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Risk Management

Railroad protective liability

Railroad protective liability

By Donald S. Malecki, CPCU

When a contractor is performing work for a railroad or for others where the work is on or in close proximity to the railroad's property, a railroad will likely request the issuance of a railroad protective liability policy. Usually accompanying that request will be some kind of hold harmless agreement indemnifying the railroad, in case the insurance does not apply.

Both standard ISO and nonstandard railroad protective policies are available. Most such policies, which were developed jointly by the railroads and insurance industry over the years, follow the same general pattern. The coverages commonly included are: general liability, liability under the Federal Employers Liability Act (dealing with injuries to railroad employees), and damage to the railroad's rolling stock and other real and personal property.

If producers are familiar with the owners and contractors protective liability (OCP) policy, they will note a basic similarity to the railroad protective liability policy. Both forms (1) are purchased by contractors for the benefit of the railroad and others, (2) apply solely to operations while in progress, (3) are site-specific—meaning that coverage applies to the location where the work is to be performed, and (4) apply on a primary basis.

One of the notable differences between these two forms, however, is that the railroad protective policy covers bodily injury or property damage that arises out of the "acts or omissions" of the railroad or other insureds, so long as the acts or omissions are related to, or are in connection with, the work or operations performed by the contractor or any subcontractors for which the policy is issued. The primary theme of OCP coverage, on the other hand, is the vicarious (negligent) liability of the policyholders.

While the connotation of the word "acts" is broad in scope, it does have some limitations even as respects the railroad protective policy. A case in point is Southern Railway Co. vs. The Fidelity and Casualty Co. of N.Y., 455 F.Supp. 9 (1977).

The railroad protective liability policy was issued because the contractors were required to cross the tracks at a temporary crossing during the construction of an interstate highway. The railroad brought an action against the insurer that issued a railroad protective policy after an accident occurred when young boys managed to start a bulldozer and drive it onto the tracks some 60 feet south of the temporary crossing, where it remained until it was struck by a train.

The accident resulted in damages to property in excess of $500,000 and employee injury under FELA amounting to $30,000. The U.S. district court ruled that the railroad's protective liability policy did not apply because coverage was limited to acts or omissions at the job site designated as the temporary crossing. The term "act," the court said, referred to an act of the railroad or the contractor, but not a criminal act of some third party.

Also critical to the coverage of the railroad protective policy is a description of the precise location and the nature of the work to be performed. The reason is, this policy states, that for coverage to apply, bodily injury or property damage must arise out of the acts or omissions at the "job location" designated in the Declarations and any area related to the work (work or operations) performed by the contractor designated in the Declarations, including subcontractors.

Producers should warn their insureds about making sure the job location and work description are well stated. Do not be too brief. Producers, however, should probably let their insureds describe the job location and the nature of the work to be performed. This is so that if there is any problem, the insureds will not blame the producers, particularly since a growing number of insurers appear to be taking the attitude of not wanting to pay claims for any reason.

Physical damage to property

The second part of the railroad protective liability policy, Coverage B, applies to physical damage to property owned, leased or entrusted to an insured under a lease or trust agreement. The term "physical damage to property" in the ISO and other forms is quite specific. That is, it applies to direct and accidental loss or damage to certain kinds of real and personal property, including rolling stock and their contents, mechanical construction equipment, railroad tracks and buildings.

What needs to be discussed here is the reference to buildings. It is probably not clear to someone reading this form's definition of "physical damage to property" that there is a definite difference between a building and a structure.

Just to provide a flavor of what has been perceived as a structure is the case of Katsoff vs. Lucertini, 103 A.2d 812 (CT 1954), which held that a building is a structure but all structures are not buildings. Also, in the case of Seattle Monorail Services vs. Affiliated FM Ins. Co., 2005 WL 2333482 (W.D. Wash.), which involved a commercial property policy, the court held that a monorail train was an integral part of the structure. In Bergeron vs. State Farm F&C Co., 707 A.2d 1383 (N.H. Sup. Ct. 2000), the insurer was successful in denying coverage under a homeowners policy for the collapse of a dam being constructed because collapse coverage was limited to buildings and not structures.

The reason why many property policies refer to buildings and not structures is difficult to answer. What is more important is the reason this subject of buildings vs. structures is brought up in the first place. It is because something could happen involving a structure that is not a building, which would mean no coverage under those railroad protective liability policies that refer to buildings and not to structures within the definition of "physical damage to property."

