A Day-Care Dilemma: Operating Uninsured or Paying Fierce Costs

On Wednesday, July 3, a postal carrier delivered an envelope and with it near panic to directors of the Parent and Child Enrichment (PACE) center in Santa Ana. Like thousands of envelopes mailed in recent weeks from the Los Angeles-based Mission Insurance Co. to day-care providers throughout the country, it contained a form on which the word “cancellation” was checked. Typed next to the box was the effective date and time the center’s liability insurance would run out: 9-2-85, 12:01 a.m.

Two weeks earlier, Evelyn Moore of Gardena also received a notice from Mission Insurance. It said her policy, which covered the day care Moore provided in her home for 12 children of low-income single working mothers, would end in a week.

Insurance companies since the first of the year have been dropping liability coverage and raising premium rates and eligibility requirements for caretakers of small children. Some cite the fear of open-ended molestation claims sparked by last year’s nursery-school sex-abuse scandals. Others have pointed to soaring financial losses industrywide.

But when the officials of Mission Insurance Co. recently curtailed their coverage of day-care centers, family day-care homes and foster parents, there was widespread fallout. Until then, the company had been one of the largest coverers of day care--in fact, the only insurer of family day-care homes in California, said family day-care representatives.

“Mission was the only insurance company available to us,” said Mary Hammer, president of the California Federation of Family Day-Care Assns. According to home day-care providers’ estimates, Mission’s action has affected up to 13,200 private day-care homes in addition to an unknown number of day-care centers in the state.

For many, the news--though not surprising--has been devastating.

California requires those who provide day care in their homes to carry insurance. Without it, their choices are to operate “underground” without coverage, thus risking their homes or savings, or to close down. If they can find insurance, they must raise the fees charged parents, who may not be able to afford them.

The only premiums available since the start of the year have been at tremendously increased rates. “Some companies raised their rates as high as 800%,” said Joseph Silverman, a broker for family day-care programs underwritten by Mission Insurance Co. While the state does impose minimum teacher education, physical capacity and student-teacher ratio requirements on preschools and day-care centers, it does not require them to carry liability insurance. Mary Kaarmaa, the Orange County child care licensing program supervisor for the state’s Department of Social Services, said she could not explain why the state would require liability insurance of day care homes and not day care centers.

At PACE, the news of cancellation was “a terrible threat,” said Chancy Wooldridge, president of the board of directors of the nonprofit center. Also known as The Infant Center, PACE provides hard-to-find infant and toddler care for 36 children of working parents and has a waiting list of 50. “I think we’ll find a policy, but I don’t know if we’ll get it in time,” said Wooldridge. If they do not, she indicated, the center may close temporarily.

Panicked at First

Moore said she panicked at first. She contracts her services with the City of Gardena, which does not allow her to operate without insurance. The same day the notice arrived, city officials called the mothers and told them to find other day care for their children. And Moore--who had provided day care for six years--was out of work.

A spokesman for Mission Insurance Co. refused to comment on why the policies had been cancelled or not renewed as well as how many day-care providers were affected. However, news accounts have reported that Mission has been reorganizing to recoup losses over the past two years.

California was the largest state affected in the recent pullout, said Silverman.

In California, there are now about 400,000 children enrolled in day-care programs through approximately 43,000 licensed family day-care (private) homes, 6,000 day-care centers and an unknown number of preschools and community-care centers, said Sheldon Davidow, senior consultant for the state Senate Insurance Committee.

Homes can be licensed for either six or 12 children. The number of children in day-care centers ranges from 12 up to 400, according to the Department of Social Services.

For no apparent reason, different regions of the state have been hit unevenly with cancellations since insurers started sending them out early this year, said Davidow. He said his office has received the most telephone calls from day-care providers in Orange County, north San Diego and the Contra Costa--East Bay areas. Metropolitan areas that include Los Angeles and San Francisco Bay peninsula areas have apparently been affected to a lesser degree, he said.

Hard Jolt to Child Care

The insurance problem is “the biggest thing that has ever hit child care,” said Jackie Tishler, projects coordinator for Connections for Children, a state-funded resource and referral office for child care in Santa Monica. Before this year, she said the problem was finding enough spaces for children who needed day care. “Now it’s a bigger problem. The providers cannot afford this insurance. They’re limited in where they can buy it. And the cost is prohibitive to many providers.”

The hardest hit have been family day-care providers, who since the first of the year have been required to carry at least $300,000 worth of liability insurance.

Silverman said his company, BMF Marketing, has lined up a replacement insurance company for Mission that will write policies for family day-care homes, but not centers. Linda Carroll-Bradd, 32, president of Orange County Day Care Assn., said she was told the replacement insurance will cost $475 a year and be limited to members of the California Federation of Family Day Care Assns. “Last year I paid $70,” said Carroll-Bradd, who cares for six children, including two of her own, in her Anaheim home. “So for me, it’s actually about a 500% increase.”

