Indiana Law Review Indiana Law Review Volume 44 2011 Number 2 NOTES Who Needs Contract Law?—A Critical Look at Contractual Indemnification (or Lack Thereof) in FHAA AND ADA "Design and Construct" Cases Charles Daugherty Introduction The right to contract freely with the expectation that the contract shall endure according to its terms is as fundamental to our society as the right to write and to speak without restraint. Responsibility for the exercise, however improvident, of that right is one of the roots of its preservation. A rule of law which would sanction the renunciation of a bargain purchased in freedom from illegal purpose, deception, duress, or even from misapprehension or unequal advantage leads inexorably to individual irresponsibility, social instability and multifarious litigation.^ For generations in the United States there has been a debate surrounding the importance offreedom of contract.^ Many scholars link freedom of contract with notions ofindividualism, democracy, and free will.^ Others note that enforcement of obligations freely bargained for is essential for a capitalist economy, and linking freedom of contract to treasured American values preserves the hierarchical structure of a capitalist system."^ Within this debate, governmental * J.D. Candidate, 2011, Indiana University School of Law—Indianapolis; B.A., 2007, Purdue University, West Lafayette, Indiana. Recipient ofthe Papke Prize for Best Note in Volume 44, endowed by and named in honor of David R. Papke, former R. Bruce Townsend Professor of Law and faculty advisor to the Indiana Law Review. I would like to thank Professors Antony Page and Cynthia Adams for providing invaluable insight and guidance throughout the writing process. I would also like to thank Danielle Tucker and Katie Boren for their constructive feedback and helpful suggestions. Lastly, I would like to thank my family as well as Billy Holland and Caleb Singleton for their undying support and inspiration. 1. Blount V. Smith, 231 N.E.2d 301, 305-06 (Ohio 1967) (citation omitted). 2. See Samuel Williston, Freedom of Contract, 6 CORNELL L.Q. 365, 365-67 (1921) (discussing the changing perception of freedom of contract over time). 3. See id. at 366. 4. See generally KARL MARX, THE GERMAN IDEOLOGY ( 1 932), reprinted in KARL MARX: 546 INDIANA LAW REVIEW [Vol. 44:545 intervention is the key variable that splits opinions.^ Milton Friedman and John Kenneth Galbraith, two highly influential economists,^ nicely represent the diametric views of free market versus governmental intervention.^ Friedman advocated freedom for market participants to allocate resources and responsibilities with little governmental intervention in order to promote the most efficient economic system.^ Galbraith advocated more governmental intervention in the market to help decide through regulation what is most efficient and productive.^ Both sides ofthe debate recognize to some degree that the ability of parties, particularly business entities, to freely negotiate a deal with the expectation that the deal's terms will be upheld by courts is essential for carrying on business.'^ Parties often come to the negotiating table with a similar profit- making goal but different plans ofhow best to achieve that goal.^^ The construction industry depends heavily on contractual obligations of Selected Writings 175-87 (David McLellan ed., Oxford Univ. Press 2004) (1977) (arguing that mode ofproduction creates ideology and then top-down ideology holds society's current mode of production in check). 5. See Mark Pettit, Jr., Freedom, Freedom ofContract, and the "Rise and Fall, " 79 B.U. L. Rev. 263, 264-66 (1999) ("The idea of contract itself has become more objectified; it is less often an obligation voluntarily assumed by the contracting parties, and more often an obligation imposed by courts to protect the reasonable expectations of others."). 6. Friedman won the Nobel Memorial Prize in Economic Science in 1976, taught at the University of Chicago from 1948 to 1977, contributed to the rise of the Chicago School of Economics, and was "one ofthe 20th century's leading economic scholars, on a par with giants like John Maynard Keynes and Paul Samuelson." Holcomb B. Noble, Milton Friedman, the Champion ofFree Markets, Is Dead at 94, N.Y. TIMES, Nov. 1 7, 2006, at Al . Galbraith was "one of the most widely read authors in the history of economics." Holcomb B. Noble & Douglas Martin, John Kenneth Galbraith, 97, Dies; Economist Held a Mirror to Society, N.Y. TIMES, Apr. 30, 2006, at Al. Though he never won the Nobel Memorial Prize, he published thirty-three books, wrote speeches for President Franklin D. Roosevelt, and advised Presidents John F. Kennedy and Lyndon B. Johnson. Id. 7. See Noble, supra note 6 ("In forums . . . [Friedman] would spar over the role of government with his more liberal adversaries, including John Kenneth Galbraith . . . ."). 8. See Milton Friedman, An Economist's Protest: Columns in Political Economy 203 (1972) (arguing that "collectivism is the road to tyranny, inequality, and misery; and that a free market is the only feasible road to freedom and plenty"). 9. See John Kenneth Galbraith, TheNew Industrial State 32-33 (3d ed. 1 978) ("The frilly planned economy, so far from being unpopular with avowed friends of free enterprise, is warmly regarded by those who know it best."). 10. See Friedrich Kessler, Contracts of Adhesion—Some Thoughts About Freedom of Contract, 43 COLUM. L. REV. 629, 629-30 (1943) (arguing that courts must allow business entities to contract freely because it is impossible to predict the limitless number ofpotential arrangements business entities will need). 11. See Construction Law 1 7-32 (William Allensworth et al. eds., 2009) (describing the many relationships formed in a construction project to accomplish the project goals). 2011] WHO NEEDS CONTRACT LAW? 547 parties. ^^ Building construction can be a complicated endeavor whether the project is a small apartment complex or a large sports stadium. ^^ One ofthe many considerations construction project participants must account for is compliance with accessibility guidelines targeting discrimination against persons with disabilities.*"^ Regardless ofa project's location, most commercial structures must comply with one of two, or possibly both, federal statutes: the Federal Fair Housing Amendments Act of 1 988*^ (FHAA) and the Americans with Disabilities Act of 1990*^ (ADA) (collectively, "the Acts"). In general, both Acts provide that certain accessibility requirements must be included in new construction projects or modifications to existing structures.'