I haven't read all of the posts completely, so I hope this adds to the discussion instead of just repeating what's been said somewhere else.....
I am not a lawyer, but have had some experience with insurance for various businesses (both as a manager and as an owner).
In WI we are required to have insurance to be certified or licensed.
That said, we are to carry liability insurance, not medical. I can't imagine anyone being able to afford medical insurance for a group of daycare children!
My liability covers things that I could have prevented, I believe. For example, when we had horses, even tho they were penned, we had to carry liability in case some child came onto our property and went into their pen and got hurt.
I am thinking that the liability for the dc is similar. If someone slips on my steps, for instance, or twists their ankle and breaks it walking around the yard - that type of thing. BUT I think they have to prove negligence or neglect to win the law suit. IOW - were my steps shovelled and salted? Were there huge holes in my yard just waiting to trip someone? Were they somehow marked if it was in an area where I knew people roamed (such as the play yard)? If a child gets hurt, was I allowing them to do something dangerous or was it something that all the kids knew enough not to do (like jump off a roof). And where was I when it happened? Were the kids adequately supervised? I know this is how it works for other businesses (I have worked in management). You know those "wet floor" signs you see all over - those are out for liability purposes (were people adequately warned of a hazard).....
My dc insurance also costs about 250 - 300 a year.
I might be wrong, but I think this is how it works for dc as well. If anyone knows this isn't so, please tell me! A lawsuit is my worse nightmare.