Day--Care System Struggles Under Soaring Insurance
Since 1960, Dorothy Beltz has been supervising six children in her Canoga Park house, running a small business known as Beltz Day Care Home.
Beltz, who charges about $20 a day per child, says her reward comes principally from the satisfaction she gets working with children, not from the income.
Yet finances have become a sudden preoccupation with Beltz and other day-care providers in the San Fernando Valley as they struggle to cover an explosive increase in liability insurance premiums stemming largely from publicity over the McMartin Pre-School molestation case in Manhattan Beach.
Rates typically have soared by 300% to 500% since spring, while coverage levels have fallen. Some companies have tightened eligibility qualifications or dropped their child-care liability line altogether.
Passing on Cost
The rate increases have ignited concern among the Valley’s child-care providers, who warn that the added cost must be passed on to parents through higher prices.
About 20,000 children attend licensed day-care facilities in the Valley, an estimated 725 family day-care homes--which can take in no more than 12 children--and 350 day-care centers.
Beltz received a non-renewal notice for her liability insurance policy from Mission Insurance Co. of Los Angeles three days before the policy expired on July 1.
Last year she paid $117 for $500,000 in coverage. Now she is deciding whether to purchase a policy costing a minimum of $505 for $300,000 in protection from another firm, a whopping sevenfold increase per $100,000 of coverage.
As did several other home operators, Beltz acknowledged that she currently lacks liability insurance. Without it, her house could be lost in a lawsuit, because homeowner insurance will not cover the house for day care.
May Close Home
But Beltz said the parents she serves can ill afford another boost in day-care prices to cover insurance costs.
Instead, Beltz said, she may choose to close her home to day care.
“It forces us into becoming more of a business. In the beginning it was just taking care of children,” Beltz said.
Beltz’s frustrations were echoed by other Valley child-care operators. Most resented what they viewed as paying for the alleged crimes of a few.
“A few bad ones are going to make it prohibitive for everyone,” said Carol Cook, director of Kidsville USA in Northridge. The center provides a summer-camp program and a $35-a-week after-school education program for about 60 children.
Cook said that in October Kidsville USA owners were given a choice by their insurance company, Imperial Casualty and Indemnity Co. of Omaha: Either sign a waiver excluding from coverage legal fees and income loss stemming from any misconduct and child molestation charges, or lose their insurance.
‘Assumption of Guilt’
“That was their response to the McMartin situation, and it was offensive,” Cook said, fuming. “There was an assumption of guilt.”
Still, as self-protection, they signed the waiver to retain the insurance.
Day-care center and home operators contend the rate increases are unfair, noting that only 1% of all reported child abuse occurs at child-care and nursery schools.
“Apparently, some of the insurance companies are using this as an exploitive device to double or triple rates or more,” said Marjorie Morris, executive director of the state-funded Child Care Resource Center of the San Fernando Valley, a child-care referral service.
Insurance industry representatives, however, said that the increases are needed to keep pace with a rising number of claims, as well as the prospect that publicity given the McMartin case and child sexual-abuse cases nationwide will bring on more lawsuits.
‘Forced Into Settlement’
“Any prudent businessman would look to the current legal climate in California,” said George W. Tye, executive manager of the Assn. of California Insurance Companies in Sacramento.
“You almost have to prove that you didn’t do it. You’re forced into a settlement by the costs of the trial and the prospects of a jury verdict,” he said. “We can see that on the horizon.”
Insurers also said their industry has paid billions of dollars more in all types of claims than it has collected in premiums over the past several years. In 1984, for the first time since the San Francisco earthquake and fire, the industry lost money--$4 billion nationwide.
Moreover, insurance officials argue that child care, along with other liability lines such as municipal and pollution liability and malpractice insurance, have been underpriced and are now undergoing price increases.
“The insurance industry is not picking on the day-care community,” said Joseph S. Silverman, executive vice president of BMF Marketing Insurance Services Inc. in Sherman Oaks.
‘High-Risk Class’
“The publicity has put them into a high-risk class,” he said. “Our society tends to dwell on the single apple ruining the barrel.”
BMF, a major broker for day-care liability insurance for home providers in California, carried Mission Insurance until Mission eliminated its day-care line this summer. BMF now offers policies from Glendale-based Universal Security Insurance Co. at an average price 250% higher than it was in May under Mission.
Silverman said his company has seen a 250% to 300% increase in the dollar value of claims in two years, and the average claim against a family day-care home is now $16,000.
He said his company’s higher rates are justified by a large statistical base BMF uses to evaluate risks, although some insurers are not basing rate increases on hard figures, but rather on their expectations of future claims.
Most Carry Insurance
Since Jan. 1, a state law authored by Assemblyman Tom McClintock (R-Thousand Oaks) has required family day-care providers either to buy $300,000 in liability insurance or bonds, or to have parents sign affidavits stating that they have been informed the home does not carry insurance.
Even before the law took effect, most homes chose to have the insurance as protection against the possibility of losing their homes in day-care-related lawsuits. Likewise, even though day-care centers are not required by state law to carry a liability policy, most do so routinely.
Child-care industry observers worry that the insurance price boost comes when demand for day-care services continues to grow at a brisk pace.
The state Department of Social Services said there are 33,700 licensed family day-care homes and 7,000 licensed day-care centers in California. The number of day-care facilities has grown 62% in the past five years, and analysts predict that demand for day care will more than double within 10 years, given continued growth in the number of single-parent and two-earner families.
No Valley Facilities Closed
“The Valley is typical of that,” Morris said.
Still, for reasons that observers could not explain, Valley day-care providers appear to have been hit less severely by the insurance crunch than other areas.
Some private homes and centers are reported to have closed in Orange County and San Diego. But day-care observers and providers could not recall a center or home in the Valley being forced to close because of the higher rates.
Yet many providers, particularly day-care centers, are bracing for more bad news in their insurance renewal notices, many of which come in August or September.
Larry Lindahl, executive director of Kinder Kare Children’s Center in Pacoima, said a 300% to 500% increase could force him to shut down his nonprofit, church-affiliated center, which principally serves children of lower-income parents.
“In essence, it would close us down the day we got the bill,” Lindahl said.
‘Underground’ Homes
Another concern among day-care providers is that the increased insurance costs will stir a movement toward more “underground” homes, unregulated homes not licensed through state or county agencies and without liability coverage.
No estimates were available of the number of underground operations in the Valley.
“It becomes very tempting for someone who has a friend or two to continue to care for children illegally or expand their service,” Morris said of the insurance rate increases.
Providers are lobbying for state action to relieve their insurance woes, and hope has centered on a bill authored by state Sen. John Seymour (R-Anaheim) that would establish a joint underwriting authority. The legislation is backed by Los Angeles Mayor Tom Bradley’s Child Care Advisory Committee.
The authority would seek to provide less expensive liability insurance by drawing insurance companies together in a risk-sharing plan.
Insurers oppose the bill, favoring instead private industry efforts to increase competition for liability insurance and thus pressure companies to keep rates down.
