For years, the Nonprofits Insurance Alliance of California had been the primary insurer for the state’s foster family agencies, which house some of the most vulnerable children, including many LGBTQ+ youth, those with severe behavioral or medical needs or who have previously suffered abuse. But in August, NIAC announced it would no longer insure these agencies – a decision, if maintained, that foster agencies estimate could displace as many as 9,700 children, some as soon as next week.
Pamela Davis, NIAC’s founder, president and CEO, said she never wanted to pull out of the state but that she fears court precedent under which the insurer would have to pay out in cases of abuse even if the agency is deemed not actually at fault. Foster family agencies, which help house some of the state’s most vulnerable children, are unlike other foster services. They are nonprofits certified on behalf of the state to oversee foster families, but are not eyes-on the families and foster children at all times.
“We are being asked to insure an uninsurable risk,” Davis said, who points to a lawsuit last year in which NIAC was ordered to shell out several million dollars as the result of abuse that occurred at a foster family agency.
NIAC’s decision set off a still ongoing scramble for foster care providers across the state – and a roiling debate about the legitimacy of NIAC’s concerns. On the last day of this year’s legislative session, at the end of August, lawmakers passed a bill that would streamline administrative processes to move children to homes that are still insured. The bill’s original text included provisions to cap NIAC’s insurance liability but that language was ultimately removed. As a result, even if the bill is signed into law this week by Gov. Gavin Newsom, it will not directly remedy the insurer’s concerns.
In a statement, Assemblymember Gail Pellerin, a Democrat who introduced the legislation, stressed that the bill is a temporary solution to keep California’s most vulnerable children in their current homes and to give policymakers time to find a more permanent solution.
For now, county welfare agencies are working in tandem with foster family agencies as quickly as possible as the first insurance lapse deadline approaches next week. A spokesperson for the Los Angeles County Department of Children and Family Services said the agency is working with the state to find a timely solution, as the impact of losing these agencies would be devastating.
“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.”
If lawmakers don’t find a fix, foster family agencies across the state will be forced to either find new, higher priced insurance providers, or shut down. Several have already started sunsetting. For Sycamores, which serves hundreds of thousands of people, including a six-bed foster family agency program, their $322,000 insurance premium is projected to soar to upward of $1 million if they are forced to 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.”
Davis said that while the insurer understands, and embraces, its liability to pay in cases in which the foster agency it insures is deemed actually at-fault, it cannot afford to foot the bill for massive payouts in cases in which the agency it insures is not actually to blame for abuse that occurs.
“It’s different than any other model of care. And yet they’re trying to hold them to the same standard as if they have the kids in the classroom all day long,” Davis said. “You can’t assure perfection. We did as required by the state.”
In explaining NIAC’s decision, Davis has pointed to a December 2023 jury decision which awarded $24.8 million in damages to a trio of siblings who said they had been sexually assaulted in a foster home in Northern California. While Mark Martinez, the abuser, passed multiple background checks and did not have a history of abuse, he failed to fill out nine of 12 questions that screen for child sex offenders, an oversight that the plaintiff argued showed negligence.
Daniel Friedenthal, the defense attorney who represented Alternative Family Services, the foster agency that made the placement, said he had expected, at most, that the agency would be ordered to pay about 20 percent of the jury award. Instead, the jury ruled that the foster agency was responsible for producing 60 percent of the financial award – roughly $15 million.
It remains to be seen whether the award, which is under appeal, will stand. Scott Montgomery, the attorney who represented the three children, said he expects the appeals process to stretch on for years.
After the December trial, Friedenthal said, jurors told him that they wanted to make sure the children received recompense and, since their convicted abuser had been sentenced to 25-years-to-life in prison, that meant making the agency and its insurer responsible for the payout.
“Even though it doesn’t reflect the real culprits in the case, they do it to make sure the kids are taken care of,” Friedenthal said.
However, while NIAC has described the jury award as a precedent for an insurer being held liable even without fault, Ed Howard, senior counsel and senior policy advocate for the Children’s Advocacy Institute at the University of San Diego, noted that the actual facts of the case do include negligence on behalf of the foster family agency that NIAC insured.
“We have zero evidence beyond this one case that there is a trend,” Howard said. “And that one case utterly refutes their contention that the FFA did nothing wrong.”
Howard also noted a Sept. 9 email that NIAC sent to the foster family agencies they insure where the insurer said any agency that took in a ported child from another that was losing their insurance would have their policy canceled.
“You can’t cancel people without investigating the circumstances of each and every individual insured,” Howard said. “Every FFA that’s canceled under those circumstances potentially has a lawsuit against NIAC.”
Davis defended NIAC’s letter, noting that if the current legislation is signed into law, she believes it will amount to a material change to insurance standards, giving them the right to cancel policies. While the current legislation would streamline some administrative processes, Davis said it does address NIAC’s concerns about background checks.
“We are not willing to take on the risk of the reduced standards for protection,” Davis said.
Wendy Wang, chief public policy and advocacy officer at Sycamores, said the email was highly discouraging and will lead Sycamores to seek non-NIAC insured nonprofits – of which there are only about five in Los Angeles county – for any children who will need to be transferred as they approach their own non-renewal date in November. At a time when a number of children will likely need to be transferred while lawmakers seek a solution, Wang said NIAC’s threat will make agencies less likely to take in additional children.
“Their hands are tied now given that email,” she said.
The County Welfare Directors Association said it is looking into whether NIAC’s threat amounts to a breach of its contract with the foster family agencies. And, in the meantime, counties across the state are preparing for an influx of foster children in need of new accommodations in the coming weeks.
“It leaves folks more vulnerable to be entangled in experiencing exploitation,” said Julia Arroyo, executive director of the Young Women’s Freedom Center, a California nonprofit that supports young women and trans youth who have been in the foster care system. “We don’t want folks to have to turn to things like that, to be manipulated or to be in positions where they really don’t want to be or experience further harm.”
