“Almost 9,000 children in California foster care could soon be taken from homes over insurance crisis,” reads one among a dozen similar headlines that have appeared in West Coast media over recent weeks. The stories all suggest a situation that snuck up on the child-welfare establishment and political leaders. Yet this problem has simmered for years, if not decades. Soon the crisis will be everywhere, not just in California.

All foster agencies need to have insurance—not only those that license foster families but also ones that provide residential care and psychiatric treatment for kids in the child-welfare system. For decades, the Nonprofits Insurance Alliance of California has been the sole provider for almost all these agencies in the state. The alliance owes its quasi-monopoly to how, for most insurance companies, the risks of doing business with these organizations had become too great even a few decades ago. The specialized tax status of NIAC (or NIA, nationally) meant that it faced lower operating costs.

Now NIAC has announced that, as of October 1, it will no longer renew its contracts with foster-family agencies around the state, which cover about a fifth of all foster homes. (Public agencies license the rest.) Foster families and residential-care centers are scrambling to figure out what to do next.

It’s not as if officials had no warning. A NIAC representative explained to a local public radio station: “We continued over the course of probably two years to adjust policy limits, adjust terms, increase premiums, trying to do whatever we could to continue to do what we were doing and to insure the [foster-family agencies].”

Indeed, according to Kathleen Brady-Stepien, president and CEO of the Council of Family and Child Caring Agencies, which represents such agencies in New York, her members have seen steep rate increases in recent years. According to a survey her organization conducted, between 2018 and 2019 alone, rates jumped 8 percent. She says some agencies saw rate hikes of 20 percent to 40 percent from 2022–2023. And she’s not sure that’s even a helpful comparison, given that many of these policies have also been adjusted to provide less coverage.

Child-serving agencies don’t have much budgetary wiggle room. With recent labor shortages, it’s hard to get professional staff to supervise kids with severe behavioral and mental-health issues. The agencies depend almost entirely on government money (given that these children are in state custody, that’s as it should be). Some can get private donations, too. But it’s not enough to enable them to absorb these skyrocketing insurance rates.

Even with these drastic increases, the insurers still couldn’t make it work. California’s insurance commissioner has put out a call for help, asking other companies across the country to consider insuring these agencies and offering to cut through some red tape to help them do so. But that’s unlikely to solve anything. If insurers thought they could run profitably in this space, they would be doing it.

It doesn’t take special insight to figure out what happened here. Lawsuits against these organizations have resulted in eye-watering payouts. In Sonoma County, three siblings recently sued an agency for sexual abuse they experienced at the hands of a foster parent; the jury awarded $25 million to the plaintiffs. And it’s not just foster agencies. “Child-serving organizations” in general have made record payouts in recent years. From the $138.7 million USA Gymnastics settlement to the $2.46 billion Boy Scouts payout, it’s hard to imagine that any insurer would want to assume this risk.

New York State and California have compounded the problem in recent years by eliminating the statute of limitations on such claims, putting insurance companies on the hook for decades-old incidents. In fact, they may not have even been responsible for insuring the parties at the time but simply took on another insurer’s portfolio after it went out of business. To rectify past wrongs against children—many horrific—we have created a system in which vulnerable children today will be left without foster families or beds in residential treatment centers. Who benefits? Mostly trial lawyers.

California’s efforts to fix this problem have gone nowhere. Chris Stoner-Mertz, CEO of the California Alliance of Child and Family Services, told me that her group backed legislation that would limit payouts if an agency correctly followed appropriate regulations. This seems reasonable, but the legislation was “opposed strongly.” The current legislative solution is also no help. While it would limit the responsibility of the insurance agency to cover counties—also getting sued in these legal actions—it would do nothing to limit the agencies’ liability. And it would merely offer a band-aid of being able to transfer a foster child from one agency to another more quickly.

Stoner-Mertz asks: “Do we really want to put these nonprofits out of business and create an enormous gap in what is available for kids who need this level of care?” She added, “These are organizations that provide round-the-clock supports to families, serving medically fragile babies, serving older teens that an adoptive family is not going to take in, including youth who identify as lgbtq+, and often youth with significant behavioral challenges as well.”

Even if a few insurers return to the market, the foster-care system will be hopelessly distorted. The easiest way to ensure that nothing goes wrong for a child in foster care is constant monitoring. Efforts in recent years have focused on placing as many children as possible in family settings, with some states even sponsoring bills to ensure that these kids have as normal a childhood as possible. This means that, if a foster child wants to hang out with a friend down the street, then that friend and his or her parents don’t have to go through a background check first. But if, 30 years from now, a foster child can sue his agency for something that happened at the friend’s house, then how can any agency provide normalcy? We might see more kids returning to congregate-care facilities, simply because such places have greater oversight and regulation, including cameras. To limit liability, foster children will get placed in more restrictive, less family-like settings.

Just as unlimited malpractice lawsuits have created an impossibly expensive environment for doctors and hospitals—resulting, for instance, in a shortage of obstetricians and gynecologists—this push to get justice for victims will wind up hurting those it intends to help. The lives of the most vulnerable children will get harder still.