Orlando Harmon
Railroads are not mandated to purchase insurance, but most do. The largest railroads, Class I, retain tens of millions of dollars in casualty risk and typically purchase insurance market capacity with liability limits of $1.5 billion. Contractors performing work on or around railroad tracks are required to have railroad protective liability insurance to protect the railroad company from liability claims due to contractor work. This insurance covers third-party bodily injury and property damage, as well as physical damage to the railroad's property. While railroads are not required to have insurance, they often face significant financial risks and hazards, and may set aside a portion of their assets to pay for legal defense and restitution to accident victims.
| Characteristics | Values |
|---|---|
| Railroad insurance requirements | Railroads are not required to purchase insurance |
| Insurance purchase trends among railroads | Most railroads buy insurance |
| Railroad liability insurance providers | Chubb, Travelers Insurance, Higginbotham, AXA XL |
| Railroad liability insurance types | Railroad protective liability insurance, Railway liability insurance |
| Railroad liability insurance coverage | Bodily injury and property damage liability, Bill of lading (cargo) coverage, Foreign rolling stock coverage, Evacuation expense coverage |
| Railroad liability insurance coverage limit | $1.5 billion for Class I railroads, $25 million to $100 million for Class II railroads, $5 million for Class III railroads |
| Self-insured railroads | Most railroads are large enough to be self-insured |
| Self-insured railroad challenges | Victims must convince the railroad to part with their money, Railroads may try to prove the victim was at fault |
| Self-insured railroad claims process | A third-party claims representative assesses the harm and determines benefits |
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What You'll Learn
Railroads are not required to buy insurance
Railroads are not mandated by law to purchase insurance; however, most railroads do have some form of insurance coverage. Rail liability insurance is typically sold in excess and surplus lines, with five primary coverages: bodily injury and property damage liability, bill of lading (cargo) coverage, foreign rolling stock coverage, evacuation expense coverage, and railroad protective liability coverage.
Bodily injury and property damage liability cover injuries and destruction in the event of a derailment or other accidents. This type of insurance ensures that the operator is protected from financial liability if there are any injuries or property damage resulting from the accident. This is particularly important in the case of derailments, as the operator is typically held responsible for any damages.
Bill of lading (cargo) coverage reimburses the shipper for lost or damaged cargo. Shippers often purchase their own cargo insurance as well to ensure additional protection. Foreign rolling stock coverage is designed to cover losses to rail cars that are not owned by the operator. This is especially relevant when railroads are carrying crude oil or other hazardous materials.
Evacuation expense coverage is crucial for addressing spills or releases of hazardous materials, including oil and other pollutants. This type of insurance covers the costs of cleanup operations and ensures that the railroad company has the necessary financial resources to address environmental impacts. Railroad protective liability coverage is another critical aspect of rail insurance. This type of insurance protects the railroad company from liability claims arising from contractor work on or near railroad property. It covers physical damage to the railroad's property and any third-party injuries or property damage caused by the contractor's work.
While railroads are not required to buy insurance, the potential risks and financial implications of accidents or incidents make having insurance a prudent choice. Most railroads recognize the importance of being insured and tailor their coverage according to their specific needs and exposures.
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Railroads are large businesses that can afford to be self-insured
Railroads are not required to purchase insurance, but most do. Railroads are large businesses that can afford to be self-insured. They set aside a portion of their assets to pay for their legal defence and to provide restitution to accident victims who win in court. Railroads often have a claims team and an administrative process for dealing with claims, but it is mostly done in-house. They hire a third-party claims representative, an independent insurance adjuster who assesses the harm done in the accident and determines the benefits to be paid out.
Railroad protective liability insurance is required of contractors who perform work on or around railroad tracks, railroad right-of-way, or owned railroad property. This insurance protects the railroad company from liability claims due to contractor work. It covers third-party bodily injury and property damage arising from the contractor's work for which the railroad could be held liable. It also covers physical damage to the railroad's property and defence expenses outside of the policy limits.
The largest railroads, Class I, retain much of their casualty risk—in the tens of millions of dollars. They typically purchase insurance market capacity with liability limits of $1.5 billion. Regional, Class II railroads purchase liability limits of $25 million to $100 million, with a retention between $250,000 and $500,000. The smallest railroads, Class III short lines, might have a minimum limit of $5 million with retentions in the tens of thousands.
