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30 Guidebook for Implementing Passenger Rail Service on Shared Passenger and Freight Corridors However, this law is relatively new and has yet to be tested in the courts. Questions remain over the extent to which indemnification agreements can protect a freight railroad in a case of gross negligence and whether the $200 million limit would be upheld in such cases. For this rea- son, freight railroads are asking for liability insurance levels up to $500 million for some com- muter rail operations. Almost all Amtrak liability and insurance arrangements with host railroads are "no fault." In nearly all of these arrangements, Amtrak is responsible for damage to its property (such as pas- senger cars and locomotives) and injury or death of its employees, contractors, and passengers (including "meeters and greeters"), as well as grade crossing accidents involving its trains. The host railroad is responsible for harm to trespassers and its own employees and for any liability not expressly assumed by Amtrak. Generally, Amtrak compensates host railroads for this residual lia- bility at a given rate per train-mile. Residual liability was one of the subjects that had to be resolved with Guilford Rail System prior to starting the Downeaster Boston, Massachusetts, to Portland, Maine, service. In the Guilford case, the STB pointed out that the rate offered by Amtrak was not deemed compensatory. However, most arrangements require the host railroad to assume this risk and accept the rate per train-mile offered by Amtrak. 2.5.2 Non-Amtrak Passenger Rail Service Operators and Agencies Commuter rail services, whether operated under contract by Amtrak or not, have to make their own liability and insurance agreements with the host railroads, although they are covered by the 1997 ARAA liability limit. These agreements vary widely, depending on the type of host railroad, whether the operator is a state agency or contractor, and state law regarding liability limits. The GAO in Commuter Rail (GAO-09-282) provides a list of the basic provisions for com- muter rail liability arrangements. In addition, many existing agreements were signed many years ago and may not be representative of what could be negotiated today. Given the huge variabil- ity, common themes are difficult to extract, but an overview is provided below. The overview divides the liability question into two areas: (1) the liability coverage required or typically pro- vided and (2) how the coverage is secured and which entity takes on the financial responsibility for different types of loss. Required Liability Coverage The following points summarize what liability coverage is currently required or requested in negotiations for passenger service on freight railroad tracks, including variations where parties other than just a host and a single tenant are involved: · Major freight railroads are asking for protection against any liability that would not be present "but for" the presence of passenger trains, even events where the freight railroad or its employ- ees are shown to be grossly negligent. This means, for example, the freight railroad requires indemnification or insurance to cover all costs associated with a collision with a passenger train where the freight carrier was at fault, on the grounds that the collision would not have occurred "but for" the presence of the passenger train. · Major freight railroads are also asking for up to $500 million in liability coverage per incident. This amount would cover the maximum $200 million for passenger injuries and losses required under ARAA, plus provide coverage for all other liabilities, such as property damage, environ- mental damage, service disruption, legal costs, injuries to railroad employees, contractors, and bystanders, etc. The additional coverage also protects against the possibility that the $200 mil- lion limit in ARAA is successfully challenged in court. Some passenger operators have been able to negotiate a lower liability limit with a freight railroad than the initially required $500 million per incident. However, many operators have a lower limit in current agreements and may be faced with higher demands when the agreements are renegotiated.