Since they have fewer clients to absorb fee increases, smaller day-care providers must raise individual fees higher, she said. “I told my parents that I can only stay in business if they come through with $2.75 per child per week increase effective next month. Luckily, my parents haven’t batted an eye.”

But Ellen Randolph, a family day-care provider in Garden Grove who charges $50 a week per child, said “a fee increase of $2 to $5 is very likely going to knock us out of the market.” “A lot of my clients are (financially) unstable, I have a lot of single mothers, a lot of unemployed husbands. I don’t think we can compete against the unlicensed people who are watching more children and charging less.” She said a friend who has no license and no insurance watches 11 children and charges $40 per week. “She never loses anybody. They know if they leave, they’re looking at $55 or $60.”

Liability Waivers

Some day-care providers are reportedly operating secretly without insurance or asking parents to sign waivers. The practice is dangerous, said Kaarmaa. “If something happens and they get sued, they could lose their homes, everything.” In addition, she said, “it’s a real hassle for parents if the child gets injured. They think the facility has insurance covering the child and all of a sudden find out the parents have to pay. . . .

“If a child experiences some kind of molest or abuse at the hands of someone working at an uninsured facility, it will be the parent who has to pay for therapy. They will have to find some therapy at a reasonable cost or the child may not get therapy.”

Partly due to the lack of or cost of insurance, day-care providers are now quitting at a faster rate than they are applying for licenses, said Tishler. “In September we had 29 providers apply for licenses and nine drop. In April we had nine providers apply and 29 drop.

“They don’t want to take a chance now because of the issue of child abuse. They seem to be being (penalized) without having done anything.”

“It’s been devastating to us,” said Diane Beverly, who last May closed her preschool, Beverly’s Morning Preschool in Orange, after the school’s liability insurance was canceled by the Insurance Company of North America. She said she and her co-owner husband Gail searched for four months, some days making 20 telephone calls, to find insurance. “There was one policy available,” she said. “It would have covered us for $500,000 instead of the $1 million we had been carrying, and the rates were 300% higher.” In addition, it would have required the Beverlys to increase their staff from three to six for the 22 children for whom they were licensed.

Never Faced a Claim

The couple, both 54, had never had a claim filed against them in 24 years of operation, they said. “We didn’t know there was a problem in the insurance industry related to day-care centers when this happened to us,” she said.

Since then, three of their 17 children have enrolled in other schools. The rest are taking vacation until September. The Beverlys have pulled out the swings and play equipment in the yard of their home that doubled mornings as a preschool. And they spend much of their time trying to inform other day-care providers of the problems and lobbying with state legislators for solutions such as mandating insurance companies to provide coverage.

Also, they have optimistically renewed their license. “If next year things look better with the insurance industry, we could open, but we’re finished for this year.”

Meanwhile, Wooldridge has sent letters to parents and teachers at the Infant Center telling them of the problem. “We’ve set our goal to get insurance by July 31,” said Wooldridge. “If there’s no solid news by then, we’ll have to decide what to do.

“I’m trying hard not to feel panicked.”

If need be, she said, the board will hold a fund-raiser such as an art auction or candy bar sales to pay for insurance to keep the school open. “I’m confident they’ll get some insurance,” said Arlene Riddick, a teacher in the infant room. “It’s not just our problem, it’s everybody’s problem. Without us taking care of their kids, parents can’t work and companies can’t function.”

Who to Blame?

Some parents and providers blame a society that gives children’s care a low priority. Some look to government, others to the insurance industry for solutions.

Last Thursday state Sen. John Seymour (R-Anaheim) introduced a bill, SB 1474, which would establish a Joint Underwriting Authority. The authority would create an association of all liability insurance carriers who would share the risk as well as the premiums for insuring the day-care industry, somewhat similar to the concept of “assigned risk” in automobile insurance.

As an urgency measure, it would go into effect as soon as the governor signed it, said Seymour. “It would take some time for the association to gear up its machinery. The earliest relief that might be felt by this legislation would be November or December,” said Seymour.

“It is also hoped the insurance industry may re-enter the market and resolve the problem by creating competition in the marketplace,” he added.

While that may happen, Edward Levy, general manager of the Assn. of California Insurance Companies, suggested the only long-range solution is “a thorough examination of tort (liability) laws in California,” which he said encourage awards of large settlements.

In addition to legislators, others who have been studying the problem include family day-care providers, the National Assn. for the Education of Young Children and the Los Angeles Mayor’s Advisory Committee. “The insurance problem has become everybody’s problem at this point,” said Tishler.