

July 2016
BULLETPROOF INSURANCE REQUIREMENTS
ARE YOUR INSURANCE REQUIREMENTS BULLETPROOFED? Bulletproofing a railroad’s insurance requirements is vital to protecting its financial health. Bulletproofing means building up layers of protection. Layer #1 – Evaluate. Identify the differences (Gaps) between your current contractual risk transfer practices and the railroad industry’s best contractual risk practices (CRTC10TN). Layer #2 – Decide On A Risk Transfer Philosophy. An essential step in building a reliable and sustainable contractual risk transfer program is developing a railroad’s contractual risk transfer philosophy. What exposure to risk of loss is the railroad willing or not willing to accept? Layer #3 – Decide Where On The CRTC10TN Risk Transfer Protection Scale the Railroad Wants To Be. From no indemnity to strict indemnity, and from no insurance with no monitoring of compliance, to insurance and strict monitoring of compliance. Layer #4 – Perform a Risk Assessment. Categorize exposures to risk of loss by function: rail grinding, bridge repair, etc. Use risk assessment models that are specific to and have been validated at railroads to help you identify each category’s Key Risk Indicators (KRI’s). Models are essential to eliminate bias from decision-making. The use of predictive models is essential to identify risk severity and frequency, and to establishing insurance limits equal to the risk of loss. Focus your time and assets on managing risks of loss that are consistent with the degree of protection the railroad chose on its Risk Transfer Protection Scale. Layer #5 – Build Coverage Matrix. Build a matrix showing coverage required and for each risk category. This is essential for internal communication between all interested parties, and for managing compliance with your insurance requirements. Layer #6 – Carefully Craft Your Insurance Requirements to Reflect How The Insurance Industry Provides The Coverage You’re Seeking. Using generic language to describe insurance requirements should be avoided. Cite standard insurance industry forms of coverage or forms that provide equivalent coverage. Why? Because using generic language makes it impossible to include all the nuances of coverage provided in standard insurance industry forms, and courts too often interpret generic language contrary to your intentions. Layer #7 – Have A Coverage Strategy. Understand the coverage you are requiring. Know the circumstances under which an insurer may seek to deny coverage. Prepare yourself to defeat today’s commercial insurance culture of delay, deny and defend. Layer #8 –Prepare To Overcome Objections To Your Insurance Requirements and Limits. Anticipate possible objections to your insurance requirements and craft scripts to guide your discussion with those that object to any particular requirement. Layer #9 – Glue Everything Together With Supporting Case Law. Know the law that has already been established by the outcome of former cases that support your coverage strategy. Layer #10 – Vigorously Enforce Compliance. Courts have ruled that a party’s failure to monitor for compliance with its required insurance coverage is a waiver of that party’s right to make a claim against that insurance. Courts are not unanimous in this decision. However, regardless of who prevails, this type of litigation is very costly.

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