Well... two things... first it's good the mom knew about your holding her baby. But you work for your employer & you should not be working with the kids off the clock. The insurance concern is just one of several reasons for this (whether or not they have any. That is a different discussion.) Now, that said, you're correct. You shouldn't be asked to watch the kids off the clock either, I don't think. It seems to me, it's either one way or it's the other. Unfortunately these are the kinds of inconsistencies one can run into while working for a small company or organization.

But, in either case, what I would like to suggest is that the most important thing here is that you protect yourself. If you do something at your employer's request, or with her permission, then it's her responsibility if something goes wrong. If you take it upon yourself to do something without your employer knowing about it, & something happens, then it's on you. Your employer will say: "I did not know she was doing this & I did not approve it." Then, to a large extent, she's off the hook. Does that make sense? You have to protect yourself first. Another way of putting it is to spread your liability as broadly as possible. Avoid putting yourself in a position such that you can become the target for all of the blame if something should go array.