemnity from responsible parties.  Owners themselves are not off the hook.  They remain liable to the extent of their own fault, and for any refusal of those they hired to make repairs.  

But courts view the ADA differently.  As stated in one case, Rolf Jensen & Associates Inc. v. Mandalay Corporation:

“Permitting an owner to, in essence, circumvent responsibility for its violations of the ADA and the Fair Housing Act through an indemnification claim would lessen the owner’s incentive to ensure compliance with the ADA and FHA.”

The courts have rejected developer arguments to the contrary, including that allowing indemnity claims would encourage developers to hire expert ADA firms and delegate responsibility to them, increasing the involvement of ADA experts in the design and oversight of projects.

Courts also reject any attempt by developers to label their claims as “negligence,” “breach of contract” or “breach of warranty,” because each of these claims is still seeking indemnity from the ADA plaintiff’s claims.

While the courts note that architects, contractors and others who play a direct role in the discrimination may themselves be sued by the ADA plaintiffs (including government entities or private individuals), the reality is that owners and developers will be targeted as the deepest pockets.

Liability for ADA defects ranges from personal and bodily injury to constructive eviction, loss of use of property, and physical injury to real property, including the cost of repair. In the Mandalay case, the owner settled with the Department of Justice by agreeing to install retrofits costing more than $20 million before seeking indemnity from the architect.

What can a project owner do given the current state of the law? 

The Chicago Housing Authority (CHA) believed (incorrectly) that it was different from the owners in other ADA cases because it was never officially fined or cited for violation of the ADA and instead took on the repairs “voluntarily.”  It argued, therefore, that its claims against the architect were not for indemnity.  The court disagreed, noting that the CHA did not itself identify and proceed to fix the defects:

“Instead, HUD was forced to expressly notify CHA that the elderly residential apartment units worked on by defendant failed to comply with *** the ADA.  Accordingly, CHA failed to uphold the responsibilities required of building owners under the federal accessibility standards.”

It would appear from this passage that an owner may be permitted to seek damages from those who commit ADA errors if, without nudging from the Department of Housing and Urban Development or any other ADA plaintiff, the owner discovers the defects on its own and seeks to address them.  Thus, a self-imposed ADA audit gives owners the best chance of getting the responsible parties to pay or contribute to any ADA shortcomings on a project.  There are other steps that should be taken by owners.

First, hire vendors with a track record of compliance and expertise with ADA requirements.

Second, all participants should verify that their insurance policies provide coverage for ADA defects. Coverage is available under professional liability policies and some commercial general liability policies with the proper language and endorsements.  The insurance should be maintained not only during construction, but for several years thereafter – when claims are more likely.

Third, there is no harm in attempting creative contract clauses to avoid the ban on indemnity. For example, a clause stating that an owner and an architect share 50/50 on any ADA liability might hold up under the ADA, because the owner is seeking only partial contribution, not complete indemnity. Such clauses might be helpful, but they cannot be relied upon under current case law.

Finally, a decision from the U.S. Supreme Court or a national legislative solution may be in order. The language of the ADA does not expressly prevent indemnity claims, so the ban on indemnity comes from the few courts who examined the issue to date.  A legislative or Supreme Court solution should recognize that the best policy to ensure compliance (and that enough money exists to make repairs) is to hold all responsible parties accountable, including owners, developers, designers and contractors.

 

“Self-Imposed ADA Audits: The Developer’s Best Option” was originally published by the Daily Journal of Commerce on September 16, 2016.