^ Both Acts make failure to comply with accessibility requirements in the "design and construction" of such facilities unlawful discrimination and therefore subject to various remedial actions.'^ Despite a lack of specific language in the FHAA and ADA prohibiting indemnification between parties involved in the design and construction of buildings, a few recent federal district court cases have interpreted the Acts to deny implied and express claims for indemnification.'^ Such an interpretation severely limits contractual risk allocation and is not the proper interpretation of the FHAA and ADA. To date, no United States circuit court has weighed in on the issue. This Note traces and critiques the development of the recent trend toward interpreting the FHAA and ADA to prohibit contractual indemnification. Part I provides background material about the structure of the construction industry. 12. Eric A. Berg & Bill Hecker, Accessibility Laws—An Ounce ofPrevention Is Worth a Pound of Cure, 28 CONSTR. Law. 5, 7 (2008) ("In many relationships directly or tangentially related to the construction industry, parties regularly assign risks to the parties in the best position to guard against them. For example, architects are contractually given responsibility for designing plans and specifications and code compliance . . . ."). 1 3 . See Construction Law, supra note 1 1 , at 1 7 ("The financial, technical, business, and regulatory challenges involved in even a small commercial project demand the participation of many diverse participants." ). 14. Berg & Hecker, supra note 12, at 5. 15. Pub. L. No. 100-430, 102 Stat. 1619 (1988) (codified in scattered sections of42 U.S.C). 16. 42U.S.C.§§ 12101-12213 (2006 &Supp. 2009). 17. See id §§ 3604(f)(3)(C), 12183(a)(1). 18. See id. 19. SeeVnitQd States v. Murphy Dev., LLC, No. 3:08-0960, 2009 U.S. Dist. LEXIS 100149, at *7-9 (M.D. Tenn. Oct. 27, 2009); Sentell v. RPM Mgmt. Co., No. 4:08CV00629, 2009 U.S. Dist. LEXIS 75126, at *12-13 (E.D. Ark. Aug. 24, 2009); Mathis v. United Homes, LLC, 607 F. Supp. 2d 4 1 1 , 42 1 -23 (E.D.N.Y. 2009); Equal Rights Ctr. v. Archstone Smith Trust, 603 F. Supp. 2d 8 1 4, 821-22 (D. Md. 2009); United States v. Shanrie Co., 610 F. Supp. 2d 958, 960-61 (S.D. 111. 2009); United States v. Gambone Bros. Dev. Co., No. 06-1386, 2008 U.S. Dist. LEXIS 73503, at *16-23 (E.D. Penn. Sept. 25, 2008); Access 4 All, Inc. v. Trump Int'l Hotel & Tower Condo., No. 04-CV- 7497, 2007 U.S. Dist. LEXIS 13560, at * 19-21 (S.D.N.Y. Feb. 26, 2007); United States v. Quality Built Constr., Inc., 309 F. Supp. 2d 767, 778-79 (E.D.N.C. 2003). 548 INDIANA LAW REVIEW [Vol. 44:545 indemnification, the FHAA, and the ADA. Part II analyzes and critiques recent cases leading to the potential ban on indemnification clauses for violation of the ADA and FHAA. Part III critiques the recent statutory interpretation prohibiting contractual indemnification and argues that traditional principles of contract law provide a more efficient and effective allocation of responsibility among parties to a construction project, which ultimately benefits not only persons with disabilities, but also society as a whole. I. Background Material A. The Construction Industry: A Contractual Nexus ofParties Construction projects are complex endeavors.^^ A thorough analysis of possible combinations of parties and governing relationships is well beyond the scope of this Note. For purposes of examining the impact of contractual indemnification prohibition, familiarity with the basic structure of construction agreements is necessary. 7. Parties.—In general, there are three major players involved in designing and constructing covered multifamily dwellings^ ^ and commercial facilities: owner, designer, and builder.^^ Owners decide a facility is in demand, obtain financing and property, and have an ownership interest in the project.^^ Owners may be public or private entities.^"^ Designers are licensed architects and engineers who draw plans for projects based on needs and desires of owners, industry standards, and legal requirements.^^ Designers also oversee much ofthe construction project to ensure plans are correctly implemented.^^ Builders are usually general contractors and subcontractors.^^ Builders coordinate physical construction of the facility by implementing and often adjusting the designer's plans.^^ 2. Organization.—The relationship of owners, designers, and builders may be organized in a number of ways, but most follow the traditional "design-bid- 20. Construction Law, supra note 1 1 , at 1 7. 2L Not all multifamily buildings are subject to the FHAA. The statute refers to "covered multifamily dwellings," which are: "(A) buildings consisting of4 or more units if such buildings have one or more elevators; and (B) ground floor units in other buildings consisting of4 or more units." 42 U.S.C. § 3604(f)(7). 22. Construction Law, supra note 1 1 , at 1 8-24. 23. Mat 18-20. 24. Id at 18. 25. Mat 20-21. 26. See FUNDAMENTALS OF CONSTRUCTIONLAW 10-17 (Carina Y. Enhadaet al. eds., 2001). The authors note that the role of designer as project overseer is often overlooked considering its importance in the success of the project. Id "[OJwners often view the architect as their representatives and protectors through the construction process." Id. at 8. 27. CONSTRUCTION LAW, supra note 1 1 , at 22-25. 28. Id 2011] WHO NEEDS CONTRACT LAW? 549 build" relationship or the "design-build" relationship.^^ In design-bid-build relationships, owner, designer, and builder are separate entities.^^ Owners enter into contracts with designers to create plans and oversee the construction project.^ ^ Once plans are complete, owners hire general contractors to manage the facility's construction.^^ Often, general contractors perform part of the required work and hire subcontractors to perform other requirements of the building project.^^ By contrast, in the design-build context, owners contract with one other party who simultaneously acts as both designer and builder.^"^ In the design-build scenario, design firms and builder firms may form a joint venture or one firm may offer both services.^^ The prevalence of a multi-entity structure where owners, designers, and builders perform distinct functions indicates that it is generally more cost- efficient for the owner to pay designers and builders outside of the owner's firm rather than bringing them in-house.