Insurance a Burning Issue for Youth Agencies

Katrina Mason
September 1, 1995

At a time when the nation badly needs foster families, an Alaska couple has been so burned that they now vow to take no more foster children.

Carol and Ted Titus had taken in 20 foster children over a period of six years when an eight year old foster child apparently set fire to the bed and breakfast that the couple were building next door to their home in Kenai, Alaska. Both teachers, the Tituses were constructing the building themselves and had been told they could get insurance when the roof was on. When the still-uninsured building burned, they assumed that the state would recoup their loss. "We had been told there was insurance for foster families," says Carol Titus.

"We had been told that if a child did a destructive act, it would be taken care of. I never dreamed we would have a fire, but I had thought it would be good to know the amount (of insurance). (State officials) kept saying. 'We'll get back to you.' Well, they got back to us fast after the fire. The amount was $5,000." The Tituses, who have six children of their own, estimate their losses at $350,000.

"If a kid punches a hole in a sheetrock wall or similar damage, and a police report is filed, then we repay the foster parents out of our own limited budget," responds Phil Snyder, regional administrator for the Division of Family and Youth Services in Southeastern Alaska. The limit in their budget is $5,000, as the Tituses discovered. "In this day and age, the only avenue a foster parent would have (in this case) is to sue the agency. I'm not advocating anyone suing us, but I would understand that it would be a last resort," he adds.

"We had this child for almost two years," says Titus. "We never suspected anything like this. After the fire, the boy's mother told us that he had set a fire at her home the day he was taken away and we learned that he had set fires at several other foster homes. But we were told nothing of this history.

Snyder acknowledges that his agency is placing only more difficult youth in foster families. In under to minimize the risks, "what we try to do is provide training to foster parents and to wrap around community services," he said. "There is also an obligation by the agency to warn foster parents if there is a history of arson or hazard associated with a child." Snyder agrees that in the case of the Tituses, this apparently did not happen.

"After the fire, we looked at the homeowner's insurance policy we had on our house and discovered that if a foster child had purposely set it on fire we would not be covered. We helped the state when the state needed help, but when we needed help, they turned their back on us," says Titus. "I think a lot of foster parents think this will never happen to them, but it can."

Paying More, Getting Less

Another kind of insurance crisis confronted the directors of the Missouri Baptist Children's Homes a few years ago. The statewide program that has been serving the needs of children for 109 years faced a choice of either cutting back on its programs "to the point where we were not doing much or possibly going out of business," recalls executive director Bob Kenison, Activities to increase children's trust and self-reliance, like canoeing or the popular ropes course, had to be eliminated because insurance would no longer cover them. And potential board members were declining to serve because of cutbacks in coverage of Directors and Officers (D&O) insurance.

"We were paying more each year and getting less," says Kenison, whose close to 100 staffers help with children deemed "moderately to severely disturbed" through a foster-adoptive program, maternity home, emergency shelter, learning center, and a counseling center.

"We would say to our insurance (company). 'We want to take these kids on a canoe trip or a ropes course.' We had to stop doing them because we couldn't get coverage. We had to curtail out-of-state trips. We had a horse program: we had to end it because of insurance."

Cutting out programs meant leaving kids with time on their hands which meant an increased likelihood of problems. And cutbacks in sexual abuse insurance put the staff at risk too.

As Kenison talked with directors of other child and family agencies, he discovered that insurance woes like his were widespread. "In the mid-80's, there was a fear of losing insurance or not having programs insured," says Arlin Ness, president, Starr Common-wealth, Albion, Mich. "Enrichment-type activities had to be dropped. We screamed and yelled. We had considered starting a horse program but we did not because of insurance concerns."

NAHSC's Cost-Cutting Tactics

Starr Commonwealth works with children from infancy through adolescence, many of them adjudicated delinquents, at three campuses and three community-based programs throughout Michigan and Ohio. Some 2,000 youth attend on-going counseling, while 3,000 are involved in the enrichment activities including outdoor adventure education offering such challenges as rock climbing, a ropes course and spelunking.

At the same time that coverage for these activities was being cut, premiums were skyrocketing. "We were seeing a dramatic increase in premiums. I think our premiums rose $50,000 to $100,000 over just a few years," recalls Ness.

In the late 1980's, Ness was also president of National Association for Homes and Services for Children (NAHSC), an organization of 350 non-profit child and family agencies, most of which have some kind of residential program. Hearing insurance horror stories from others, he and NAHSC executive director Brenda Russell Nordlinger decided to develop an insurance program geared to the specific needs of these agencies. They sought affordable rates and specialized coverage. Of particular importance were:

  • Physical and sexual abuse insurance for staff.

    "Children know they can get back at adults by accusing them of abuse," says Nordlinger, "so we have to protect staff with this insurance."

  • Adequate D&O (directors and officers) insurance for board members.
  • Automobile insurance for agency vehicles.
  • Insurance that would cover children's belongings. Many agencies had been damaged by hurricanes Hugo and Andrew but conventional insurance covers property but not belongings of children, says Nordlinger, noting that in a home for children this can be important.

