Quick Take
Santa Cruz-based Nonprofits Insurance Alliance, one of the nation’s largest nonprofit insurance firms, announced it would drop all California foster family agencies from its policies as they face increased risk from lawsuits over sexual abuse and neglect. The move comes after a failed attempt to pass state legislation that would limit their liability from such claims.
After an all-but-failed eleventh-hour attempt to pass state legislation narrowing California foster care agencies’ liability in sex abuse and neglect claims, one of the country’s largest nonprofit insurance firms, based in Santa Cruz, announced last week it would pull out of insuring the agencies.
Pamela Davis, founder and chief executive of the Nonprofit Insurance Alliance, a 501(c)3 that insures 90% of the state’s foster family agencies, said her organization was forced to make the decision due to growing financial risk in backing these organizations in abuse and neglect lawsuits. Davis said the decision could result in the collapse of the foster family agency arm of the larger foster system in California. That concern was echoed last week by the state’s top insurance officials, who said the dissolution of liability insurance could displace thousands of foster children. Roughly 8,100 children are served by foster family agencies throughout the state.
Davis brought the issue to local Assemblymember Gail Pellerin in June. The two Santa Cruzans worked on Assembly Bill 2496, which attempted to more narrowly define how foster family agencies could be held responsible in abuse and neglect lawsuits. The bill, proposed just months before the end of the legislative session, met criticism and was gutted, leaving what Davis described as a shell of its original intent.
Foster family agencies, or FFAs, are organizations such as Sought After Foster in Scotts Valley, that contract with counties across California to help find homes for local foster children with greater mental, emotional or physical needs.
Before foster children are placed, FFAs are responsible for vetting the homes and families through vigorous background checks and interviews. When a child placed by one of these agencies sues for abuse and neglect, the FFA’s performance and process are often scrutinized.
Davis said FFAs have faced several multimillion-dollar lawsuits lately, creating too great a risk for her organization, which insures more than 26,000 nonprofits across the country and has assets nearing $800 million. Earlier this year, NIA’s reinsurer, Philadelphia-based Guy Carpenter & Company LLC, said it could no longer support NIA if it continued to insure FFAs.
“We’ve exhausted every other route,” Davis told Lookout on Thursday. “We can’t jeopardize NIA.”
Davis said the final straw came in December, when a jury found one of NIA’s clients, Santa Rosa-based Alternative Family Services, partially liable for the sexual abuse suffered by three siblings in 2019. The agency was ordered to pay $15 million to children. The case has since been appealed.
Davis said FFAs should be held accountable when they fail in their vetting process, but she said it’s too easy for FFAs to be “scapegoated over the wrongdoing of others.”
“It’s the emotional thing: The kid was molested, and someone has to pay for it,” said Brian Chernicky, vice president of marketing and communications for NIA, speaking broadly about what he sees as the judicial landscape in these types of cases. “It’s not necessarily, ‘Hey, the FFA did everything right, the background checks, all the things the state requires, and here’s proof of that.’ It’s, ‘We don’t care,’ the jury says, ‘[the FFA] should still pay for it.’”
The Children’s Advocacy Institute at the University of San Diego School of Law, which analyzed and opposed the original language of the bill, said the Alternative Family Services did fail the children in the Martinez case. Ed Howard, the institute’s senior counsel, said the bill brought by Pellerin and NIA would have “enacted unique standards reducing compensation to some abused and neglected foster children who are yet again abused while in one kind of foster care placement.”
“If there are indeed cases where unjustifiably large jury awards based upon truly meaningless violations of law exist and have withstood appeal, CAI is pleased to collaborate with stakeholders on tailored, even-handed legislation addressing such instances,” Howard wrote in a letter to the Senate Appropriations Committee. However, he said, the Martinez case was the only example offered, and a poor one. The FFA failed in its interviewing and survey responsibilities, and was rightfully held liable, he said.
The California State Association of Counties, which represents county government interests, also opposed the original language of the bill, and called for the state’s Department of Social Services and the Department of Insurance to “work collaboratively with all stakeholders to address the underlying insurance availability issues for FFAs.”
NIA announced its decision earlier last week to not renew any of its California FFA policies.
Davis and Pellerin said they were concerned that without insurance, FFAs would lose their contracts with counties, and more than 8,000 foster children in FFA homes could be displaced. It is a dire picture seemingly confirmed in a memo published Friday by California Insurance Commissioner Ricardo Lara. Without liability coverage, Lara said, FFAs would not be allowed to legally operate.
“This lack of coverage will likely force many FFAs to start shuttering their programs, thus upending the stability of the foster children and youth that they serve,” Lara, the state’s top insurance official, wrote. “On a larger scale, thousands of foster children and youth are potentially at risk of losing their current FFA placement.”
Lara urged all property and casualty insurance companies operating in California to find a way to offer coverage to FFAs and help stabilize the state’s foster system.
“We stand ready and willing to insure these agencies once there is fairness in the process,” Davis told Lookout. “Plaintiff attorneys like to portray themselves as being the protectors of children. In this case, their desire for big paydays for themselves has, in some ways, overshadowed the bigger picture of what is right for the kids.”
According to the Berkeley-based California Child Welfare Indicators Project, Santa Cruz County had 120 children in foster care as of Jan. 1 of this year. As of April 1, the county had no foster children in an FFA home. As of the start of this year, Monterey County had 18 children in FFAs, San Benito County had 13, with San Mateo and Santa Clara counties having 17 and 79, respectively.
For the record: This story has been updated to reflect that Pamela Davis is the founder and CEO of Nonprofits Insurance Alliance, not “executive director,” and to note that the organization is a 501(c)3 nonprofit itself.
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