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Make Sure Your Daycare Provider Has Business Insurance

Jeff Cole
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Partner at Zimmer, Duncan & Cole

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Jeff Cole
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As more and more people enter the workforce, daily child care, or “day care,” has become an increasingly popular business venture for many individuals.  It is quite common that the person running the daycare facility actually runs it out of his or her own residence.  Unfortunately, some daycare owners do not have the proper type of insurance coverage that covers both the home and the business that operates within the home.  This means that if a child is injured in the home, the daycare provider’s insurance will not pay for any injuries may occur to the child.

These were the unfortunate circumstances that the South Dakota Supreme Court faced in its decision in Western National Mutual Insurance Company v. Decker, decided on December 8th, 2010.

In this case, Sarah Decker provided informal day care in the home of Benjamin Walder.  Sarah cared for several children in Benjamin’s home, but had no name for her babysitting service or a written agreement with any parents.  She kept no records and filed no tax returns.  Despite the informality of the daycare arrangements with various parents, Sarah cared for children five days a week, generally from nine to five.  Joe Decker left his eight-month-old child with Sarah.  Sadly, the child suffered permanent brain damage when he choked on a small object.

A lawsuit was brought on behalf of the child against Sarah and Benjamin for negligence for improper care of the child.  Benjamin’s home insurance company, Western National, sought a declaratory judgment from the Court to declare that Western National had no duty to defend the lawsuit, or to pay any damages that might be awarded because of the lawsuit. A declaratory judgment is simply when a party asks the court to declare what the rights and obligations of a party are, usually in reference to the contract.  In other words, Western National was asking the court to rule on what exactly the insurance policy would cover according to its own terms.

The South Dakota Supreme Court held that Western National would not have to pay any damages that resulted from the negligence of either Sarah or Benjamin.  The reason for this conclusion was that Benjamin’s insurance policy provided only basis homeowner’s insurance, and specifically excluded liability for any injury that resulted from activities relating to a business. 

So what is the lesson here?  Ultimately, the best lesson to try and create from a set of unfortunate circumstances is that every parent needs to be diligent when searching for a daycare provider.  If you have a child in daycare, you need to ask whether the provider is insured for the business that the provider is operating.  No one expects accidents to happen, but it is absolutely imperative when entrusting your child to the care of another that the daycare provider is properly insured. 


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