Another unique risk for some children's agencies is the long tail of adoption.
Someone might sue 18 years after an adoption. Could they get appropriate insurance to cover that?

As they delved into the issue, Nordlinger and the NAHSC members learned that the insurance industry was lumping the child and family agencies with other health agencies and, nursing homes.

"One insurance company wouldn't have that many children's homes so they would lump us In with a health care type service. Then they would set the rates. We would have to pay a higher premium," explains Kenison.

"We didn't have our own risk pool — our own peer group to be measured against, "adds Ness.

"There is a perception that human service programs are riskier. We documented that we were a low risk group being charged high rates," Nordlinger recalls.

Working with Anthony Gruppo, senior vice president of Henry S. Lehr, Inc. of Bethlehem, Penn., they were able to create insurance tailored to the needs of child and families agencies that essentially uses other such agencies as a peer group.

"The point Anthony made," says Kenison, "was ‘We know what your business
is and we want you to do your business well.' He understood that if kids are out there doing things aimed to make them heal, make them well, we are going to have fewer problems. He understood that if kids are bored, they may burn a house down. From my perspective, it's less important what company is insuring you than who is writing it (the broker). This person needs to be someone who knows the business, someone who understands what I do and what I need."

“Our first year in the NAHSC insurance program we saved $35,000 in premiums," remembers Kenison. "Our coverage has gone up every year since and the premium has gone down. Now we have added liability. Our D&O is back up to $5 million. This has been significant for us. I know we have saved over $100,000."

"In the first year we reduced our premium by $40,000," recalls Ness. "That's one (staff) position. When the money is going into insurance, it literally comes out of the direct services we can offer to youth."

Understanding Risk Management

Gruppo states that in terms of severity and frequency, claims fall in the following areas: workers' compensation, vehicle accidents, property damage, general and professional liability, and directors' and officers' insurance claims. "Workers' compensation claims are a large part because staff are engaged in physical activities with youth that puts them at risk for injury," says Nordlinger. Risk management understandably became an important part of the NASHC program.

"Risk managers come out to the agencies and show staff things they can do (to create a safer environment)," says Nordlinger. “They might point out an extension cord that a child could trip on. Or in a program dealing with sexually abused children there might be a long corridor with dark corners or a curve obstructing the view. Since sexually abused kids frequently turn into abusers, recommendations might include better lighting, structural changes or even putting a different kind of program in the building. Risk management has kept claims down and in turn lowered rates."

Gruppo says that developing the child agency insurance package "became personal for me. I saw that the agencies were doing a great job and wanted to help them keep going."

"Working with the NAHSC agencies, he said gave the Lehr organization a new mission — to help children's agencies continue their work — and even improved company morale. He offers these tips for agencies shopping for insurance:

  • Help the broker become familiar with your particular program.
  • Describe the successful programs you have, enumerating the specific things you do to make them successful
  • Have a formal program in risk management. Describe what are you doing to reduce accident exposure.

"You have to be diligent in reading the policy and looking at all the features," cautions Pam Rypkema, legal director of the Nonprofit Risk Management Center, Washington, D.C.

“The biggest gap for nonprofits is no coverage for volunteers in any way, shape or form," says Rypkema. She recommends that agencies make sure their policies include abuse and molestation and that they have adequate D&O coverage.

(For more tips from the Nonprofit Risk Management Center, see page 27.)

The nation's YMCA's responded to similar insurance problems in a different manner. About eight to ten years ago, faced with spiraling costs, a group of Y's created their own captive insurance facility, Y-Mutual Insurance. Individual Y's now have the choice to remain in the commercial market, to simply set aside their own funds to cover losses, or to join Y-Mutual, says Marv Reinke, president of the YMCA Services Corporation, the Chicago-based organization that works with the Y's in risk management.

By joining Y-Mutual, Y’s have a legal responsibility to pay each other's losses, so they take risk management seriously, says Reinke. He notes that because of their specific programs. Y's have a huge insurance exposure. There are aquatic programs, transportation programs (shuttling children about in vans and buses): and "we're probably the largest child care provider in America, creating a large exposure to child abuse." Today, he says, most Y boards of directors include a risk management committee and "our pro-active risk management practices have increased tremendously."

The KEY Program, based in Framingham, Mass. and providing social services to troubled adolescents through group homes, staff detention centers, secure mental health centers and in-home family services, uses an insurance advisor specializing in human service agencies. "We were finding that insurance carriers didn't understand our business, that some coverage was hard to get and that our insurance administration was cumbersome because our coverage was with several brokers," recalls President Bill Little. "Most of us don't understand all the fine points of a policy. Our advisor. J.H. Albert Associates, puts together bid packages for us, evaluates the bids, and makes sure that we are getting what we need."