^^ Because architects have special expertise and familiarity with local and national building guidelines,^^ it would be very expensive for owners to bring architects in-house ifprojects are being constructed in many different areas or the owner is developing few projects.^^ Just as it is more cost-efficient for most owners to hire outside designers, owners are also likely to hire a builder from outside the firm to make the design a reality because builders possess specialized expertise and equipment most owners lack.^^ 3. Relevance ofStructure.—Hypothetically, if an owner employs designers and builders in-house, all liability for failure to design and construct buildings to FHAA and ADA specifications must rest with the owner because it is the only entity involved in design and construction."*^ But the design and construction of 29. A.H. Gaede, Jr., RiskManagement in Design-Build, in HANDLINGCONSTRUCTION RiSKS: Allocate Now or Litigate Later 341, 341-46 (2002). 30. Fundamentals of Construction Law, supra note 26, at 83 . 31. /7/ec/z>7 1988 U.S.C.C.A.N.2173,2177- 78. Congress found that [e]xisting law has been ineffective because it lacks an effective enforcement mechanism .... Under existing law, although HUD investigates housing discrimination complaints, it can use only "informal methods of conference, conciliation, and persuasion" in an attempt to resolve them. HUD can do no more than this and lacks the power even to bring the parties to the conciliation table. HUD cannot sue violators to enforce the law, as in other civil rights laws. . . . Since its passage, however, a consensus has developed that the Fair Housing Act has delivered short of its promise because ofa gap in its enforcement mechanism. The gap in enforcement is the lack of a forceful back-up mechanism which provides an incentive to bring the parties to the conciliation table with serious intent to resolve the dispute then and there. Id. 204. Gambone Bros., 2008 WL 4410093, at *8 (citing H.R. REP. No. 100-71 1, at 16). 205. See supra text accompanying note 205 for what Congress specifically mentioned. 206. See supra text accompanying note 205. 2011] WHO NEEDS CONTRACT LAW? 567 governmental enforcement.^^^ The Gambone court, and others following its lead, misread Congress's statements. Reading the grant of increased enforcement power as a prohibition of contractual indemnification is a far stretch of the imagination. Altogether, just as with the express language ofthe Acts, Congress simply did not mention indemnification in the legislative history. As argued above, the failure to specifically exclude contractual indemnification strengthens rather than weakens the argument that contractual indemnification clauses should be enforced.^^^ Indemnification clauses are widely used in the construction industry.^^^ Contracting parties need to be on notice that traditionally negotiated deal terms will not be enforced.^^^ The Archstone court mentioned that one ofthe factors in determining Congress's intent is "the likelihood that Congress intended to supersede or supplement existing state remedies."^^^ Disregarding an indemnification clause leads to breach of contract, a cause of action for which state law provides a remedy.^^^ But the Archstone court did not give this factor serious consideration.^ ^^ Instead, the court assumed that Congress intended to prohibit indemnification and searched for positive evidence to the contrary.^ ^"^ Such an approach is the reverse of the Archstone court's own standard. Rather than presuming that Congress intended to prohibit indemnification, the standard business practices and remedies ofthe construction industry should be presumed valid, and courts should require plaintiffs to present evidence to the contrary. The legislative history does not provide evidence that Congress intended to prohibit indemnification. B. Purposes ofthe Acts Because the statutory language and legislative history of the Acts are ambiguous regarding indemnification, courts have relied on the purposes of the Acts in support of prohibition.^ ^^ 207. See H.R. Rep. No. 100-7 11 ("Section 813 continues the private right of action under existing law, but eliminates certain restrictions on the exercise of that right. ... [It does so in part by extending] the statute of limitations from 1 80 days to . . . [two] years."); see also Garcia v. Brockway, 526 F.3d 456, 475 (9th Cir. 2008) (Fisher, J., dissenting). For the importance ofprivate causes of action, see Trafficante v. Metro. Life Ins. Co., 409 U.S. 205, 21 1 (1972). 208. See supra Part III.A. 1 . 209. See supra VdiXilB. 210. See supra VdiViWl.K. 211. Equal Rights Ctr. v. Archstone Smith Trust, 603 F. Supp. 2d 814, 822 (D. Md. 2009). 212. See supra Part LB. 213. The Archstone court mentioned supplementing state law remedies as a factor but then focused on the Quality Built and Northwest Airlines analysis. See Archstone, 603 F. Supp. 2d at 822. 214. Id. 215. See, e.g., id. ("The same imperative of Congressional purpose applies to attempts to 'contract around' the 'non-delegable' duties imposed by the FHA."). 568 INDIANA LAW REVIEW [Vol. 44:545 1. Distilling the Purposes.—Respecting accessibility discrimination, Congress enacted the FHAA and ADA to serve similar purposes. FHAA language provides that "[it] is the policy of the United States to provide, within constitutional limitations, for fair housing throughout the United States. "^'^ Professor Schwemm noted that "[t]he FHAA's ban on handicap discrimination was intended to be 'a clear pronouncement of a national commitment to end the unnecessary exclusion of persons with handicaps from the American mainstream'" and that "Congress believed that '[t]he right to be free from housing discrimination . . . [was] essential to the goal of independent living. '"^^^ As for the ADA, Congress found that the continuing existence of unfair and unnecessary discrimination and prejudice denies people with disabilities the opportunity to compete on an equal basis and to pursue those opportunities for which our free society is justifiably famous, and costs the United States billions of dollars in unnecessary expenses resulting from dependency and nonproductivity. ^ ^ ^ Further, "the [n]ation's proper goals regarding individuals with disabilities are to assure equality of opportunity, full participation, independent living, and economic self-sufficiency for such individuals. "^^^ One of the key purposes of the FHAA and the overriding goal ofthe ADA is therefore to curb discrimination against persons with disabilities. This Note is primarily concerned with curbing discrimination in the design and construction of buildings covered by the FHAA and ADA. All district courts that have considered whether indemnification should be foreclosed have implicitly or explicitly determined that discrimination in design and construction is best eliminated by making all parties to the project potentially liable regardless offault or prior agreement.