The insurer for Parents & Children Together pulled out of the market last year, concluding that the risks of providing liability coverage to nonprofits dealing with child welfare were just too great.

The day before PACT’s coverage lapsed, it found a new carrier – but with reduced coverage and at three times the cost, the nonprofit said in testimony to the Hawaiʻi Legislature. Getting equivalent coverage would have cost 10 times as much, PACT said.

PACT contracts with the state Department of Human Services for tasks such as home visits to at-risk children and families in crisis.  If it hadn’t found the expensive replacement policy, PACT said it would have been forced to stop providing services to 8,000 ​Hawaiʻi children.

Stories like that have led the Legislature to consider a measure to limit the liability of the nonprofits that perform many child welfare functions for the state, such as screening foster families.

The nonprofits say they are unfairly saddled with legal risk when things go wrong in high-stress situations, such as when children are separated from their biological parents. They are often named along with the state as defendants in lawsuits.

Catholic Charities was sued in 2019, for instance, after a 3-year-old boy died in foster care on the Big Island. The suit by the boy’s biological parents alleged that the child had been injured and the nonprofit – a state contractor – and the state had received a dozen reports of abuse yet failed to protect him. Catholic Charities settled for a confidential amount and the state agreed to pay $750,000. 

Opponents of a measure that limits the amount nonprofits might have to pay in such cases – House Bill 1645 – say it will come at the cost of children who seek compensation for their injuries. They say such lawsuits give the state child welfare system and its contractors an incentive to improve.

“How in the world will private agencies ever get better if they can get away with tolerating abuse on their watch, knowing they won’t have to pay a dime in punitive damages, as is called for in the Hawaiʻi bill?” Richard Wexler, executive director of the National Coalition for Child Protection Reform, a nonprofit based in Alexandria, Virginia, wrote in an email.

One reason for the liability crunch is that Hawaiʻi, like many other states, suspended statutes of limitations, thinking most of the plaintiffs who came forward would be victims of clergy or scout masters, Wexler said, then were surprised when many cases involved foster care.

“Instead of saying: ‘OMG, we had no idea foster care was that unsafe, we’ve got to find better alternatives,’ lawmakers are saying, in effect, ‘to hell with children, we’ve got to save the agencies,’” Wexler said.

HB 1645 would not only prohibit punitive damages against the nonprofits when they are sued. It would also bar jury trials, requiring instead that a judge preside unless the parties agree otherwise. 

It would eliminate “joint and several liability,” a principle that requires any party found to be partially at fault in a civil lawsuit to cover all the damages if other parties cannot. And the nonprofits would not have to post a bond if the lawsuit was appealed.

The bill was approved by the House and is now working through committees in the Senate. It goes next to the Judiciary Committee, which must pass it by Friday for the bill to stay alive.

A National Reckoning

The insurance cost pressure is hitting child welfare nonprofits across the U.S.

The statute of limitations suspensions opened the door to lawsuits involving events decades ago. A Civil Beat series detailed one such case in which the state was found liable for a foster father’s actions in the 1990s and early 2000s.

“These market disruptions are being driven by national litigation trends, rather than an increase in nonprofit misconduct,” Carolyn Davis, an insurance agent, wrote in support of HB 1645.

“Industry studies consistently cite large jury verdicts, unpredictable claim outcomes, and expanding theories of liability as primary drivers of insurer retreat from these markets.” 

Insurance Commissioner Scott Saiki told lawmakers that as a result, insurers have narrowed coverage terms, increased deductibles, reduced policy limits or just left markets entirely.

Hale Kipa, which has been offering housing, counseling, foster care and other services since 1970, wrote in support of the legislation that it’s one of the nonprofits feeling the squeeze.

“These pressures are not theoretical; they are already threatening the viability of essential programs statewide,” Hale Kipa wrote. “Without these protections, Hawaiʻi faces a very real risk: community-based organizations may no longer be able to obtain insurance at any price, leaving the State without essential service providers and children without care.” 

Wexler and others see that kind of rhetoric as scare-mongering. If the nonprofits went out of business, Wexler said, the state would just have to oversee the child welfare system itself.

“The biggest lesson of all in this so-called insurance crisis across the country is that it illustrates just how unsafe foster care really is – something confirmed by decades of research,” he said. 

The Hawaiʻi Association for Justice, representing plaintiffs’ attorneys, submitted the only substantial written testimony against HB 1645.

The provision striking joint and several liability, it wrote, would prevent plaintiffs from collecting damages if the primary wrongdoer doesn’t have enough money to cover them. 

As for barring punitive damages, “eliminating this category of damages removes an established mechanism for deterring harmful practices and may reduce incentives for agencies to improve safety and oversight.”

Getting rid of jury trials, meanwhile, would “reduce transparency and public confidence … Jury trials provide an important role in reflecting community standards and promoting transparency in cases involving serious allegations, including abuse of children.”