Finding the Silver Lining: General Liability Coverage For FHA/ADA Claims

Over the past several years, developers and owners of multifamily housing have been the targets of numerous lawsuits filed by government enforcement agencies, including the United States Department of Justice, private disability rights organizations, and individuals alleging violations of the Fair Housing Act (the “FHA”) and Americans with Disabilities Act (the “ADA”). The “damages” and attorneys’ fees claimed by plaintiffs in these lawsuits, including the cost to modify existing buildings to comply with applicable accessibility guidelines, as well as the enormous costs in defending such lawsuits, have created significant financial exposure to the multifamily housing industry.

Most developers and owners facing such claims seldom consider the possibility of insurance coverage. And when they do, they rarely consider coverage beyond specialty policies such as construction or discrimination-related policies. Now, in two recent decisions obtained by Haynes and Boone, L.L.P.’s Insurance Coverage Practice Group, Texas courts have granted relief to policyholders faced with FHA and ADA claims under traditional general liability insurance policies.

Although each policy is unique, most general liability policies contain two separate coverage parts insuring (1) damages that the insured becomes legally obligated to pay because of “property damage”; and (2) damages that the insured becomes legally obligated to pay because of “personal injury,” a term sometimes defined to include injury arising out of discrimination because of physical disability. Both coverage parts provide potential avenues for recovery for defense costs and/or indemnity in connection with FHA or ADA claims.

In Trammell Crow Residential Company, et al. v. Old Republic Insurance Company, No. 07-12344, in the 44th Judicial District Court of Dallas County, Texas, a national multifamily housing developer obtained summary judgment that its general liability carrier owed a duty to defend allegations that a disabled resident was denied the use of her apartment because of alleged violations of the FHA. Like most general liability policies, the subject policy’s coverage for “property damage,” included coverage for damages the insured becomes legally obligated to pay because of “the loss of use of tangible property that is not physically injured.” The underlying plaintiff’s allegations that she was denied the use of her apartment by virtue of the developer’s alleged failure to comply with disability accessibility guidelines were found to be consistent with the policy’s coverage for “loss of use of tangible property.” Moreover, to the extent that intent is not an element of a claim under the FHA, the court rejected the insurer’s argument that the underlying plaintiff failed to allege an “occurrence” or an “accident” as required to trigger coverage.

Separately, in Trammell Crow Residential Company, et al. v. Virginia Surety Company, Inc., 2008 WL 5062132 (N.D. Tex. Dec. 1, 2008), the United States District Court granted summary judgment that a general liability insurer owed a duty to defend allegations that a multifamily housing developer violated the FHA and ADA under a policy insuring damages because of injury arising out of discrimination because of physical disability. Importantly, although the underlying allegations of “injury” were made by a disability rights organization, as opposed to a disabled individual, the district court concluded that the policy’s terms did not require the underlying plaintiff to allege that it had been personally discriminated against due to a physical disability. Rather, all that was required was an allegation of “injury” arising out of discrimination because of physical disability, and, in this case, the underlying plaintiff had alleged an injury sufficient to trigger the policy’s coverage. Id. at *9–11.

While these two decisions focused on the insurers’ obligation to defend the insureds, the bigger expense may be the cost of complying with applicable FHA /ADA guidelines by modifying existing properties. These costs are arguably covered as “damages” under traditional general liability policies.

As a result of these decisions, owners and developers of multifamily housing may be able to (1) recover the significant cost of defending FHA and ADA claims; and (2) obtain indemnity for damages owed in connection with a settlement or judgment entered in connection with FHA and ADA claims, under traditional general liability insurance.

Developers and owners may not be able to avoid these claims. If so, they must consider the possibility of available coverage under their insurance program and, in light of recent case authority, must not overlook their traditional general liability policies.

[Ernest Martin (pictured first from top) is a partner at Haynes and Boone and lead the firm’s Insurance Coverage Litigation Practice Group. Micah Skidmore (pictured second from top) is an associate in the Insurance Coverage and Securities Litigation Practice Groups.]