^^^ The Archstone court recited several ofthe ADA's purposes as outlined above and stated that "[t]hese goals would be undermined if parties could simply 'contract around' their responsibilities under the statute."^^' Similarly, the Southern District of Florida held that "[this] Court cannot approve an arrangement where a developer ofa hotel can essentially contract around ADA compliance."^^^ The Quality Built court held that "[t]o allow Defendants to seek indemnity . . . would run counter to the purpose of the FHAA and undermine the regulatory goal by allowing the builder to escape any liability for violating the 216. 42 U.S.C. § 3601 (2006). 217. Schwemm, supra note 1 05, at 756 (citation omitted) (quoting H.R. REP. No. 1 00-7 1 1 , at 18 (1988), reprinted in 1988 U.S.C.C.A.N. 2173, 2179). 218. 42 U.S.C. § 12101(a)(8). 219. M § 1 2 1 1 (a)(7). For additional clarity on the purposes ofthe ADA, its explicit purposes are set out in 42 U.S.C. § 12101(b). 220. See supra text accompanying note 19. 221. Equal Rights Ctr. v. Archstone Smith Trust, 603 F. Supp. 2d 814, 825 (D. Md. 2009). 222. Access 4 All, Inc. v. Atl. Hotel Condos. Ass'n, Inc., No. 04-61740-Civ., 2005 WL 5643878, at *13 (S.D. Fla. Nov. 23, 2005). 2011] WHO NEEDS CONTRACT LAW? 569 Act."''' 2. Two Issues Related to Achieving the Purposes.—There are really two separate concerns related to curbing accessibility discrimination: (1) paying to bring noncompliant buildings that were subject to FHAA and ADA provisions during construction into compliance; and (2) preemptively ensuring that new construction projects are built according to FHAA and ADA mandates the first time around.''"^ Unfortunately, the courts do not explain why imposing liability on all parties to a project and prohibiting contractual indemnification would better serve the purposes ofthe Acts than imposing liability on all parties and allowing indemnification. The courts do not indicate which concern is best addressed by indemnification prohibition. a. Achieving compliance for current noncompliant structures.—As for paying to bring noncompliant structures into compliance, the notion that parties can "contract around" the purposes ofthe Acts through indemnification is absurd. The mandates of the FHAA and ADA concern overall accessibility for persons with disabilities rather than who foots the bill for bringing structures into compliance.''^ Ultimately, at least one party must be responsible for meeting FHAA and ADA mandates regardless of any contractual indemnification agreements."^ In order to "contract around" the FHAA and ADA, parties would have to contract with all potential future plaintiffs—including the federal government. Regardless of the existence of an indemnification provision, all parties may still be sued and have judgments rendered against them."^ Those parties will have to satisfy the judgment to bring buildings into compliance regardless of whether they are ever successful in obtaining reimbursement through indemnification."^ The purpose of bringing structures into compliance is therefore fulfilled. Indemnified parties are simply reimbursed for their portion ofthe judgment because they paid a premium ex ante to provide an incentive for the other party to ensure compliance with the FHAA and ADA."^ b. Preemptive compliance.—Because prohibiting contractual indemnification fails to help bring noncompliant structures into compliance, contractual indemnification prohibition must be primarily targeting preemptive compliance. Apparently courts reason that by making all parties potentially liable for noncompliant structures without an option for reimbursement, all parties will be 223. United States v. Quality Built Constr., Inc., 309 F. Supp. 2d 767, 779 (E.D.N.C. 2003). 224. See, e.^., United States v. Pac. Nw. Elec., Inc., No. 01-019, 2003 U.S. Dist. LEXIS 7990, at *46 (D. Idaho Mar. 19, 2003) ("The relief sought by Plaintiff is aimed not only at preventing future violations ofthe FHA by Defendants, but also at removing the lingering effects of any past violations by requiring retrofitting necessary to bring the complexes into compliance."). 225. See supra notes 2 1 8-22 and accompanying text. 226. Because indemnification is derivative, at least one party must be primarily liable. See supra Part LB. 227. See supra Part LB. 228. See id. 229. See id. 570 INDIANA LAW REVIEW [Vol. 44:545 properly incentivized to ensure compliance with the Acts.^^^ But prohibiting indemnification is a radical change in the traditional construction industry structure that can produce the opposite consequence.^^ ^ In less complex industries, providing such an all-encompassing incentive may prove most effective.^^^ However, because of the heavily contract-based, diversified nature ofthe construction industry, incentives are potentially skewed to the detriment of the purposes of the Acts. By creating a non-delegable duty for all parties involved in a project to comply with the Acts, designers have less incentive to ensure that building designs follow all regulations.^^^ If a designer has indemnified an owner against potential noncompliance because of faulty design or poor supervision of the construction process, there is no question that the designer has the utmost incentive to ensure compliant design and construction.^^"^ Without risk shifting through indemnification, designers have less incentive to ensure compliance in design and through supervision because they may ultimately split the cost of any problematic design with all other parties.^^^ The same reasoning applies to builders who agree to indemnify owners.^^^ Without indemnification provisions, builders have less incentive to ensure compliance because of cost splitting.^^^ Owners are the most likely target of an anti-indemnification interpretation because, as they have limited expertise and resources for design and construction, they are the parties most likely to seek out indemnification from designers and builders.^^^ But prohibiting indemnification does not change the elemental nature of the construction industry.^^^ Most owners simply do not have the expertise to 230. See Berg & Hecker, supra note 12, at 5. 