Last year, David Marlett, managing director of the Brantley Risk & Insurance Center at Appalachian State University, participated in a Griffith Insurance Education Foundation webinar on the risk management and insurance issues facing foster parents.

We followed up with Marlett a few weeks ago to hear more about this important issue.

Risk & Insurance: David, I was struck by the webinar you participated in that delved into the difficulties foster parents face in getting insurance coverage. And I believe you are or were a foster parent as well. Could you give us your perspective on what those difficulties look like?

David Marlett: My wife and I, I think it was 2010, probably, started the licensing and the training process to become foster parents. It’s a fairly lengthy training process. They do background checks, they do a home inspection, etc.

We have three biological kids, and at that point, all of our kids were probably 12 and under, maybe a little younger than that. And our youngest, I think, was seven at that point. Our rule going in, our agreement, was that we didn’t want to foster kids that were older than our youngest. We were just worried that might alter the dynamic.

We flexed on that later and we adapted, but generally, that was our approach. We served as foster parents for about a decade or so and for a variety of reasons.

One, we became empty nesters recently with the pandemic and the issue we’re going to talk about today, the financial side of it. There is lots of good about fostering, but it wears you down after a while, with some heartbreak. So eventually, we thought we’ve probably hit our limit emotionally. And on the financial side, what we’re going to talk about was a factor as well.

R&I: So what about the coverage side that you were discussing in the webinar? If you could tell us more about that.

DM: I mentioned those training courses that we were going through a decade ago or more. Being in our profession, I started thinking, “Well, gosh, what happens if the foster child does something that harms somebody else or causes damage? What if they damage our property, somebody else’s property? And more concerning, what happens if the foster child is injured through negligence while in our care?”

We were raising our own three kids, and I feel like we’re good parents, but we’ve taken all three to the ER at some point. If you live an active lifestyle — baseball practice, hiking, whatever — stuff happens. And if you’re in a situation where you’re legally responsible for the child, you’ve got some biological parents that probably are not real happy with you at the moment, and they recognize you have resources.

I just thought it’s pretty easy to envision a scenario where if a child gets hurt, I could see their parents suing us. And I just want to make sure that the state has our back if this happens.

Just to clarify, this is something that came up again and again with our efforts to try to get some reform on the state levels, and I’m only talking about negligence here.

There are bad actors out there that are foster parents, and it’s easy to confuse intentional harm versus, I don’t know, your dog bites somebody, or playing catch and the child falls or whatever. So I’ll try to be real clear here. Only involving acts of negligence for the foster parents, we wanted to see what sort of protection we had. The folks at social services are fantastic, but this isn’t their expertise. They mistakenly told us that this sort of stuff was covered either by the state or by our homeowner’s policy.

When we checked in a little bit further, the state actually did not cover this. It was going to all be on the homeowner’s policy. As we worked our way through the homeowner’s policy — I teach this in one of my courses, so I was pretty familiar with it — I thought, “Well, the foster child would be considered an insured, so that’s good.”

So just like if it was my child that broke the neighbor’s window or a foster kid, it’s covered either way. However, if the foster child is hurt in my care, just like if my child was hurt in my care through my negligence, my homeowner’s insurance isn’t going to pay anything.

I contacted our insurer. I contact the Department of Insurance and some coverage gurus that I know. And we all went through it and we determined, yep, there’s no coverage here. We realized this is a pretty big deal.

So I reached out to the Department of Social Services, Department of Insurance, just trying to find people to talk to about this. There’s no central trade association that represents foster parents that we could find. So there really wasn’t a central voice. There’s a Facebook page, but it’s not really going to help.

Once we got the Department of Insurance on board — and they’re good folks, they don’t want foster parents exposed either — we contacted some legislators. It was a couple-year grind in talking to people and trying to explain what was going on.

I have a colleague, Jamie Parson, who joined Appalachian State. She had a legal background and she was also a foster parent. We made a pretty good team, and we eventually found some state legislators that were willing to help: Senator Tamara Barringer — she is a foster parent herself, and she really took the bull by the horns and started pushing things through.

Eventually, we worked towards an act that was passed in 2015, had some good parts, bad parts. Kind of disappointed how it all ended up, but at the time, I thought we’d fixed it.

I guess to sum up the coverage issues, if our foster child accidentally hurt somebody else or caused property damage, we’re fine. If the foster child was injured in our care and we were negligent, we had no protection. So our checkbook’s fair game.

There are a couple of other points. If the foster child accidentally burned down our house — which, you hear about this kind of stuff, either through negligence or anger or whatever — it’s a questionable one there; depends on age and intent. If it’s a five-year-old playing with matches, probably got coverage. If it’s a 17-year-old that gets mad because we don’t want him to go out that night, probably no coverage. So that was another pretty big gap.

