Liability-Insurance Crisis Deepening

By Anne Bridgman — February 05, 1986 7 min read

Despite growing public attention, the nation’s liability-insurance crisis appears to be deepening, with officials from day-care centers, schools, and municipalities reporting in recent weeks that obstacles to affordable coverage remain formidable.

In addition, several recent developments have underlined the sense of urgency with which leaders in government and education are seeking solutions to what one U.S. senator recently called “a problem out of control.”

  • At a meeting of the U.S. Conference of Mayors in late January, an insurance-industry representative called municipalities--including in some cases the school districts they administer--"sitting ducks” for lawsuits. He predicted that the insurance crisis would be “the predominant issue” in most state legislatures this year.
  • The National Association for the Education of Young Children released a survey last month indicating that, for day-care centers and family day-care homes, the rate of liability-insurance cancellations and nonrenewals has increased threefold during the past six months.
    Based on a poll of more than 250 child-care programs in 43 states, the association concluded that parents can expect to pay more for child care as a result of the insurance hikes, which it labeled “unjustifiable.”
  • The Child Care Action Campaign announced last week the completion of agreements for a new insurance policy for day-care providers suffering the effects of the insurance crisis. Under development for six months, the plan will be made available pending approval on a state-by-state basis.
  • The New York State Board of Regents, saying that the insurance crisis represents a “significant drain of funds” from education programs to the insurance industry, adopted a set of legislative recommendations last month designed to help districts obtain insurance at affordable rates.

‘Foisted on Consumers’

At the U.S. Conference of Mayors’ meeting in Washington late last month, speakers from consumer groups, the insurance industry, and the U.S. Congress addressed the liability issue.

J. Robert Hunter, president of the National Insurance Consumer Organization, charged that the crisis “is not an industry crisis,” but one that “is being foisted on the consumers, particularly small businesses and towns.”

Despite attempts by some in the industry to tie rising rates to increases in the number of claims, he said, data do not support that contention. In fact, he noted, day-care centers were paid only $5 million in total claims last year, a sum he said represented a relatively small percentage of the total industry claims filed.

John Crosby, vice president and general counsel of the Chicago-based National Association of Independent Insurers, disputed Mr. Hunter’s charges and called on the mayors to help regain control of the court system.

“The idea that there is not a tort problem is ridiculous,” Mr. Crosby said. Municipalities are “sitting ducks” for lawsuits, he contended, urging the mayors to “put your communities in order,” by making them more attractive to underwriters. This could be done, he suggested, by adhering strictly to risk-management theories and carefully assessing risk in such places as schools.

Mr. Crosby also suggested that municipalities join together to find affordable insurance, engage in market-assistance programs, and take advantage of an information clearinghouse established by the National Association of Insurance Commissioners in Kansas City.

The issue of insurance availability and affordability, he said, “will be the predominant issue in most state legislatures this year.”

‘Out of Control’

Senator John D. Rockefeller 4th, asserting that “this whole problem is just going out of control,” briefed the mayors on Congressional efforts to address the crisis.

Hearings now under way in the House and Senate, he said, will help inform the public. In addition, he said that there is some activity at the federal level to repeal the McCarran-Ferguson Act of 1945, which gave the insurance industry a permanent exemption from federal regulation and anti-trust laws as long as it was regulated by the states.

Although Senator Rockefeller said he does not support such federal regulation, he acknowledged that “as this problem grows and unless there’s some kind of a response, the pressure for federal regulation is going to grow.”

Several speakers expressed interest in the findings of a study to be released this month by the U.S. Justice Department. Among the issues probed by the Attorney General’s interagency task force on tort reform were municipal and medical liability and the availability of insurance.

‘Fabricated Crisis’

The National Association for the Education of Young Children, a 47,000-member organization representing day-care providers, released its survey on the impact of the liability crisis on providers last month. The poll is a follow-up to a nationwide survey of 1,000 child-care providers and 200 Head Start centers conducted by the Child Care Action Campaign last summer. (See Education Week, Sept. 11, 1985.)

The report, according to Deborah Phillips, director of the N.A.E.Y.C.’s child-care information service, shows that “our nation’s child-care programs have fallen victim to a fabricated crisis.”

Contrary to the claims of some insurance companies, Ms. Phillips said in releasing the survey results, “child care is not a risky business and insurers are not losing money on child care.”

Nine out of 10 child-care programs surveyed had never had a claim on their liability policy, she said. In instances where claims were made, she said, they generally involved minor injuries; no claims resulted from child-abuse allegations.

The survey also found that rate increases and policy nonrenewals bore no consistent relationship to the claims history of the child-care program. The liability coverage for 25 percent of the programs was narrower than it had been the year before, and many renewed policies contained exclusions for claims arising from child-abuse allegations.

Most of the programs surveyed reported plans to raise fees or cut operating budgets to deal with the rate hikes. Five percent of the programs said they were considering closing; only 6 percent indicated they would operate without insurance.

Day-Care Insurance Plan

To assist some of the day-care providers faced with escalating premiums and policy cancellations, the New York-based Child Care Action Campaign has been working since last summer to hammer out an insurance policy. Devised by C.C.A.C.'s insurance committee and a national panel whose members included representatives of major early-childhood groups, the plan will be underwritten by Continental Insurance.

Sent to state insurance commissioners last week, the plan will be available-pending state approval--to center and home day-care providers and Head Start programs who meet state licensing laws and a set of safety standards.

Coverage will include bodily injury, property-damage protection, nurses’ incidental professional liability, and extended medical payments. Limits to the policy, which also covers civil suits arising out of covered negligent acts such as child abuse, will be $500,000 and $1 million.

‘Serious Concern’

The New York State Board of Regents, expressing “serious concern” over the liability-insurance crisis and its effect on school funds, noted the “double-edged” nature of the issue. In a prepared statement, it said that high premiums impose a difficult burden on districts, but that significantly inadequate coverage was an even more serious problem.

“It means that many school districts are unable to obtain the quality and level of protection they need and some are unable to obtain any protection.”

The regents noted that a recent survey by the New York School Boards Association found that 23 percent of the state’s districts had had their package policies canceled or not renewed last year, and that 28 percent had had umbrella policies canceled or not renewed.

“All told,” the statement noted, "[New York] schools are paying $24.7 million more for liability coverage this year than last.”

To correct these problems, the regents have recommended legislation to expand the state court of claims to include claims brought against districts; create a joint underwriting association that would provide expand coverage to all districts; and permit districts to become self-insurers and enter into agreements with other districts to pool reserve funds.

The regents have also recommended legislation that would create a state· level risk-management program to review district operations and permit the payment of large awards in installments, the purchase of annuities, and other funding mechanisms to allow self-insurance districts to spread the effects of large awards over time.

A version of this article appeared in the February 05, 1986 edition of Education Week


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