23 1 . See Stein & Sato, supra note 195, at 5. 232. For an example of a less complex industry, see the discussion of discriminatory employment practices in Part II. B. 233 . See Feinman, supra note 40, at 278 (explaining that when courts tamper with contractual obligations ofconstruction project participants; "parties cannot accurately predict to whom and for what they will be liable, [and therefore] it is impossible for them to plan appropriately for performance and risk in the course of construction"). Of course, designers will continue to have some incentive to comply because their reputation depends on quality service, and failure to design compliant structures may lead to negligence suits. See FUNDAMENTALS OF Construction Law, supra note 26, at 49-50, 54-55. 234. See FEINMAN, supra note 40, at 277-78. 235. See John E. Calfee & Richard Craswell, Some Effects ofUncertainty on Compliance with Legal Standards, 70 Va. L. Rev. 965, 978 (1984). 236. See id. Thl . See id. 238. See CONSTRUCTION Law, supra note 1 1 , at 1 3 1 -33. 239. It is possible that increasing costs to owners by prohibiting risk shifting could lead to more prominent developers bringing designers and builders in-house. They may do so if the costs of exercising enough control over the project to ensure compliance (if this is possible) exceed the costs of bringing designers and builders in-house. See supra note 36. 20 1 1 ] WHO NEEDS CONTRACT LAW? 571 design and construct compliant buildings. ^"^^ They pay for entities with expertise to design, monitor, and construct compliant buildings.^"^' They rely on added contractual incentives through indemnification to ensure performance.^"*^ Of course, if an owner blatantly instructs a designer or builder to disregard the mandates of the Acts, the owner should not be reimbursed for liability. In cases of such willful behavior, indemnification provisions will be void anyway.^"*^ At best, prohibiting contractual indemnification results in owners paying more for monitoring—with no guarantee that the results will change—and passing off the excess costs to ultimate users of facilities. By prohibiting indemnification, courts have diffused costs among all participants and created uncertainty rather than allowing parties to concentrate responsibility with those best able to avoid the cost. In particular, the parties that are in the best position to avoid costs are primarily the designers and, to a lesser extent, the builders.^"^ As in Archstone, parties considering the problem ex ante are likely to allocate the risk of noncompliance to the designer.^'*^ Since the designer is in the best position to avoid liability under the FHAA and ADA in the first place, such an allocation of responsibility is most efficient. ^"^^ This arrangement will ultimately save all involved—including society as a whole—costs associated with bringing existing structures into compliance or building the structure from the outset being passed on to future users of the facilities.^"*^ The most effective path to curbing discrimination in accessibility design and construction is to provide a proper incentive structure through increased enforcement of the Acts coupled with contractual indemnification. Relaxed enforcement policies give no parties an incentive to ensure compliance with the Acts.^"*^ Stringent enforcement incentivizes the party with the most financial 240. See supra Part LA. 241. See id. 242. See supra Part LB. 243. See id 244. See James P. Colgate, IfYou Build It, Can They Sue? Architects ' Liability Under Title III ofthe ADA, 68 FordhamL. Rev. 137, 160-63 (1999). 245 . See Equal Rights Ctr. v. Archstone Smith Trust, 603 F. Supp. 2d 8 1 4, 8 1 7 (D. Md. 2009). Parties in the best position to avoid the risk ofnoncompliance should be eager to accept a premium because they have the ability to easily avoid payout. See infra text accompanying note 249. 246. For a discussion ofhow efficiency is best achieved by allocating responsibility to parties in the best position to avoid costs, see R.H. Coase, The Problem ofSocial Cost, 3 J.L. & ECON. 1, 42-44 (1960). See also ?OSNER, supra note 58, at 106 (determining that a hypothetical contractor is in a better position to prevent fire in the construction of a building than the owner because "he is in a better position ... to estimate the likelihood and consequences of fire at various stages in the construction" and "he controls the premises and is knowledgeable about the fire hazards of buildings under construction"). 247. See Colgate, supra note 244, at 160-63. 248. See Calfee & Craswell, supra note 235, at 976-82. 572 INDIANA LAW REVIEW [Vol. 44:545 resources at stake if liability is imposed.^"^^ Allowing contractual indemnification creates an incentive within the construction relationship for parties with the greatest expertise and control to ensure compliance.^^^ Stringent external enforcement of FHAA and ADA mandates accentuates the incentive on the parties that agreed to accept responsibility through contractual indemnification. A simple hypothetical illustrates the proper incentive structure. A store owner leaves the cashier (Q, the salesman (S), and the janitor (J) in charge ofthe store for several days at a time. In the event that money is missing from the cash register, the owner requires all workers to repay the deficit. C, 5, and Jagree that because C is in the best position to watch the cash register, if any money is missing, all three will contribute funds to restore the deficit, but C must repay S and J. If the owner never makes any worker pay even when money is missing, C, 5, and J really do not care who bears ultimate responsibility. If the owner always makes all workers contribute but fails to make C reimburse S and J, C is more likely to be watchful but can afford to shirk because S and J are shouldering a portion of his financial burden. If the owner always makes all workers contribute and enforces the private agreement, C would be a fool to shirk. In a typically complicated construction project with diversified responsibility and expertise, placing incentives on parties with little knowledge and practical control over accessibility design does not help accomplish the purposes of the Acts. On the whole, parties to the construction project are not "contracting around" the FHAA and ADA specifications because at least one of the parties must remain liable for properly following the guidelines.