Liability Insurance Could Stop Our Trains. Here’s How We Fix It.

by Jim Mathews / President & CEO

Most people don’t spend much time thinking about liability insurance. It’s not glamorous, it’s not about shiny new trains or exciting new routes. But right now, a little-noticed and long-brewing insurance crisis is threatening the ability of commuter railroads to keep trains running in the U.S.

Here’s the problem: Congress requires passenger rail operators to carry enough insurance to cover up to $400 million in damages from a single accident. That number has crept up over time, and today agencies have to build what the industry calls an “insurance tower,” stacking layer upon layer of coverage from different insurers, to reach that ceiling.

But the open insurance market is breaking. Premiums are skyrocketing. Insurers are jittery, not because of passenger rail’s actual safety record (claims are rare and usually nowhere near the cap), but because of things like global inflation, high-profile freight accidents, and re-insurers pulling back. The result? Commuter railroads are paying more and more for insurance they may not even be able to buy in another year or two. If that happens, some agencies could be forced to cut or suspend service.

At one time, a Federal law (49 U.S.C. § 28103, if you’re curious) capped aggregate damages for “claims arising from a single rail passenger accident” at $200 million. That was raised to $295 million in 2015 (FAST Act §11415) and inflation-indexed so that the DOT Secretary adjusted it to $322.9 million in 2021 and most recently last year to around $400 million. That's why commuter railroads must assemble multi-layer insurance “towers” — primary plus successive excess layers — to reach that ceiling number, and each additional “slice” gets pricier and harder to place. Insurers are balking, even as the cap rises.

Yes, Amtrak buys coverage too, like a regular company, but because of its Federal backing and scale, it gets better rates — and, when states hire Amtrak to run service, Amtrak brings with it certain legal protections that commuter agencies don’t enjoy on their own under the doctrine of sovereign immunity. But Amtrak’s protections can’t be “shared” in a way that solves the bigger problem: the immunity belongs to the sovereign, in this instance the U.S. government in the person of Amtrak.

We’re wrestling with this problem in the Surface Transportation Board’s Passenger Rail Advisory Committee. And I’d be lying if I said we had the definitive answer. But here are a few ideas our subcommittee on liability insurance is kicking around.

The first, and most obvious, is to revisit the liability cap itself, maybe considering tiered levels for different services or allowing regional insurance pools backed by Federal support. Because let’s be real: the ever-rising premiums are not tied to commuter-rail claims experience (which is of relatively low severity and infrequent) but instead to global reinsurers’ exposure to high-profile freight, hazardous material, and climate-driven losses. And I do mean “global.” The overall level of risk the insurers and re-insurers face gets priced into the premiums they charge everyone, passenger-rail or not, U.S. experience or not.

The actuarial risk for commuter rail is far less than for heavy freight or hazardous materials transport. Plus, the introduction of positive train control (PTC) makes running trains safer every year that PTC systems operate. Instead of a flat cap of $400 million, which grows along with inflation, Congress could lower the cap to $200 million or maybe even place different, lower, caps for different tiers of service risk (commuter versus intercity versus high-speed is just one example). You could mandate carve-outs for indemnification for freight hosts. And you could authorize state DOTs and commuter agencies to create their own mutually shared insurers (an entity called a “captive”) to pool their risks regionally with an insurer which, in turn, is backed by Federal re-insurance.

[Captives are fascinating all by themselves, and if you’d really like to dig into it click here for a good starting point.]

Which gets me to another idea that’s worth exploring: creating a Federal risk-sharing backstop, similar to what exists for terrorism insurance or nuclear energy. Congress passed the Terrorism Risk Insurance Act in 2002, after the 9/11 terror attacks. If we did something similar here railroads would be treated somewhat like airlines, still carrying reasonable coverage but with the knowledge that the Federal government would step in for catastrophic claims. A similar piece of legislation in the 1950s paved the way for nuclear power (the Price-Anderson Act).

One other idea would empower the Surface Transportation Board to oversee and regulate passenger-rail liability insurance, helping set fair requirements and allowing pooled or captive structures.

All of this may sound technical, but the stakes couldn’t be clearer: if agencies can’t secure coverage, they can’t run trains. And if they can’t run trains, hundreds of thousands of Americans will lose their daily ride to work, school, and opportunity. We already know of a few agencies who are facing the prospect of skyrocketing premiums which will far outstrip the ability of their agency, or their state, to absorb them.

Insurance may not make headlines — but without it, the trains don’t run. That’s just one of the serious issues the Passenger Rail Advisory Committee at STB is working on. We’ll meet later this month as a full Committee before the Board members to talk about it in detail. If you want to know more about the Sept. 18th meeting, which is open to the public, you can click here.