Railroads can be covered for losses caused in whole or in part by a contractor. If a railroad is added to the contractor’s Commercial General Liability (CGL) insurance policy as an additional insured, all losses which arise out of the contractor’s work should be covered.
The case of Cont’l Cas. Co. v. Auto-Owners Ins. Co., 238 F.3d 941, 944 (8th Cir. 2000) explains this concept of risk transference. There, Burlington Northern R.R. Co. contracted with Fitzsimmons, a salvage company, to indemnify the railroad for any losses that arose out of Fitzsimmon’s salvage work. Fitzsimmons also promised to add the railroad to its CGL policy as an additional insured. Fitzsimmons agreed to pay “those sums that [Burlington Northern] becomes legally obligated to pay because of ‘bodily injury’ that arose from ‘operations performed by the contractor.’”
Unfortunately, a Fitzsimmons employee was injured at the job site. He sued Burlington Northern. The Railroad, which paid the loss, in turn sued Fitzsimmons’ insurer for indemnity and subrogation. This case is important because the trial court originally allowed only partial subrogation to the railroad. The 8th Circuit disagreed. It granted full indemnity to Burlington Northern.
The 8th Circuit reasoned that the insurer is “obligated to bear the entire loss, and not, as the district court concluded, just a portion of it.” Id., 238 F.3d at 945. The Court ruled:
….The present action, however, as we noted at the beginning of our consideration of this case, is founded not just on the insurance policies but also on the agreements between Burlington Northern and its contractors. Cf. Railhead Freight Systems Inc. v. United States Fire Insurance Co., 924 F.2d 994, 996 (10th Cir. 1991). The issue in our case is what insurer or insurers, under all of the relevant contracts, must ultimately pay Burlington Northern’s portion of the settlement of the injured employee’s action, and, as we have said, we believe that it is Auto-Owner’s (Fitzsimmons’ insurance company) that must do so.”
Id., at 945-946. This seminal ruling shows that risk transference by contract – where a railroad contracts with a vendor to add the railroad as an additional insured – will be upheld in a court of law. The policyholder, even if is it not the party making a claim under the policy, paid premiums for coverage of its additional insured. And the insurance company must honor that contract if any part of the loss arose out of the operations of the named insured.