Some families take in newborns withdrawing from fentanyl. Others care for teen moms or chronic runaways, children who’ve been trafficked or have fled far-away wars as refugees.
Because they deal with the most vulnerable and hard-to-adopt kids, parents recruited by Family Builders must pass more than the usual screening to prove they’re up for the job — one that requires them to love children as their own yet be prepared to give them up at any moment.
“The people who do this are really remarkable,” said Jill Jacobs, who leads the 50-year-old nonprofit, which works with children in San Francisco and nearby cities. “They’re highly specialized, highly trained, and we prepare them to have their hearts and guts ripped out. We’re trying to provide as much stability as possible for kids whose lives have already been upended so many times.”
So it came as a shock for Jacobs to hear that their lives could be upended again because of an insurance crisis that threatens to displace roughly 9,000 foster kids — including hundreds in the Bay Area.
Family Builders is among nearly 200 foster-care agencies that obtain insurance coverage from an organization called the Nonprofit Insurance Alliance of California. Based in Santa Cruz, it insures 90% of the private nonprofits that recruit, screen, and support foster families in California. But in August, NIAC said it was discontinuing its policies, pushing a critical part of the state’s child welfare system to the brink of collapse.
Just as insurers have dropped homeowners because of the state’s increasingly devastating wildfires, NIAC blames the rising cost of sexual abuse claims for making it too expensive to cover foster family agencies.
Without insurance, nonprofits like Family Builders and Trinity Foster Family Services — another Bay Area foster family agency losing its NIAC coverage — would go out of business. If that happens, counties or other properly insured and licensed organizations would have to step in and likely have to uproot foster kids from families to institutional settings like group homes.
“For the kids, this would be retraumatizing, obviously,” said Adrienne Shilton, a policy analyst for the California Alliance of Child and Family Services. “It’s creating an enormous amount of anxiety for foster parents who have offered the only stability in these children’s lives for a long time.”
A costly gamble
The crisis came slowly, then suddenly.
In NIAC’s telling, a shifting legal landscape over years, if not decades, brought the insurance industry to a cliff. But how is it that NIAC has a monopoly on the foster agency market in the first place?
“Seems kind of odd, right?” said spokesperson Brian Chernicky.
The answer, he said, is that every major commercial competitor deemed foster family agencies uninsurable because they’re held liable for incidents that occur in private homes.
“NIAC then picked up their coverage when nobody else would,” he said.
The hard-to-insure market got even riskier to cover after a 2019 law expanded opportunities to sue over childhood sexual assault.
NIAC CEO Pamela Davis told The Standard that foster agencies faced mounting pressure to settle — sometimes without a chance to verify the claims — and make exorbitant payouts.
She cited as an example NIAC-covered Alternative Family Services. In 2017, the Bay Area nonprofit recruited a father who went on to molest three foster kids. Davis insists the agency did nothing wrong, that the man passed the background check, and that no one could have foreseen the abuse.
When the victims sued, they pointed to lapses in the agency’s intake forms that should have flagged warning signs about the man’s mental disorder and sexual frustrations. But NIAC stuck to its guns, rejected offers to settle below the $11 million policy limit, and took the case to court.
It proved a costly gamble. The trial concluded late last year with a $25 million verdict.
Months later, the insurer sought a legislative fix, sponsoring a bill that would have made it harder to sue foster agencies. Backlash mostly from trial attorneys led its lead author, Assemblymember Gail Pellerin, D-Santa Cruz, to gut and amend AB 2496 into a stopgap that authorized counties to step in for uninsured nonprofits.
But it did nothing to prevent NIAC from bowing out of the market entirely.
‘On pins and needles’
When it became clear that the bill’s judicial reform version was a lost cause, the insurer announced its exit. That was in late August, barely a month before the first round of policies expired and left counties scrambling.
Los Angeles was the first to act. With dozens of NIAC-insured agencies that support as many as 1,800 foster kids, the county began drafting a plan.
Pellerin said she hopes the coming year will culminate in lasting reform.
“I hope that all stakeholders can work together between now and January 2025 and come back with an urgency bill to ensure the continued operation of [foster agencies] in California,” the lawmaker said in an email to The Standard. “I also join Insurance Commissioner Ricardo Lara in his call to action to urge all property and casualty insurance companies operating in California to find a way to offer coverage … and help stabilize the state’s foster system.”
San Francisco, meanwhile, is still figuring things out, a spokesperson for the Department of Children and Family Services told The Standard. Unlike in L.A., where elected leaders quickly brought the matter to a vote, those talks remain behind the scenes between child welfare officials and private contractors.
At the same time, the nonprofits are desperately searching for new insurers. Those that haven’t left the market charge several times more than NIAC — enough to bankrupt smaller agencies.
Jacobs said she has until the end of January to find a new policy for Family Builders. If that doesn’t pan out, she worries, counties could struggle to give her clients the same level of around-the-clock help.
The immediate goal is to keep kids in place.
“Our families are on pins and needles waiting to hear what happens,” Jacobs said. “We’re hoping very much that we’ll be OK.”
Beyond that, she hopes the state hammers out a failsafe — like it has for other markets.
“When homeowners in Orinda couldn’t get insurance, all of a sudden we had the FAIR system,” she said, referring to the state’s new risk pool of last resort. “And yet when it came to kids in foster care who could possibly have their lives turned upside down, the state kind of threw up its hands.”
It would be naive to think the coverage crisis won’t extend into other service sectors, cautioned Christine Stoner-Merz, CEO of the California Alliance of Child and Family Services.
“We’re already hearing about this happening for other types of organizations like skilled nursing facilities,” she warned. “This is going to become another version of the homeowners insurance crisis if we don’t make it a priority.”