Railroad risk transference through insurance can be accomplished several ways. First, the vendor can purchase standard Commercial General Liability (CGL) coverage. Most policies are written with standard forms which were drafted by insurance advisory organizations. These forms contain uniform language used by most all insurance companies. This is why they are called “standard” forms.
The standard CGL form contains a broad provision which does not provide insurance coverage for those parties with whom the named insured – who is the holder of the policy – has contracted and assumed liability by agreement. There is an exception to this exclusion – which means there is coverage – for liability assumed under an “insured contract” if liability occurs after the insured contract is entered into by the parties.
Let’s pause here to dissect this phrase because it has been widely litigated. The agreement must be in writing. It cannot be verbal. Also the agreement must have been in place before the loss. In other words, the railroad cannot have suffered a loss and then later ask the contractor or vendor to agree to reimbursement. Well it can. But insurance will not cover the railroad’s loss under the contractor’s policy.
The CGL policy then typically defines “insured contract” to include only certain types:
- a lease of business premises,
- sidetrack agreements,
- property easements or licenses (except regarding construction, demolition, and the area within 50 feet of a railroad),
- agreements required by ordinance to indemnify a municipality,
- elevator maintenance agreements, and
- agreements pertaining to the insured’s business and providing for the assumption of tort liability to a third person or entity.
Most CGL policies contain some sort of language including, then exempting, then covering insured contracts, but only those who meet these very narrow specifications. It is important in any risk transference program that the vendor’s CGL policy includes coverage for railroad operations by endorsement. Otherwise such operations are typically excluded on standard forms. This means that there will be no risk transference, and the railroad’s and the vendor’s intentions will not be satisfied. Thus a careful review of the insurance policy is warranted to make sure that the broker provided the railroad coverage as the parties intended.