CRC: Liability Insurance Issues Remain Problematic

After more than four years of education and advocacy by the Commuter Rail Coalition, the Senate Committee on Commerce, Science and Transportation has drafted text that would lengthen the current implementation timeline of 30 days to secure insurance coverage up to the federal cap on liability for passenger rail.

Federal statute directs the Secretary of Transportation to adjust the cap every five years by applying the consumer price index. Railroads then have 30 days from the date of public notice to acquire the additional coverage.

Why do commuter railroads need more time?

There is agreement across the board that 30 days is insufficient to allow all commuter railroads to simultaneously procure coverage from a marketplace that has demonstrated that it has limited, if not shrinking, capacity to fulfill current needs. The Commuter Rail Coalition has proposed that the new cap become effective in 365 days.

It should be noted that commuter railroads are neither required by law to carry liability coverage up to the federal cap, nor are they necessarily exposed to liability up to that amount. Indeed, as public agencies, commuter rail operations have limited liability under sovereign immunity provisions in each state. It is the contractual relationships commuter railroads must enter into with third parties, such as host railroads, Positive Train Control system contractors and suppliers, and others who demand as a condition of agreement, indemnification and coverage up to the federal limit on liability for all passenger rail, which is currently set at $323 million.

The process that commuter railroads go through each year to renew this “excess liability” coverage is complex and lengthy. With few, if any, domestic insurers offering coverage beyond $50 million, agencies must travel to the London and Bermuda markets to find insurers willing to offer coverage up to the current federal cap of $323 million; domestic insurers will only offer coverage up to approximately $32.5 million.

Further, these foreign-owned insurers are constantly re-evaluating their position in the U.S. market based on claims losses across all sectors. The news is full of reports of individual consumers being left high and dry as insurers pull out of states en masse. Catastrophic events such as wildfires, hurricanes or even mass-shooting events that impact an insurer’s overall profitability drive these market decisions, not the risk profile of an individual homeowner—or railroad. The Senate Committee on Banking held a hearing on the subject in September.

The excess liability insurance marketplace has too few insurers willing to devote sufficient risk coverage to provide some assurance that capacity is sufficient to insure all those who require coverage. And the capacity each insurer is willing to deploy to passenger rail is never certain, even to those with impeccable safety and claims records.

Earlier this winter CRC received a report that market capacity (not guaranteed deployment) for excess liability insurance is hovering just under $400 million—meaning any one railroad would not be able to secure much beyond $400 million in coverage. And with inflation soaring in the past few years, we expect a significant multiplier in the DOT’s calculation when the Secretary announces the new cap in late 2025 or early 2026, threatening to push up against market capacity. The constrained capacity of insurers combined with an inflation-adjusted cap threatens commuter railroads’ ability to acquire coverage up to the new federal liability cap.

The alternatives are limited. Other than assuming more risk through self-insurance (which usually requires direct assistance from their states) or pooling coverage with other commuter rail agencies—both of which are time-consuming, complicated processes—commuter railroads are beholden to these foreign-owned insurers.

If the newly designated federal cap were to exceed the risk that insurers are willing to allocate in the market, commuter rail agencies would be unable to acquire insurance coverage required under their agreements with third parties, and that failure to satisfy the terms of the agreement would force railroads to cease operations. Should a market collapse come to pass, CRC’s proposal of 365 days would allow Congress sufficient time to intervene while keeping commuter rails moving. The threat facing commuter rail agencies is that they may have to cease operations immediately if they are unable to secure coverage up to the federal cap. CRC is doing everything possible to identify risks and will continue to address this crisis before the consequences disrupt critical daily services. Solving the 30-day implementation mandate is just one small part of an overall problem that needs to get fixed