RAILROAD PROTECTIVE LIABILITY COVERAGE FORM UNDERWRITING CONSIDERATIONS

(November 2019)

IDENTIFYING EXPOSURES

Identifying exposures with the Insurance Services Office (ISO) CG 00 35–Railroad Protective Liability Coverage Form begins by estimating the named insured’s vicarious liability exposure from a given project. Typically, estimates begin by evaluating the designated contractor performing the work. This is because its acts and omissions while performing the specific work for the named insured or on its behalf is what may cause the bodily injury or property damage for which the named insured may be vicariously liable.

It is much easier to identify exposures with CG 00 35 than it is with the ISO CG 00 01–Commercial General Liability Coverage Form. This is because the coverage provided applies to only the specific job location and for the exact work the designated contractor does until the project is complete. Exposures under CG 00 35 can be just as catastrophic as those under CG 00 01 because any activities performed on or around a railroad operation are potentially deadly. Even a minor error in performing the designated work can trigger a massive accident with multiple injuries (even fatalities), substantial property loss, and disruption of the operations of others.

UNDERWRITING INFORMATION

There are a number of important points that should be considered when underwriting projects that involve work on or around railroad property or operations:

The type of train traffic on the specific section of track subject to the work

Note: Freight trains have far less potential for a large number of persons being injured than passenger trains.

The number of trains per day that travel on the section of track subject to the work

Note: Heavy rail traffic creates time constraints on the contractor because it must work quickly between trains. Hurried work leads to mistakes that may cause injury or damage. Another issue is the possibility of significant loss of use of tangible property claims.

The exact type of work the designated contractor performs

Note: Minor or light exposures involve work performed around the tracks or roadbed but not on them.

Example: Sunshine Rail Lines is the named insured under a CG 00 35 policy purchased by Trak-Bright Ltd. Trak-Bright’s contract requires it to remove litter and trash from along the main line right-of-way.

Note: More significant or heavier exposures involve work on or that directly affects track or roadbed.

Example: Sunshine Rail Lines is the named insured under a CG 00 35 policy purchased by Dig N' Dredge, Inc. Coverage applies to Dig's job of grading the roadbed along a long section of Sunshine's main line. Even though the grading does not touch or directly affect the track itself, it could undermine the integrity of the soil that supports the track and cause it to collapse.

The contractor's qualifications, expertise, and ability to perform the specific operations and work involved

Note: The chance that a loss will occur is much lower when the contractor that does the work has the skill, experience, and proper equipment to do the job correctly.

Many insurance companies do not write Railroad Protective Liability coverage for a given contractor unless they write its Commercial General Liability coverage. This is because the premium charged for Railroad Protective Liability is comparatively low, and the company uses the same information to underwrite both coverage forms. The time, effort, and cost required to properly develop information and underwrite Railroad Protective Liability exposures may not make sense relative to the premium charged if the insurance company does not also write the Commercial General Liability coverage for the contractor that does the work.

COVERAGE

CG 00 35 provides two separate coverages. Coverage A applies to bodily injury or property damage to third parties. Coverage B applies to physical damage to the named insured's owned property. In order for either coverage to apply, a covered loss must:

Occur during the policy period
Occur at the described job location
Arise or result from work performed at the job location
Not be caused solely by the named insured

Note: The same Each Occurrence Limit applies to both coverages.

Coverage B presents unique challenges to traditional liability underwriters. It requires that they take on the role of a property underwriter and consider the named insured's property that may be present at the job location. Certain points must be considered, such as the value of the property in the immediate area, whether any of it passes through the job location regularly, and whether the contractor controls the property.

Note: CG 00 35 does not have the property exclusions that are in most standard commercial property coverage forms and policies. Coverage applies if the designated contractor is responsible for the damage to the property.

MODIFICATIONS

The coverage CG 00 35 provides is relatively narrow and restricted to described work a designated contractor performs at a specific location. It is not as broad or comprehensive as CG 00 01 and does not require much customizing or modifying. As a result, only a few endorsements are available to use with it.

DEDUCTIBLES

CG 00 35 does not have any deductible provisions. Coverage is provided on a first-dollar basis.

LIMITS

CG 00 35's limits of insurance are not standardized or prescribed. They are based on requirements in the contract for the work between the contractor and the railroad. Limits frequently used are $2,000,000 per occurrence and $6,000,000 aggregate, but a specific project may require different limits.

PRICING

CG 00 35 is not subject to filed rates. The rates used are based on underwriting judgment because each job is unique. Some factors that affect the rate used include the following:

The size of the contractor and its experience
The type of work and the nature of the exposure
Loss potential, frequency, and severity
Reinsurance pricing required

ALTERNATIVES

Some railroads offer the contractor that does the work the option to purchase coverage through the railroad's group insurance program instead of arranging coverage on its own. This may be a very attractive alternative to the contractor because the railroad negotiates the rates in this type of arrangement. In addition, the underwriter that handles the group program knows all about the contract terms between the railroad and the contractor. This simplifies the underwriting process and usually results in a correspondingly lower premium charge.