SPRINGFIELD — Community-based foster agencies in Illinois are grappling with a growing insurance crisis, as insurance companies scale back coverage, hike premiums, and limit options. This shift is threatening the stability of these agencies, with some warning that if the trend continues, they may be forced to shut their doors, resulting in children being returned to the care of the already overstretched Illinois Department of Children and Family Services (DCFS).
DCFS contracts with community-based agencies to house and care for children in state custody. As of 2024, approximately 20,000 children were in foster care in Illinois, with more than 4,000 residing in group homes or community-based foster homes. These agencies, which are licensed by DCFS, are required to carry various types of insurance, including liability coverage to protect against potential lawsuits.
While DCFS has a cap on damages for lawsuits against the agency itself—set at $2 million—the same cap does not apply to community-based foster agencies, which have seen an increase in lawsuits, often resulting in large settlements. One high-profile case involved Lutheran Social Services of Illinois (LSSI), which was sued for $45 million after placing a 2-year-old boy, Lavandis Hudson, back in his mother’s care. The child later died from severe injuries inflicted by his mother, who was charged with murder. The case ended in a $45 million jury award, although the final payout was reduced following a settlement.
Such cases have led to mounting losses for insurers, causing them to reassess their willingness to cover foster agencies. In one significant instance, after a $15 million settlement in California, the Nonprofits Insurance Alliance (NIA), a major provider of liability insurance for nonprofits, withdrew from the state altogether. Now, the organization is scaling back coverage in other states, including Illinois.
Andrea Durbin, CEO of the Illinois Collaboration on Youth, described the situation as complex, with the need for fair compensation for those harmed by foster agencies weighed against the risk of undermining the community-based infrastructure that currently serves vulnerable children.
Increasing Insurance Costs and Coverage Reductions
NIA, which provides coverage for many Illinois foster agencies, recently imposed new restrictions on its policies. The company now offers only $1 million in coverage for claims related to sexual and physical abuse, a far lower limit than many lawsuits now demand. Additionally, NIA has stopped offering umbrella coverage for these types of claims, which were previously available to extend the coverage limit.
As a result, agencies like The Center for Youth and Family Solutions, which serves over 1,200 foster children across Illinois, are facing significant financial strain. CEO Patrick Phelan reported that the cost of his agency’s professional liability insurance soared from just over $45,000 in 2019 to more than $1 million this year. This dramatic increase has forced the agency to cut services and lay off staff, as Phelan noted that the price of insurance could instead fund 22 new family support workers.
“We are getting closer to the mandated staffing levels, but the impact on the services we provide to kids and families is becoming significant,” Phelan said. The agency is also concerned about the risk of being left without coverage altogether, as only two insurers in Illinois are still offering policies, and neither will issue new policies.
The increase in premiums and the reduction in coverage are part of a broader trend, with fewer insurers willing to provide coverage for foster agencies due to the perceived high risk. Traditional insurers, including NIA, have already dropped several agencies, forcing them to seek insurance through the more expensive and limited excess and surplus lines market.
Durbin noted that while agencies technically have been able to find alternative insurance, the costs have become prohibitively expensive and the quality of coverage has diminished. “It’s much more expensive for less coverage, and it’s a lower-quality insurance product,” she said.
Potential Legislation and National Implications
In response to the crisis, Illinois lawmakers have proposed legislation aimed at providing temporary relief. Senate Bill 1696 and House Bill 3138 would grant agencies immunity from civil liability for two years unless the agency is found to have engaged in willful misconduct or gross negligence. The bills also propose the creation of a task force to recommend a long-term solution by 2026.
Some, including attorney Joseph Monahan, argue that while the legislation may offer short-term relief, it fails to address the core issue. Monahan suggested that moving lawsuits against foster agencies under the jurisdiction of the Illinois Court of Claims could provide a more manageable process, though he acknowledged that this could create additional burdens for foster children seeking justice.
Phelan expressed hope that the task force would bring together stakeholders to find a lasting solution, emphasizing the need for immediate action. “It’s a critical issue, and if we don’t act now, we’re going to see agencies close and more children returned to the care of DCFS, which is already overburdened,” he said.
This issue is not unique to Illinois. Davis of NIA highlighted that the organization is also scaling back coverage in Pennsylvania and Florida, while concerns have emerged in states like New York and Nebraska. Nationally, advocates are calling for a federal solution to the crisis.
In a recent visit to The Center’s headquarters, U.S. Rep. Darin LaHood, R-Ill., discussed the challenges facing foster agencies and expressed support for finding a federal solution. Phelan, who met with LaHood, noted that this issue could have far-reaching implications for the future of foster care across the country.
While the debate over how to balance the need for justice for harmed children with the survival of community-based foster agencies continues, one thing is clear: the rising costs of insurance and the shrinking coverage options are putting immense pressure on an already fragile system.
The Insurance Dilemma: A Critical Crossroads
Sara Salger, president of the Illinois Trial Lawyers Association, acknowledged the difficulty of balancing accountability for agencies with the financial realities faced by foster providers. While advocates agree that children harmed by foster care should be compensated, they argue that without adequate insurance, many agencies may be unable to continue their critical work.
“It’s an insurance problem, and it should have an insurance solution,” Salger said. “The focus should be on creating a sustainable system, not undermining the agencies that are doing vital work.”
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