Spiking lawsuit payouts put WA self-insurance fund $1 billion in the red

Lawsuit payouts by the state of Washington spiked to a new high of more than $506 million in the latest fiscal year, driven largely by claims of alleged abuse suffered by children in the foster care system over many decades.

The ballooning legal costs have drained the state’s self-insurance fund, leaving it with a projected deficit of more than $1 billion, according to a new disclosure by the state’s top budget official.

The fund’s insolvency was outlined in a memo issued Monday by K.D. Chapman-See, director of the state Office of Financial Management, which authorized the self-insurance account to operate in a temporary cash deficiency” of up to $1.01 billion through June 2027.

State law generally bars agencies from operating in the red, so the two-year authorization for the Department of Enterprise Services, which runs the self-insurance account, was required. Just a couple months ago, Chapman-See had OK’d a temporary deficit of $580 million.

It’s the latest milestone in an ongoing explosion of legal liability that has added to Washington’s fiscal difficulties amid a cooling economy and looming federal cuts.

Over the past three fiscal years, the state paid out more than $1 billion in judgments and settlements of tort claims and lawsuits, according to the state risk management office.

Those costs reached $506.6 million in the 2025 fiscal year, which ended June 30, surpassing the previous record of $281 million in 2024. The state also has paid out tens of millions in legal costs every year, including increasingly large contracts to private law firms hired to defend agencies.

Because Washington is self-insured, those costs come out of individual state agency budgets that could otherwise be spent on services, from classroom education to highway patrols and child care assistance. Agencies pay premiums into the self-insurance fund based on their expected liabilities.

Chapman-See, who was not available for an interview Tuesday, wrote in her memo that the state’s risk management office will work with actuaries and legislative and budget staff to review “potential solutions to address this fund’s insolvency” before the 2026 legislative session. The memo didn’t describe potential remedies.

Gov. Bob Ferguson, who previously oversaw the state’s legal defense of lawsuits as attorney general for 12 years, has acknowledged the ballooning costs are a problem. But he has yet to propose a plan for dealing with the growing liabilities.

His office did not respond to a request for comment on the $1 billion legal deficit as of Tuesday evening.

Many of the lawsuits stem from alleged abuse at state-run youth facilities decades ago, though more recent failures to protect children also have led to massive payouts.

The vast majority of legal claims against the state in recent years have been targeted at the Department of Children, Youth and Families, which runs the state’s child welfare investigations and foster care system. Two of the three biggest payouts of the past year — for $19.5 million and $18.5 million — came in lawsuits filed in 2023 against DCYF.

In the $19.5 million settlement, two sisters, identified in the lawsuit complaint by their initials J.D. and K.D., had been removed as toddlers from their mother in 2007 after reports of abuse. Placed by the state in the home of a relative, they suffered years of “severe physical abuse and starvation,” according to a lawsuit, which said the state failed to properly vet the relative as a foster parent.

Court decisions in recent years have expanded the state’s liability.

In 2018, for example, the state Supreme Court ruled the state is responsible for the welfare of children after they’re placed with foster parents. Subsequent decisions have loosened the statute of limitations on lawsuits over abuse, allowing them to be filed decades later.

The passage of time has made it difficult to defend against some of the lawsuits because older documents may no longer exist, said Scott Barbara, chief of the torts division at the state attorney general’s office, during a legislative hearing last month on the lawsuit costs last month.

“It is very difficult for the department to try and mount a defense to show they were acting reasonably if there are no records,” Barbara said at the hearing before the Senate Law and Justice Committee.

At the same hearing, Darrell Cochran, an attorney who has won major abuse lawsuits against the state, told lawmakers the increase in legal payouts represents a long overdue measure of justice for survivors.

Cochran said the state decades ago failed to properly take responsibility for the welfare of kids in group homes and the foster system, who were sent off to “what we know were houses of horror,” where they were raped or abused.

“There is an obligation, both morally, societally, and legally, to atone for the wrong, and that is what we are seeing, he said.

The rising costs drew scrutiny from lawmakers this legislative session, with some Republicans proposing more oversight of the largest payouts. But legislation that would have required that was quashed by majority Democrats, who denied the bill a public hearing.

Meanwhile, lawmakers of both parties have been generally supportive of allowing abuse victims to sue, even decades later. In 2023, the Legislature passed a law eliminating the statute of limitations for any such lawsuits in the future.

The bow wave of legal costs was ducked by legislators and the governor in the latest legislative session.

In May, Democratic lawmakers passed and Ferguson signed an operating budget that didn’t account for the rising deficit in the self-insurance account — a maneuver that was slammed by Republicans as a gimmick that would only delay an accounting.

The situation shows no signs of abating.

According to Chapman-See’s memo, the legal claims against the state for fiscal year 2026, which just began, are estimated at more than $542 million.