For 23 years, Dianne Beverly operated a preschool in Orange, Calif., tending 22 children in two small classrooms set on a half-acre lot full of fruit and shade trees. She never had a major accident or lawsuit.
Then last month, in what industry experts say is a wave of concern about the risks of sexual-abuse litigation, her insurance was suddenly canceled. Feeling as if "there was a death in the family," she was forced to close the school two weeks ago.
Across the country, insurance experts and child-care providers say, liability policies are being canceled or rates doubled and tripled as insurance companies begin to wash their hands of what was once considered risk-free day-care coverage. "There is no question that the availability of insurance has gotten much tighter in the day-care and preschool area," said Marc Rosenberg, vice president for federal affairs in the Insurance Information Institute's Washington office.
The insurance cutback is occurring as more than 50 percent of mothers with children under age 6 are part of the work force and an estimated 8 million children are in preschools or day-care homes.
The effect of the insurance crunch on the supply of reasonably priced child care, already far short of demand, "is going to be very negative," said Debbie Wehbe, insurance chairman of the Pre-School Association of California.
Insurance experts, who have noticed a surge of concern in the last two months, blame a rash of sexual-molestation cases that left many companies feeling powerless to control what happens in schools they insure.
The impact has been particularly great in California, where six teachers and the elderly owner of a preschool in Manhattan Beach are charged with 208 counts of molestation and conspiracy against 41 pupils. "But it's cropping up in other parts of the country," Rosenberg said.
Many child-care supervisors are beginning to realize they will have a problem when their insurance expires, Wehbe said, and some are telling parents they will not reopen in September.
David Willis, a spokesman for the Philadelphia-based Insurance Company of North America, which canceled Beverly's policy, said that by some estimates property and casualty insurers lost nearly $4 billion last year, in part because of lawsuits. "Not just our company but many other companies have taken a much more conservative posture on what is a good investment and what is not," he said, "and day care is certainly not immune to that posture."
With two-thirds of the families she served unable to find any other place for their children, Beverly has been scrambling to find another insurer. The only one she has located so far would charge $1,122 a year in premiums, nearly three times the $400 her old policy cost.
Wehbe, whose 500-member association monitors the problems of 7,000 licensed preschools and family day-care homes in California, said she has been receiving about eight calls a day in the past two months from day-care managers unable to find coverage.
Even day-care center owners who arrange new policies -- often at much higher premiums -- find "those policies carry exclusionary clauses that don't protect them if they are accused of abuse," Wehbe said. "It doesn't matter what kind of abuse. It leaves them without any protection.
"Eventually it's the parents who are going to have to pay for the increased costs; there is nobody else who can do it," she said, adding that this will increase the financial burdens on mothers "who are working not because they want to, but because they have to."
Rep. George Miller (D-Calif.), chairman of the House Select Committee on Children, Youth and Families, said he has heard of the preschool insurance crunch from several sources and is exploring possible solutions. Some California state legislators have considered drafting bills that would require insurance carriers to cover preschools, just as they are now required to insure drivers in the state with poor records.
The insurance industry "has never been crazy about that idea," Rosenberg said. A better solution, he said, might be to require more careful checks of personnel hired at day-care centers to try to screen out molesters.
John McCann, the Insurance Information Institute's West Coast vice president, said insuring schools "was once the safest, nicest, easiest insurance a company could offer." But the social turmoil of the 1960s, followed by expensive liability cases, such as those involving use of asbestos in school buildings, forced a reassessment.
A widening legal attack on insurance liability for medical malpractice and product deficiencies helped reduce the industry's surplus, on which new coverage is based, by $2 billion last year, McCann said. Insurers had little taste for further risks after several molestation cases made news.
Intentional acts, including crimes like sexual abuse, could never be insured against, McCann said. But if a preschool owner inadvertently hired a child molester, the owner's insurance company could be sued for damages.
Some of the suits may have no merit, Willis noted. A survey in New Jersey showed charges of child-care abuse increasing from 69 in 1983 to 201 in 1984, but the number of substantiated charges increased only from 10 to 18.
"It is very hard now for the industry to predict what the risk is," Rosenberg said. So insuring preschools "is no longer an attractive business to be in."