Choosing A Liability Insurance Provider
by Jeff Wyatt
August 2001 Provider Business News
We have been saying it for years: "You need family child care business liability insurance to protect yourself from the
risks of your business." Here is what to look for in family child care business insurance, or at least what questions to ask
your potential broker about the insurance they offer.
You might want to ask the broker about the rating of their business liability product. Probably the most reliable ratings
are from A.M. Best; their ratings are alphabetical with pluses and minuses attached, like a report card. Two examples of their
ratings are B+ (very good) and A+ (superior). Of course A- and A are in between, but you get the idea. Ratings are handy when
considering the security of the insurance company (carrier), but they don't necessarily pertain to the exact coverage of any
particular insurance product, such as family child care liability insurance. I recommend that you only consider companies
that are rated an A- or higher. Usually a lower rating will result in lower coverage and higher rates, not a bargain.
Next you should ask: "Do you (broker) offer a business owner policy designed for childcare?" This is important because
there are many kinds of businesses, each with its own set of risks. You probably don't want to buy an off-the-shelf business
liability policy that does not adequately cover the unique risks associated with caring for children.
You will also want to know if their policy includes "professional liability" so that you are personally protected for the
services that you are rendering (just like a doctor, nurse, lawyer or other professional whose work has the potential to harm--other
than negligence). You want coverage for what you do or don't do in any specific circumstance. For example, if you allow a
child to play on a piece of equipment that is not appropriate for a child of that age, and the child is injured on the equipment,
you may be liable for your bad judgment.
Other questions you might want to ask:
Will this liability insurance extend to the children when I am off my property at field trips or other
outings? Unfortunately, the answer is often no. Imagine having liability insurance that kept you and the children trapped
at your home because the coverage did not extend to the library.
Are food and medicine covered? You would think they would be, but again look for that exclusion
before you write that check. You are going to feed a lot of food to your daycare children, and while you keep a clean house,
it is not possible to absolutely guarantee that a food-borne illness would never find its way into their mouths. Although
childproof packaging for medication is well-designed, you want to make sure your children are protected. Are all of your medicines
sealed and out of the children's reach at all times?
If I am sued, will my insurance provide immediate money for my defense? This is called "first
dollar defense" for suits other than negligence. Most people think they are automatically covered, but often they aren't.
With first dollar defense, your insurance company starts paying as soon as a suit is filed. There is no deductible and the
insurance company supplies a lawyer. First dollar defense can be paid either inside or outside the limits of your coverage.
If it is paid inside the limits of your coverage and your maximum coverage per incident is $100,000 and the lawyers' costs
are $50,000, your maximum coverage is reduced to $50,000 for that incident. If it is written outside the limits of coverage,
then the lawyers' fee of $50,000 does not reduce your $100,000 maximum coverage.
Are allegations of corporal punishment covered? Let's face it, the family child care provider
makes a perfect scapegoat if things with children, families, spouses, boyfriends, girlfriends, siblings or relatives get out
of hand. We pray it won't happen, but every year a few providers have this problem.
Who pays the first dollar (emergency room, clinic visit) for 'trip and fall' injuries to the children?
If your policy states that they are the "primary" policy for accidental medical payments, then your insurance pays right away,
which is what you as a provider want. Why? If your insurance policy states that it covers "excess" payments, then the parents
have to try to use their own medical insurance first, if they have any. If their medical insurance finds out that the accident
happened at daycare, they may refuse to pay. This can result in a lawsuit brought by the parents against the provider.
Can I get sexual/physical abuse coverage, and what limits are available? All providers need to
protect themselves from allegations made by parents and relatives. Buy the maximum coverage in this area that you can afford.
In almost all states the mere allegation of sexual or physical abuse can put you out of business. Don't let it also bankrupt
"Is all of my property used in my business covered under my homeowners insurance or do I need a rider
attached to my business liability insurance? Homeowners insurance usually offers limited coverage (up to $2500) on
any property that is ever used in your business. This includes washer, dryer, sofa, tables, beds, chairs, TV, VCR, etc. If
you have a detached garage with a daycare tricycle in it and there is a fire that destroys the garage, you might not be covered
on the structure or its contents.
Is my business income protected if something happens to my home and I have to close my business for
a period of time? If there is a flood, fire, smoke damage, windstorm, busting water pipes, etc., that causes you to
lose income because your business is closed, you want your insurance to help reimburse you for some of your lost income. (Business
liability insurance does not protect your income if you are disabled. For this situation you need disability income insurance.)
There are probably more questions that as an individual you may wish to ask. The main idea here is to go into your liability
insurance search armed with a list of "musts" and perhaps another list of "wishes" that you want to discuss before you give
them your hard-earned money.
Out of 350,000 family child care providers who are licensed or registered, only about 70,000 have any daycare liability
insurance. We have no way of knowing how many providers are adequately covered, and probably a very few can tell you themselves
when they are covered and when they are not. The military has a mandatory insurance rule for its family child care providers.
Whether or not your state requires you to have business liability insurance, you should be covered. We want our readers to
be aware of the need for liability insurance and to get high-quality family child care business insurance now. For a list
of business liability insurance companies offering policies in your state, go to the Redleaf National Institute Web site,
www.redleafinstitute.org, and click on the Insurance Information link in the main menu.