"Human services are a tough line to write, particularly liability in the sexual abuse area and worker's comp," says Sandy Mitchell, assistant vice president of J.H. Albert Associates. "We tend to know who's got coverage available. The insurance field is specialized. Unless you deal with it all the time, you don't know the fine points. Because we deal with a number of human service agencies, we know what coverage we've been able to get for one agency and we can try to get it for others."

Small agencies have the toughest time getting adequate insurance. But by joining together with other agencies they can access otherwise unavailable insurance, along with discounts and dividends, Mitchell says.” The Massachusetts Council of Human Services, for instance, tries to develop relationships with brokers or companies interested in that sector of the business." Along with finding insurance, an advisor may also help agencies manage their risks; for instance, if an agency has a lot of claims for back problems, a firm might offer a mini-workshop on proper lifting techniques.

For-profit children's agencies arc also turning to aggressive risk management to keep down claims. Mark Contento, chief administrator for Vision Quest, says his agency's primary insurance concern is workers' compensation. The program operates in Arizona, Pennsylvania, Texas, New Jersey and Florida and employs a staff of 950 to supervise 1150 girls and boys ages 11 to 18. The youth are sent to Vision Quest by courts as an alternative to incarceration and engage in such challenges as covered wagon trips, hiking, biking, and snow skiing.

"We're not an easy business to learn," he says, noting that an insurance risk management consultant pays regular visits. They have followed such recommendations as adding safety railings or moving the rakes and shovels that had been leaning near a fire pit. Because of the large number of staff and the physical challenges that they find themselves in, Contento says, accidents like knee injuries "which are expensive" do occur. The agency has managed to reduce the frequency and severity of such accidents through a strong and consistent focus on safety. "Since you can't train animals in safety, we've had to train our people how to work around them," says Contento. While some might think that youth sent by courts would present an insurance worry (in terms of damaging a third party), Contento said the agency's second major insurance concern is automobiles. "I worry more about drivers than about runaway mules or kids causing damage," he says. To increase safety and cut back on accidents, the agency strictly monitors employees' driving records and instituted a "can't drive policy" keeping those with even minor infractions out of the driver's seat. "We hire commercially-licensed drivers, regularly check the vehicles for safety, insist on seat belt use and have beepers in the vans," says Contento.

"Insurance is not simply a purchase of a commodity," says the Y’s Reinke. “It may pay off losses. But what about the loss of trust in the community, the staff time spent preparing depositions, the cost of folks you have to bring in as experts, and the damage to the morale of your agency?"

Insurance, he says, is one step to get peace of mind. "But whether insurance will cover a program is not really the basic issue. You make sure that you are providing proper supervision and safety techniques with the goal of never having to need that insurance."

Tips for Buying Insurance

(Adapted from guidelines by the Non-profit Risk Management Center)

1. Give the underwriter a reason to write the account. Emphasize your organization's good works, prevention and risk reduction programs and professional operation. Give the underwriter a reason to fit your organization into its guidelines and to make an exception for your organization if necessary.

2. If you have a renewal quotation for an existing policy, say so. Use this quotation to negotiate favorable terms.

3. Build in time for an underwriting review. Send your insurance application to the underwriter well in advance of desired coverage date. This gives the underwriter time to ask you questions and gives you a chance to get competing quotes and compare terms.

4. Complete the application. An incomplete application likely will be declined outright.

5. Attach all supporting information and list what you are attaching in a cover letter.

6. Make sure all information you provide is accurate. If information is discovered to be false, the insurer generally is within us rights in deny coverage, and an organization can be deprived of protection that it thought it had paid for.

7. Anticipate questions and answer them up-front. In consultation with your insurance agent provide any necessary explanation for the answers on the application and unique exposures that your organization may have. In a single submission, give the underwriter sufficient information to evaluate the risk.

8. Respond promptly to requests for information. A prompt response highlights your organization's professionalism and willingness to cooperate.

9. Negotiate quotation terms with respect. As you question the basis of a quotation and try to alter the terms, do so in a way that will not alienate the underwriter. Give him/her a chance to act reasonably.

10. Offer alternatives for unacceptable quotation terms. Give suggestions for improving the terms. For example, if the insurer refuses to cover an activity, offer to institute an insurer-approved risk management plan as a condition of coverage and to accept a higher deductible. Show your organization's willingness to work with the insurer to find a win/win solution.

  • Community Risk Management & Insurance. Call Pam Rykema at 202-785-1891.
  • National Association for Homes and Services for Children. Call Brenda Russell Nordlinger at 202-223-3447.
  • Henry S. Lehr Inc. Call Anthony Gruppo at 800-634-8237.
  • J.H. Albert Associates insurance advisors. Call Sandy Mitchell at 617-449-2866.


Insurance a Burning Issue for Youth Agencies: Initiating A Sexual Abuse Policy

Mason, Katrina. "Insurance a Burning Issue for Youth Agencies." Youth Today, September/October 1995, p. 24-27.

©2000 Youth Today. Reprinted with permission from Youth Today. All rights reserved.