ADA and FHA Defense

Some time ago I blogged on a case in which a lease broker was sued for conveying to a prospective tenant the owner’s discriminatory refusal to rent.¹ Today I’m taking another look at the shooting the messenger problem, this time with a difference; the messenger was an insurance broker. Thanks to Bill Goren for call Chhang v West Coast USA Properties LLC to my attention and providing the detailed background that you should read to fully understand the case.²

The gist of the case is simple. A tenant requested the waiver of the landlord’s breed restrictions as an accommodation for her emotional support animal. The landlord, acting with appropriate caution, asked their insurance broker to confirm the breed restriction before telling the tenant it could not grant her request. The broker confirmed that under the terms of the insurance policy permitting a prohibited breed could void the policy. The landlord then turned down the request because allowing the animal would void its insurance policy. So far the landlord, at least, seems to have done nothing wrong. HUD agrees that an accommodation is unreasonable if it requires the landlord to lose their insurance.³

The tenant sued the landlord and the insurance broker. The broker moved to dismiss under Rule 12(b), though it apparently did not directly address the FHA specific issues with the claims against it, instead arguing it simply had no common law duty to obtain insurance that would allow restricted breeds. The Court nonetheless carefully analyzed existing precedent about insurance companies violating the FHA and concluded that where the denial of insurance made an apartment “effectively unavailable” to the tenant that denial could be a violation of 42 USC §3604(f)(1), the FHA provision that generally prohibits disability discrimination.

It is worth noting that during its discussion of the FHA precedents the Court never distinguishes between the role played by an insurance broker, who in theory does no more than find insurance, and the insurance company itself. Insurance companies decide what their policies do and do not allow. In theory a broker is just the bearer of bad tidings when it tells the landlord what the policy allows or does not allow.  So why did the Court deny the broker’s motion to dismiss? The reason was not related to whether the insurance policy itself was discriminatory, but rather to the broker’s alleged misrepresentation of the policy. The plaintiff alleged that when the broker told the landlord the policy could be cancelled this was not true.

“Plaintiff alleges, however, that the Mercury policy contained no limitation on dog breeds that could be owned by tenants residing on the property. (SAC ¶ 26.) Nor did the policy contain any cancellation provision or other penalty if West Coast allowed a tenant to keep one of the listed dog breeds. (Id.)”

The broker was not merely bearing bad tidings; rather, it was misrepresenting the terms of the policy. Thus it was the broker, not the insurance company, that made the apartment effectively unavailable. This is different that the “shoot the messenger” cases I blogged on earlier because in those cases the real estate broker gave truthful information about the owner’s discrimination. However, in those earlier cases the broker was not merely the bearer of bad tidings, it was also the person who carried out the landlord’s discriminatory demands.

The takeaways for insurance companies, insurance brokers and real estate brokers are:

• An insurance company that includes breed restrictions in its policies should explicitly provide that those breed restrictions do not apply to assistance animals the landlord is required to allow, whether they are emotional support animals, service animals, or other assistance animals. This should avoid a claim that it is the insurance company that has effectively denied coverage.
• An insurance broker who is asked about breed restrictions should be careful in what it says.  It is very common for businesses to rely on their broker rather than their insurance company to tell them what their policy does or does not allow. The broker in this case got in trouble because they were (allegedly) wrong about the policy terms; a little more care might have spared everyone a lawsuit. (it is reasonable to ask whether the apartment owner could sue the broker for giving it bad information that lead to a lawsuit).
• Finally, being the bearer of bad tidings probably does not violate the FHA because carrying the message does not effectively deny access to housing. But real estate brokers who act as leasing agents and therefore both bring the bad news and implement the discriminatory policy may violate the FHA even if they are just carrying out their client’s orders.

And a final note for lawyers representing a client sued under the FHA. You cannot, as the broker’s lawyers seem to have done in this case, simply rely on common law or insurance law defenses. If the suit is brought under the FHA you must directly address how the FHA applies to the claims against your client; treating common law rights as duties as relevant to the discrimination claims, but not as dispositive of those claims.

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¹ See, Shoot the messenger! I revisited the issue a few years later in What’s bugging HUD

² See Bill’s blog at http://www.understandingtheada.com/blog/2025/02/17/insurance-policies-landlords-containing-breed-restrictions-esa-service-animals-violate-the-fair-housing-act.

³ HUD Memorandum June 12, 2006 to FHEO Regional Directors.