A recent case in point involving the difference between a building and a structure under a railroad protective liability policy is The Travelers Indemnity Company vs. Montana Rail Link, CV 10-16-M-DWM (U.S. Dist. Ct. Dist. MT 2011), which involved the collapse of part of a railroad tunnel under construction to widen it.

The tunnel, built in 1881, consisted of more than 3,000 linear feet of a three-course brick arched ceiling. While work was in progress by a contracting firm, decomposed granite collapsed a section of the tunnel and buried the track. As a result, the collapse completely closed the tunnel and blocked rail traffic for approximately 25 days.

The insurer of the railroad protective policy maintained that damages incurred as the result of that collapse were not covered by the first-party property coverage section of the policy. The reason was that, while the insurer agreed to pay for "physical damage to property," that term was defined to mean "direct and accidental loss or damage to rolling stock and their contents, mechanical construction equipment or motive power equipment, railroad tracks, roadbeds, catenaries, signals, bridges or buildings. (Emphasis added.)

The court ruled in favor of the insurer. It is probably a fair assumption that railroads have more exposures to structures than to buildings and, yet, this particular policy referred to buildings and not structures. It also would come as no surprise if no one, underwriter or policyholder, even noticed reference to "buildings" in that policy.

Just to let producers know that since the decision in the above case, railroads have started requiring their insurers to amend railroad protective liability policy definitions of "physical damage to property" to mean "direct and accidental loss or damage to all property of the named insured and to all property in the care, custody or control of the insured."

Contractual liability exposures

Railroads generally require broad indemnification agreements. In light of this, it is very important for the contractor who assumes such liability to see to it that its CGL policy's definition of "insured contract" is amended by the deletion of the so-called "railroad protective liability exclusion."

The above exclusion precludes, as an "insured contract," that part of any contract or agreement that indemnifies any person or organization for bodily injury or property damage arising out of construction or demolition operations within 50 feet of any railroad property and affecting any railroad bridge, trestle, tracks, roadbeds, tunnel, underpass or crossing.

What is necessary to eliminate that exclusion is the endorsement titled Contractual Liability—Railroads CG 24 17.

As a note of caution, ISO introduced a more restrictive contractual liability coverage, dealing with railroads, in 2005, titled Limited Contractual Liability—Railroads CG 24 27. Instead of covering the sole negligence of the railroad, which endorsement CG 24 17 does, this latter endorsement CG 24 27 limits injury or damage that is caused in whole or in part by the contractor or those acting on the contractor's behalf. Coverage, in other words, applies only to the railroads' partial fault.

Care, therefore, has to be exercised that this more limited endorsement CG 24 27 is not issued when the other endorsement, CG 24 17, should be issued instead. Railroads also need to be careful to check to confirm that the proper endorsement is issued and not to rely on a certificate of insurance.

It also is important to note that the CGL policy definition of "insured contract" that addresses the railroad protective liability exclusion should apply only when the sole reason a contractor is answerable for a railroad's liability is because of its assumption of the railroad's liability.

This means that if the only reason a railroad seeks indemnification is because of the contractor's sole or partial fault, the contractor's CGL policy should still apply because the contractor is answerable for its own acts or omissions whether resulting liability is assumed under contract or not.


It can be summarized that:

• A railroad protective liability policy is generally purchased by a contractor for the benefit of the railroad when the contractor and/or its subcontractors are performing work on or about railroad property.

• This policy is similar in many ways to an owners and contractors protective liability (OCP) policy. The railroad policy, however, is a little broader because it covers the railroad's acts or omissions, whereas the OCP limits its coverage to the vicarious liability of owners or contractors, as named insureds.

• A railroad protective policy also commonly includes coverage for physical loss or damage to certain specified railroad property. Producers should find a policy that covers not only buildings but also structures, since railroad property likely will include structures that are not buildings, such as tunnels.

• When contractors perform work for railroads or for others that involve railroad property, they are likely to be required to agree to a hold harmless agreement. Contractors need to be careful that some limiting contractual endorsement is not issued when the hold harmless agreement involves the railroads' sole negligence.

The author

Donald S. Malecki, CPCU, has spent more than 50 years in the insurance and risk management consulting business. During his career he was a supervising casualty underwriter for a large Eastern insurer, as well as a broker. He currently is a principal of Malecki Deimling Nielander & Associates LLC, an insurance, risk, and management consulting business headquartered in Erlanger, Kentucky.


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