^^^ This represents a shift of responsibility from one party to another, making the process more efficient and m.ore likely to be adequately performed.^^^ It does not allow parties to disregard the mandates of the FHAA and ADA. C Public Policy and Other Considerations 1. Public Policy.—A number of articles have criticized any potential escape from liability by designers for FHAA and ADA structures as bad public policy.^^^ The underlying rationale is that designers are the most influential and knowledgeable parties to design and supervise the construction of FHAA- and ADA-compliant facilities.^^'* Designers are plainly in the best position to avoid 249. See id. 250. See supra Part LB. 251. See id. 252. See POSNER, supra note 58, at 106. 253. See, e.g., Colgate, supra note 244, at 160-63. 254. /J. at 161. The responsibility for proper building design is thus ascribed not to clients, who may have limited knowledge of design regulations and little incentive to meet them, but to licensed architects, whose "training and professional status place them in the best position to protect the public by assuring that their designs safeguard life, health, and property to the fullest extent possible." 201 1] WHO NEEDS CONTRACT LAW? 573 the cost ofnoncompliance.^^^ Ifthe design is noncompHant at the planning stage, it costs comparatively little to fix as opposed to, for instance, near construction completion when the builder notices a noncompliant aspect of the design.^^^ Designers also play a supervisory role in the construction process to ensure that plans are properly implemented.^^^ Thus, not only do designers make the initial planning decisions, but they are also in a position to monitor the builder and catch negligent errors. Noncompliant structures waste time and resources that could be better used to serve society's needs.^^^ Ofcourse, one ofthe overriding purposes ofthe Acts, curbing discrimination against persons with disabilities, is itself a strong public policy.^^^ Contractual indemnification adds to the argument in favor of greater responsibility for designers by properly incentivizing designers to ensure complete compliance.^^' Prohibiting indemnification under the ADA and FHAA cracks a door for designers to partially escape liability. As a result, structures are more likely to be noncompliant, costing society valuable time and resources. 2. Role ofInsurance.—The construction industry relies heavily on insurance for all aspects of operations.^^^ Because construction insurance is a complicated field,^^^ this Note is not meant to provide a thorough analysis of insurance coverage options. It is enough to simply highlight the impact insurance has on the problem of liability for noncompliant structures under the FHAA and ADA. Neither the FHAA nor the ADA explicitly restricts construction project participants from obtaining an insurance policy to cover potential liability for Id. (quoting William David Flatt, Note, The ExpandingLiability ofDesign Professionals, 20 MEM. St. U. L. Rev. 611,615 (1990)). 255. See LEGAL HANDBOOK FOR Architects, Engineers and Contractors: Issues in Construction and Technology 2002/2003, at 213-18 (Albert H. Dib ed., 2003). 256. The technology and industrial engineering fields analyze such decisions using cost of change curves. These curves describe an exponentially increasing cost as the development process continues. See James E. Folkestad & Russell L. Johnson, Resolving the Conflict Between Design andManufacturing: IntegratedRapidPrototyping andRapid Tooling (IRPRT), 17 J. INDUS. TECH. 1,3-4 (2001). Though the curve for building designers may be steeper or flatter, there should be a reasonably similar relationship. 257. See FUNDAMENTALS OF CONSTRUCTION LAW, supra note 26, at 8 ("A less well-known, but related and critical expectation of the owner is that the architect will participate in the administration of the construction contract to assure that the design objectives of the owner are fiilfilled."). 258. See id. 259. Colgate, supra note 244, at 162. 260. See supra Part IILB. 1 . 26 1 . See supra Part in.B.2.b. 262. See CONSTRUCTION Law, supra note 1 1 , at 53 1 -42. 263. Smith, Currie & Hancock's Common Sense Construction Law: A Practical Guide for the Construction Professional 440 (Thomas J. Kelleher, Jr. ed., 3d ed. 2005) ("Insurance planning for construction projects is extremely complex and specialized . . . ."). 574 INDIANA LAW REVIEW [Vol. 44:545 noncompliance.^^'* The FHAA is silent regarding insurance coverage.^^^ The ADA specifically states: Subchapters I through III of this chapter and title IV of this Act shall not be construed to prohibit or restrict — (1) an insurer, hospital or medical service company, health maintenance organization, or any agent, or entity that administers benefit plans, or similar organizations from underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law ^^^ Accordingly, construction project parties are free to bargain for insurance provisions that cover losses associated with ADA and FHAA noncompliance. Washington Sports and Entertainment v. United Coastal Insurance Co?^^ illustrates potential shifting of liability through insurance policies.^^^ United Coastal Insurance (UCI) issued a design professional insurance policy to the designer of a sports complex.^^^ The sports complex owner paid for the policy and was named as an additional insured.^^^ Originally, the policy excluded "any and all claims both from victims and governmental agencies arising out of or relating to . . . violation ofthe Americans with Disabilities Act or violation ofany other civil rights."^^^ But the designer and owner paid a substantial premium^^^ to amend the policy so that the exclusion did not "apply to a design error that could result in a violation of the Americans with Disabilities Act."^^^ After project completion, the Paralyzed Veterans ofAmerica successftilly brought suit alleging noncompliant design.^^"* Despite its contractual promise, UCI failed to defend the suit or indemnify the owner for costs to bring the facility into compliance.^^^ The owner sued UCI, and the court held that the owner "paid a substantial premium to shift risks to . . . [UCI, and UCI] willingly agreed to accept those risks. Without showing that [the owner's and designer's] motives stepped beyond a general risk aversion, [UCI] . . . cannot evade its duty to honor the [p]olicy and to defend plaintiffs . . . ."^^^ 264. For the lack ofspecific language in the FHAA concerning insurance coverage for failures to design and construct compliant buildings, see 42 U.S.C. §§ 3601-3619 (2006). For the ADA's stance on insurance coverage, see 42 U.S.C. § 12201(c)(1) and infra note 266. 