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Getting Started and Negotiations 31 · Aside from the requirements of a freight railroad hosting a passenger service, liability and insur- ance questions have to be resolved among all the other parties involved in providing passenger rail service on a given rail corridor. Depending on local circumstances, interested parties can include a state DOT that sponsors a service, a commuter rail agency, and a contract operator (Amtrak, a freight railroad, or a private firm). Amtrak is frequently involved where Amtrak is either the infrastructure owner (as in the NEC), or the intercity service operator in the same corridor. · Liability arrangements are required between two passenger rail agencies operating on the same corridor, as well as between the host railroad and each passenger operator. Where Amtrak hosts a commuter rail service, it typically requires the same "but for" liability protection as a freight railroad host. Amtrak's position is that under applicable law it cannot accept any additional lia- bility due to the presence of another operator on its tracks, as it cannot incur any expenses that are not for qualifying intercity passenger rail service. Arrangements Made to Obtain Coverage and Who Bears the Cost As well as the $200 million limits for passenger injuries and property loss, the ARAA also gives passenger rail operators and agencies the power to enter into contracts that assign financial responsibility for liability costs. This provision was needed because of court decisions arising out of the serious collision in Chase, Maryland, in 1987. In this case, a court held that Amtrak's indem- nification of the freight railroad against passenger-related losses (which were very large) could be set aside, on the grounds that the collision was caused by gross negligence of a freight railroad employee. This decision created great concern among freight railroads that they could not rely on indemnification agreements for passenger service. The 1997 law is intended to ensure that liability- related contractual agreements are enforceable. Liability agreements between a passenger rail agency and a host freight railroad typically con- tain the following elements or consider the following issues: · The passenger rail agency self insures for lower-consequence events, with a cap between $1 mil- lion and $20 million. The most common self-insured amounts range from $5 to $10 million per event. · Each operator is responsible for events that involve only that operator's property and employ- ees. For example, a collision involving only freight trains on freight railroad tracks would be wholly the freight railroad's responsibility. · In many agreements, each operator is responsible for damage to its own equipment and injuries to its employees. However, in a number of cases, the passenger rail agency agrees either to com- pensate the host railroad for such losses in an accident involving a passenger train or to obtain insurance to cover such losses. · Commercial insurance is purchased in layers from the self-insured limit up to between $100 and $200 million. The maximum is usually the liability limit agreed to with the host railroad in the access contract. Some passenger rail agencies have existing agreements where the freight railroad takes responsibility for a layer of the $200 million, for example between $10 and $85 million, regardless of fault. Such arrangements are not likely to sur- vive renegotiation. · In agreements that call for liability coverage exceeding $200 million, such as up to $500 mil- lion, insurance has to be obtained on the international market, for example from Lloyds of London. · It is important to avoid, as much as possible, agreements where liability depends on establish- ing the degree of fault to be borne by each party in individual accidents, which can lead to lengthy legal proceedings. In practice, almost all agreements are "no fault." · The passenger rail agency must protect the passenger service contract operator from liability, whether the operator is Amtrak or a private firm.

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32 Guidebook for Implementing Passenger Rail Service on Shared Passenger and Freight Corridors · It is important to ensure that insurance arrangements fully cover "passenger-on-passenger" events where two passenger operators share a corridor, whether the infrastructure is owned by a passenger operator or a freight railroad. · Many states have provisions in their constitutions or laws that prohibit state agencies from accepting liability for punitive damages and/or accepting liability for incidents where the host railroad is grossly negligent. Such provisions can be a major barrier to successful access negoti- ations when the host railroad requires exactly this coverage. Even where there are no legal or constitutional barriers, state governments and legislators often feel that accepting liability is highly inappropriate in cases of gross negligence by the host railroad. The following approaches can prevent liability issues from becoming deal breakers: ­ Set up an independent authority to manage the rail service that is structured so that consti- tutional or legal barriers do not apply. An example of this approach is the NNEPRA, an inde- pendent agency in Maine that oversees the Downeaster service. See Case Studies 3. ­ Where there are no constitutional or legal barriers, focus on getting the deal done, even if it requires agreeing with some unappealing provisions. The railroad's insistence on "but for" protection is not unreasonable from its point of view, and a calm explanation may help defuse objections by elected and appointed officials. ­ Retain experienced legal counsel that can advise on these complex and specialized issues. Even when all legal issues have been successfully resolved, the insurance cost can be a major bar- rier to implementing a new commuter rail service. This situation is especially true for a small-scale new start by a passenger rail agency that has no previous record of safe operations. The GAO report cited previously says that insurance costs can comprise more than 20 percent of operating costs for such an agency. There is no easy solution to this problem at present, and the agency is advised to retain experienced legal counsel, contact other agencies for their insurance experience, establish a robust safety program for the operation, and engage a very experienced contract operator with a good safety record. CASE STUDIES 3 The Northern New England Passenger Rail Authority When the development of plans for Boston, Massachusetts, to Portland, Maine, passenger rail service reached the point of starting negotiations with host rail- roads and Amtrak to implement the service, officials in the Maine government realized it would be difficult or impossible for Maine DOT to enter into the agree- ments required, most notably for liability coverage and for contracting for ROW improvements with the host railroad. NNEPRA was created as an independent agency with a separate chair, board of directors (mostly business people but with Maine DOT representation), and an executive director. It holds the contract for train operations with Amtrak, contracts with the host railroad for capital improve- ment projects, and contracts with other providers of goods and services (for exam- ple, on-board food service). NNEPRA is also able to apply for grants and loans to fund the service and service improvements, as well as receive appropriations from Maine DOT.