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Managing your risk by Michael Kelly

NCACC Risk Management Director Michael Kelly writes a regular column on risk management for CountyLines. With more than 41 years of risk management/ insurance experience, he holds the CPCU - Chartered Property & Casualty Underwriter, ARM-P - Associate in Risk Management for Public Entities, CRM - Certified Risk Manager, ARe - Associate in Reinsurance and CIC - Certified Insurance Counselor Professional Designations. He can be reached at michael.kelly@ncacc.org or (919) 719-1124.  For archives of this column click here.

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Jan 27

Railroad Protective Liability – what is it and who needs it?

Posted on January 27, 2014 at 10:39 AM by Chris Baucom

Topics for this column tend to come from situations or questions raised in the field. If the same question arises more than three times, it is likely a potential topic for discussion here. This month’s article is such an example. 

Chances are if your county hires a contractor to do any work on, over or near any railroad-owned property, there is going to be a requirement from the railroad company to provide Railroad Protective Liability Coverage. So what exactly is Railroad Protective Liability Coverage and why is it needed?

Simply stated it is liability coverage purchased by the contractor for the benefit of the railroad company that owns the property where the contractor is working. It is designed to protect the railroad company in the event the contractor does something – or fails to do something – that results in liability arising from the contractor’s work.

As most railroad companies are self-insured to a significant dollar level, it is their standard practice to require anyone working on their property to provide insurance to protect the railroad company’s interests – both from a perspective of third-party liability as well as physical damage to the actual railroad property itself through specialty coverage.

This coverage is significantly different than your traditional third-party liability coverage in that it is written for the exclusive benefit of the railroad company that owns the segment of track or property in question. Typically, the premium for this coverage is paid by the contractor doing the actual construction work around the railroad owned property and is designed to provide coverage for the railroad owners for liability arising out of the work performed by the contractor.
In a standard railroad protective liability policy, the named insured is the railroad company that owns the property. The usual insuring agreement (CG 00 35) contains two sections: Coverage A, which is for third-party bodily injury and property damage liability, and Coverage B, which is for first-party physical damage to property owned by, leased to or under the care of the railroad company. Typical coverage limits are an annual aggregate of three times the per occurrence limit, such as $2 million each occurrence and a $6 million annual aggregate.

Examples for Coverage A might be the collapse of an elevated walkway or scaffolding used during the course of construction resulting in injury to an unrelated third-party. If the injured or damaged third-party sued the contractor and the railroad company, the railroad protective liability policy would respond in defense for the railroad company – but NOT the contractor. It is truly designed exclusively for protection of the railroad company’s interests. 

Examples of Coverage B for first-party property would be damage arising out of the contractor’s actions sustained to railroad tracks, signal lights, bridges, buildings, roadbeds, any rolling stock (railroad cars) and their contents owned by the railroad company. The valuation for payment is the actual cash value of the property (taking into account depreciation for age and condition) immediately prior to the loss and or the cost to repair or replace the property with materials of like kind and quality. 

Remember, this is coverage exclusively for the railroad company but purchased on their behalf by your contractor. It is most important to again underscore no coverage is extended to protect the contractor or the county that has engaged the services of said contractor in the standard railroad protective liability policy. 

Accordingly, to address the contractor and or county’s third-party liability exposure, the general liability coverage should be amended. If written on a standard ISO CGL coverage form, utilization of endorsement forms CG 24 17 or CG 27 27 are necessary – or otherwise through a customized “manuscript” endorsement. Again, coverage is site or location specific, and there typically is an additional charge for changing the standard general liability coverage language. It should be done on an as needed basis and only if required to avoid diluting your available coverage limits needlessly. 

It is important to also note that railroad protective liability coverage applies solely to operations while in progress, are site specific and are designed to afford primary coverage (pay/respond before any other potentially available coverage dollars). The coverage language continues to address bodily injury or property damage that arises out of the “acts or omissions” of the railroad, so long as the acts or omissions are related to or are connected to the work or operations performed by the contractor for which the railroad protective liability policy is issued. 1   
Oddly enough, often the easiest place to secure a railroad protective liability policy is through the railroad company itself, especially if the limits required are significantly different than yours. In many cases, they will have an insurance/risk management department that is set up to offer such coverage as needed for a nominal charge per location. It is typically a short-term expense paid by the contractor, which ideally ceases to be an issue once the construction project is completed.

 1Railroad Protective Liability – Rough Notes - Donald S. Malecki, CPCU