California foster children face displacement as insurer exits market, sparking crisis

California is facing a potential crisis in its foster care system after the Nonprofits Insurance Alliance of California (NIAC) announced in August that it would no longer insure the state’s foster family agencies (FFAs). The decision could displace up to 9,700 vulnerable children, including many who are LGBTQ+, have severe behavioral or medical needs, or have suffered prior abuse.

NIAC, which has long been the primary insurer for these agencies, cited a court precedent that could require it to pay out in cases of abuse even when the agency is not at fault. Foster family agencies are nonprofits certified by the state to oversee foster families but do not have constant supervision over the children in their care.

"We are being asked to insure an uninsurable risk," said Pamela Davis, NIAC’s founder, president, and CEO. She pointed to a 2023 lawsuit in which NIAC was ordered to pay millions in damages for abuse that occurred in a foster placement overseen by an FFA.

The announcement triggered a frantic effort by foster care providers to find alternative insurance before the first lapse deadline next week. Lawmakers attempted to address the issue by passing a bill in August to streamline administrative processes for relocating children to insured homes. However, the final version of the bill, signed into law this week by Governor Gavin Newsom, did not include provisions to limit NIAC’s liability.

Assemblymember Gail Pellerin, who introduced the legislation, acknowledged that it is a temporary solution to keep children in stable homes while policymakers seek a long-term fix.

County welfare agencies are working urgently with FFAs as the insurance lapse deadline approaches. The Los Angeles County Department of Children and Family Services stated it is collaborating with the state to find a solution, warning that losing these agencies would have devastating consequences.

"If we had been having these conversations a year ago, I think we would’ve been able to work to identify alternative solutions to secure insurance or to help FFAs find alternative insurance," said Eileen Cubanski, interim executive director of the County Welfare Directors Association. "Frankly, we need FFAs."

Without a solution, FFAs may have to shut down or find more expensive insurance. Sycamores, which operates a six-bed foster family agency program, faces a projected increase in its $322,000 insurance premium to over $1 million if it must find a new provider.

"We don’t have a choice, we have to get some kind of insurance," said Debra Manners, Sycamores’ president and CEO. "We have to keep the program. For us, it’s such an important part of the continuum to help kids have a better life."

NIAC argues that it cannot afford to cover payouts for cases where an FFA is not at fault. The insurer has pointed to a December 2023 jury decision awarding $24.8 million to three siblings who claimed they were sexually assaulted in a foster home. The agency that placed the children, Alternative Family Services, was held liable for 60 percent of the award despite the abuser passing background checks.

Daniel Friedenthal, the defense attorney for Alternative Family Services, said jurors expressed a desire to ensure the children received compensation, even if it meant holding the agency and insurer responsible.

However, Ed Howard, senior counsel at the Children’s Advocacy Institute at the University of San Diego, noted that the case involved negligence by the FFA, contradicting NIAC’s claim of no fault. He also criticized NIAC’s decision to threaten canceling policies for agencies that accept transferred children from other agencies losing insurance.

Davis defended NIAC’s actions, stating that the current legislation does not address their concerns about reduced protection standards. Wendy Wang, chief public policy officer at Sycamores, called NIAC’s threat discouraging and said it would force agencies to seek non-NIAC insurers.

The County Welfare Directors Association is investigating whether NIAC’s threat breaches its contract with FFAs. Meanwhile, counties across the state are working to mitigate the fallout as the deadline for insurance lapse approaches.