The last coverage area we’re concerned about was on the auto side. And this wasn’t so much us initially, because as I mentioned, most of all the kids we were responsible for were young. We only had one young man who was driving age. But once you have somebody who’s a driving age, a licensed driver in your residence using one of your vehicles regularly, you need to tell the insurance company.

So that’s an extra add-on to the insurance premium. Maybe, who knows, a thousand bucks. And they don’t have that money. And as a foster parent, I forget, I think we got $14 a day. We viewed it as basically charity service work. There was no support for the auto side. Basically, most foster parents aren’t able to let the kids use their car or drive. And so that stifles their development and their ability to be a teenager. So those are the coverage issues we faced.

R&I: Given these documented coverage issues or gaps, what do you think that results in, in terms of people’s ability to be foster parents? If you can speak to that or to your ability.

DM: Clearly, there’s far greater need for foster parents than there are people willing to serve at this point. And sadly, after the pandemic, it has just gotten worse.

Anybody who’s aware of these gaps in coverage, they’re going to think twice. You’re looking probably at, the folks who have more resources are going to be the ones that have more to lose and are least likely to pursue it. Also, people who have more, I don’t know the right way to say it, but [you need to] understand that you have these gaps in coverage. I think you’re probably not going to get any [people] in the insurance field or attorneys or accountants or financial advisors that are going to serve once [they] understand this.

I think this represents a deterrent to people being willing to serve. That’s one of the reasons we got out. You’ve got a responsibility to your own kids. We can’t take the chance of a catastrophic lawsuit.

R&I: I think you mentioned an act was passed, David. How do we move forward with this? What do you think the solution is?

DM: I’ve thought about this a lot over the last decade. And when we were looking for a solution, most of the state legislators or regulators would ask the question of what other states do. And so that led to us to, like, “All right, fine, well, we’re going to figure this out.” And we actually surveyed all 50 states. We published an article in the Journal of Insurance Regulation; that was back in 2014.

In large part, it’s trying to figure out what do the states do. I was somewhat surprised by the variability amongst the different states. The approach that I think makes the most sense and is most reasonable — and a number of states do this — is they treat foster parents just like you would treat an employee of social services or a public education teacher. As long as they’re in that capacity as a foster parent, if they do something negligent, you protect them like a state employee.

Some states do that. On the other end of the spectrum — which, at that point, North Carolina was one — is that they do absolutely nothing. You’re completely on your own. In between that, there’s states that have maybe some coverage that’s available for situations if the child damages the house of the foster parent, or they might have coverage for auto claims. It was more piecemeal.

My best guess is that, in the past, there’d be a problem notarized and the state legislature would fix that particular issue. Some states would have a master insurance policy through primarily the excess and surplus lines that social services would purchase that would cover all of the foster parents. That’s a tough one. There’s not a lot of risk appetite for this from insurance companies, you can imagine.

When you deal with kids, long-tail claims, I mean, all sorts of things can go sideways. It’s tough to have a private market solution. However, that was our best bet back in 2014 in North Carolina. We certainly wanted a broader solution, but what we were able to cobble together and get support for was the Foster Care Family Act of 2015.

It included different pieces that addressed some of the issues we’ve talked about, as well as some other issues. The one that is specific to our conversation, part of the act required that we have a Rate Bureau in North Carolina. They create and review forms. They were required to create a foster parent liability policy, price it, come up with language, get it approved by DOI, and put it out there for companies to adopt. So we felt, “All right, we got it. This fills in the gap.”

Well, we didn’t realize, and maybe we were naive at that time, the companies did not have to adopt it. So in the last eight years, not a single company has adopted it.

But some parts of the act did help. On the auto side, there was a piece that said that 16- to 17-year-old drivers could purchase their own policy so they wouldn’t be covered under the foster parents’ policy. There would be a case-by-case approval process through a state program to reimburse those foster kids for their premium. Not a bad idea. I have no idea the success of that.

I just think the general financial literacy of our population is so low. It’s a lot to ask a 17-year-old kid who probably doesn’t have a lot of parental support or background to understand how this works and to find this program. And the folks at social services are amazing, but again, they’re not financial advisors.

We’ve done a few workshops, just personally here, locally, on some of this stuff in the past. But I mean, most foster parents or other regular parents, they don’t have any experience in this.

R&I: Is it fair to say — and I don’t want to put words in your mouth; you’ve done the work, you’ve researched all 50 states — if all 50 states did what the states that are the most proactive are doing, would we be okay?

DM: Yeah, I think so. I think the solution is to treat them like employees. Protect your employees. &