265. 42 U.S.C. §§3601-3619. 266. Id. § 12201(c)(1). 267. 7 F. Supp. 2d 1 (D.D.C. 1998). 268. See id. at 11. 269. Id at 3-4. 270. /J. at 3. 271. Mats. 272. The owner paid over $500,000 up front for the policy. Id. at 4. 273. Id at 5. 274. Id at 3. 275. Id 276. Mat 11. 201 1] WHO NEEDS CONTRACT LAW? 575 Because insurance policies and contractual indemnification clauses are both forms of contractual indemnification that shift risk,^^^ prohibiting one while enforcing the other is absurd. On the surface, there is a difference between insurance policies and contractual indemnification clauses—^the source of ultimate payment for noncompliant structures.^^^ Ifan insurance company honors a claim, the cost is spread to all other premium-paying clients ofthe company.^^^ If the insurance company is large, the bill may be paid by a large segment of society.^^^ If the parties contractually shift risk through indemnification clauses, the party assuming the risk pays the ultimate bill.^^' But in reality, a wise risk- assuming party would require a premium to be paid in the contract and in turn take that premium and buy an insurance policy to cover its potential liability. Depending on the availability and cost of insurance coverage, parties can achieve similar results as those arrived at through contractual indemnification. United Coastal was decided in 1998,^^^ five years before the Quality Built decision was handed down and ten years before the recent flurry of cases following Quality Built' s lead.^^^ Courts may soon face the same issue as found in United Coastal but with an argument that express indemnification is prohibited under the Acts. The argument follows that in order to be consistent, courts prohibiting contractual indemnification under the Acts would likewise have to prohibit parties from obtaining insurance coverage. But neither the FHAA nor the ADA explicitly prohibits parties from obtaining insurance coverage in such situations.^^"^ It would be illogical for Congress to have allowed insurance companies to indemnify against FHAA and ADA liability while simultaneously disallowing contractual indemnification between construction project parties. Congress did not intend to create an inconsistent system. By prohibiting contractual indemnification, courts have fashioned the inconsistency. 3. Contractual Indemnification Prohibition Is at Odds with Policy ofSome States.—^Accessibility law is by no means exclusively a federal affair.^^^ Most states have some form of accessibility standards, many of which are more rigorous than the FHAA and ADA mandates.^^^ The FHAA provides that 277. See id. (discussing insurance as a tool for shifting risk). 278. See ROBERT H. JERRY II & DOUGLAS R. Richmond, Understanding Insurance Law 13-14 (4th ed. 2007). 279. See id 280. See id 281 . See supra Part LB. 282. Wash. Sports & Ent'mt v. United Coastal Ins. Co., 7 F. Supp. 2d, 1 (D.D.C. 1998). 283. Quality Built was decided in 2003. United States v. Quality Built Constr., Inc., 309 F. Supp. 2d 767, 778-79 (E.D.N.C. 2003). Forthe dates ofdecisions handed down since Quality Built, see supra text accompanying note 19. 284. See supra text accompanying note 264 and accompanying text. 285. See Schwemm, supra note 105, at 762. 286. See id. at 809; see generally A State-By-State Guide to CONSTRUCTION & Design Law: Current Statutes and Practices (Carl J. Circo & Christopher H. Little eds., 1998) (comparing accessibility laws, among others, across the United States). 576 INDIANA LAW REVIEW [Vol. 44:545 "[n]othing in this subchapter shall be construed to invalidate or limit any law of a State . . . that requires dwellings to be designed and constructed in a manner that affords handicapped persons greater access than is required by this subchapter. "^^^ The ADA contains a very similar provision.^^^ Accordingly, Congress showed some deference to states with requirements equal to or more stringent than the federal mandates.^^^ Yet some states that have mirror-image or more aggressive accessibility guidelines do not prohibit contractual indemnification between construction project parties.^^^ A glimpse at Indiana law illustrates the point. To date, Indiana has not weighed in on whether the FHAA or ADA prohibits contractual indemnification between construction project parties. ^^^ At the state level, Indiana's legislature essentially adopted a mirror image of the FHAA as a state version of anti-housing discrimination legislation.^^^ Indiana also incorporated the ADA guidelines for building standards.^^^ In addition, Indiana requires that designers certify design compliance with all building codes in order for owners to obtain state-issued design releases prior to beginning a construction project.^^"^ Requiring design releases places an increased burden on designers of construction projects, rather than builders and owners, to comply with applicable standards by requiring submission of plans and promise of compliance.^^^ By inference, Indiana therefore recognizes that building designers have more specialized skills and control over the project's accessibility features than builders and owners. Despite mirror-image standards of the FHAA and ADA and increased architect responsibility, Indiana does not prohibit contractual indemnification for 287. 42 U.S.C. § 3604(f)(8) (2006); see also id. § 3615, providing: Nothing in this subchapter shall be construed to invalidate or limit any law of a State or political subdivision of a State, or of any other jurisdiction in which this subchapter shall be effective, that grants, guarantees, or protects the same rights as are granted by this subchapter; but any law ofa State, a political subdivision, or other suchjurisdiction that purports to require or permit any action that would be a discriminatory housing practice under this subchapter shall to that extent be invalid. 288. M § 12201(b). This section provides: Nothing in this chapter shall be construed to invalidate or limit the remedies, rights, and procedures of any Federal law or law of any State or political subdivision of any State orjurisdiction that provides greater or equal protection for the rights ofindividuals with disabilities than are afforded by this chapter. 289. See id. 290. See, e.g., iND. CODE §§ 22-9.5-1-1 to 22.9.5-1 1-3 (2010); id § 26-2-5-1. 29 1 . The author is unaware of any Indiana cases interpreting the FHAA or ADA regarding indemnification. 