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Railroad protective liability insurance
RRP insurance is typically purchased by contractors in addition to their general liability insurance policies, as the latter may not provide sufficient coverage for work performed near railroad property. The coverage provided by RRP insurance is project-specific and only applies to ongoing operations at a designated job location. It is important for contractors to be specific about the job location and details of their intended work when applying for RRP insurance to ensure adequate protection for the railroad's property and operations.
The coverage limits for RRP insurance can vary, with typical limits ranging from $2 million to $10 million per occurrence. This insurance helps to protect railroads from financial risks and hazards associated with construction and demolition operations that could potentially disrupt or damage their operations.
While RRP insurance provides protection for railroads, it is important to note that it does not cover the contractor themselves. Contractors may need to purchase separate insurance policies to protect themselves from liability claims arising from their work on railroad projects.
Overall, railroad protective liability insurance plays a crucial role in mitigating risks and ensuring financial protection for railroads and third parties in the event of accidents, injuries, or property damage during construction or demolition projects near railroad property.
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Railroads' in-house claims team
Railroads are not required to purchase insurance, but most do. Railroads often have their own in-house claims teams, which are responsible for handling liability claims and protecting the company from financial risk. These teams consist of railroad claims agents who play a significant role in investigating and settling injury claims made by workers. They have access to personnel records and medical department records to investigate claims and control the process from the moment of injury to the resolution of the case.
Railroad claims agents coordinate with injured workers' supervisors to obtain statements and accident reports. They may also try to intervene in the medical treatment of injured workers, offering to pay medical bills on the condition that they can send a nurse consultant to accompany the worker to their doctor's appointments. Throughout the process, the claims agent reports to the railroad's FELA lawyers, who aim to minimise the company's financial liability.
The in-house claims team handles liability claims arising from contractor work, protecting the railroad company from financial risk and hazards associated with construction and demolition operations near railroad tracks or property. Railroad protective liability insurance (RRP) is a type of insurance that covers physical damage to railroad property and third-party injuries or property damage caused by contractor work. When applying for RRP insurance, specific details about the job location and work must be provided to ensure adequate protection for the railroad.
In addition to RRP insurance, railroads may also purchase general liability insurance with tailored coverages for railroad-specific risks, such as foreign rolling stock and bill of lading coverage. This insurance provides protection against financial losses due to derailments, cargo loss or damage, hazardous material spills, and other incidents. The largest railroads typically purchase insurance with liability limits of $1.5 billion to cover their significant casualty risks.
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Railroads' liability for work done by contractors
Railroads are not required to purchase insurance, but most do. Contractors who perform work on or around railroad tracks, the railroad right-of-way, or owned railroad property are typically required to have railroad protective liability (RRP) insurance. This type of insurance is designed to cover risks associated with work on or near railroads. It protects the railroad company from liability claims due to contractor work and covers third-party bodily injury and property damage arising from the contractor's work for which the railroad could be held liable.
RRP insurance is a project-specific policy that is typically taken out by contractors performing work around railway infrastructure. The coverage is restricted to the specific job site, the work being done, and the project start and end dates, as indicated on the policy declarations page. It is important to note that RRP insurance does not cover the contractor; it only protects the railroad. Contractors typically need to maintain their general liability insurance in addition to RRP insurance.
RRP insurance can provide coverage for physical damage to the railroad's property, including tracks, railcars, locomotives, signal systems, or communications lines. It can also cover defence expenses that are outside of the policy limits. The coverage limits for RRP insurance are typically $2 million per occurrence and up to $6 million over the policy period.
Railroad contractors have unique liability needs, and general liability insurance for contractors typically excludes liability for work performed within 50 feet of a railroad. Therefore, RRP insurance is needed to fill this coverage gap. Contractors may also need to comply with insurance requirements from state and local laws and contract provisions.
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Frequently asked questions
Yes, railroads are self-insured. They are not required to buy insurance to protect against accidents, unlike most big companies that are statistically prone to causing significant harm.
Unlike insurance companies, railroads are paying benefits out of their own assets, thus diminishing their own profits. As a result, some railroads may choose to go to court and try to prove that the victim was predominantly responsible for their own accident and injuries.
A third-party claims representative is an independent insurance adjuster hired by the railroad company. They assess the harm done in the accident and determine the benefits to be received by the claimant. They handle claims made against the railroad in a similar manner to insurance claims, but without the involvement of an insurance policy.
In certain situations, railroads may be mandated to hold insurance. For instance, when construction or improvements are being made on a grade crossing, the contractor performing the work must purchase railroad protective liability insurance. This type of insurance protects the railroad company from liability arising from contractor work.