292. See iND. CODE §§ 22-9.5-1-1 to 22-9.5-11-3. In particular. Section 22-9.5-1-1(3) provides that one purpose ofIndiana's version offair housing legislation is "[t]o provide rights and remedies substantially equivalent to those granted under federal law." 293. See id §22-13-4-1.5. 294. See id §22-15-3-1-2. 295. See id §22-15-3-2. 201 1] WHO NEEDS CONTRACT LAW? 577 noncompliant design and construction. Unlike the FHAA and ADA, Indiana statutes specifically address the enforceability of indemnification agreements between owners, builders, and designers and do not prohibit all indemnification agreements for failure to comply with Indiana's version of the FHAA and ADA.^^^ Instead, Indiana clearly signaled which agreements are and are not enforceable by prohibiting indemnification resulting "from the sole negligence or willful misconduct of the promisee or promisee's agents, servants or independent contractors." ^^^ Accordingly, owners, builders, and designers may allocate responsibility for accessibility compliance between the parties to the project as long as noncompliance does not result from the sole negligence or willful misconduct of the party seeking indemnification.^^^ As an illustration of the potential conflict between state and federal express indemnification rules, litigation based on the same noncompliant feature in an Indiana building could result in disparate treatment depending on whether the claim was brought under the federal Acts or state law equivalents. In order for Indiana to maintain consistent treatment of contractual relationships, Indiana federal courts would have to interpret the FHAA and ADA to allow contractual indemnification. Otherwise, ifIndiana federal courts follow Archstone' s lead, the state law claims are preempted by federal law even though the parties may have been relying on state law mandates.^^^ Even ifthe parties bring a state law breach of contract action rather than an indemnification action, to the extent that the contract action is based on liability under the FHAA and ADA, the contract is unenforceable.^^^ Congress gave no express consideration of such a direct conflict.^^^ D. Prudential Considerations One court that interpreted the Acts to prohibit indemnifications^^ cited the Seventh Circuit Court of Appeals for the proposition that absent Congress expressly giving a right of contribution or indemnification, none should be afforded by the court. ^^^ The Seventh Circuit's reasoning for this approach was based on prudential considerations. ^^"^ The court recognized that cases involving cross-claims for contribution and indemnification create more work for the court and complicate the proceeding.^^^ 296. See id §26-2-5-1. 297. Id 298. See id 299. Equal Rights Ctr. v. Archstone Smith Trust, 603 F. Supp. 2d 814, 825 (D. Md. 2009). 300. Id 301. See 42 U.S.C. §§ 3601-3619 (2006) (FHAA language); id § 12101-12213 (ADA language). 302. United States v. Shanrie Co., 610 F. Supp. 2d 958, 960 (S.D. 111. 2009). 303. Anderson v. Griffin, 397 F.3d 515, 523 (7th Cir. 2005). 304. Id 305. Id 578 INDIANA LAW REVIEW [Vol. 44:545 While the Seventh Circuit's prediction of increased courtroom complication is likely correct in the case of allowing implied indemnification and contribution claims,^^^ express indemnification is more likely to lead to the opposite result.^^^ Perhaps the greatest virtue of contractual indemnification is predictability.^^^ Uncertainty in the distribution of damages gives parties an incentive to fight things out in court because they may have something to gain at the expense of other parties.^^^ When parties come to an enforceable agreement respecting damage allocation ex ante, uncertainty is greatly reduced—and likewise, so is the probability of payoff through lawsuits.^ '^ Parties facing relative certainty in damage allocation are more likely to settle their dispute outside of court or in the early stages of litigation.^' ^ Needless litigation is therefore avoided, and society's scarce resources can be put to better use. Conclusion There is a disconnect between attempting to curb accessibility discrimination and interpreting the FHAA and ADA to prohibit contractual indemnification. The increasing number of cases and commentary on the subject indicates an elevated concern for enforcement of accessibility legislation in the design and construction of applicable facilities.^ '^ Improving accessibility so that persons with disabilities can enjoy a richer life is of utmost importance. Heightened awareness of the problem and enforcement of the Acts is long overdue. Improved accessibility is best achieved by providing the proper incentive structure. The proper incentive structure combines increased overall enforcement ofdesign and construct mandates with internal risk allocation through contractual indemnification. With increased overall enforcement, the party that bears ultimate financial responsibility for the cost of noncompliance is more likely to ensure proper performance.^'^ Through contractual indemnification, construction project participants can place ultimate financial responsibility on parties in the best position to avoid costs.^''' Increasing enforcement but prohibiting indemnification does more harm than good because even though all parties are 306. Courtroom complexity increases with implied indemnification and contribution claims because they are essentially imposing another trial within a trial. The court must make determinations ex post about the relative fault ofthe parties and how much damage, if any, should be shifted. See id. 307. See Robert Cooter, Stephen Marks, & Robert Mnookin, Bargaining in the Shadow ofthe Law: A Testable Model ofStrategic Behavior, 1 1 J. LEGAL STUD. 225, 237-39 (1982). 308. See supra Part LB. 309. See generally Cooter et al., supra note 307. 310. See id. 311. See id. 312. Schwemm, supra note 105, at 754-56. 313. See Calfee & Craswell, supra note 235, at 976-82. 314. See supra Parts I.A. & LB. 2011] WHO NEEDS CONTRACT LAW? 579 more fearful ofliability, they know that costs may be split.^'^ Congress did intend to curb accessibility discrimination, but it did not intend to skew the internal incentive structure of the construction industry.^ '^ By allowing parties to contractually allocate risk and responsibility through indemnification and simultaneously ratcheting up enforcement, persons with disabilities will benefit, society will benefit, and the purposes of the FHAA and ADA will be better served. 315. See Calfee & Craswell, supra note 235, at 976-82. 316. See supra Parts III.A. & III.B.