Liability and Indemnity Provisions in Agreements Differ, but Commuter Rail Agencies Generally Assume Most of the Financial Risk for Their Operations

Liability and indemnity provisions in agreements between commuter rail  agencies and freight railroads differ, but commuter rail agencies generally  assume most of the financial risk for commuter operations. For example,  most liability and indemnity provisions assign liability to an entity  regardless of fault—that is, a commuter rail agency could be responsible  for paying for certain claims associated with an accident caused by a  freight railroad. In addition, about one-third of these no-fault agreements  exclude certain types of conduct, such as gross negligence, recklessness,  or willful misconduct, from the agreements. The liability and  indemnity provisions also require that commuter rail agencies carry  certain levels of insurance to guarantee their ability to pay for the entire  allocation of damages. Federal Statutes, STB Decisions, and Federal Court Decisions Are Instructive in Interpreting Liability and Indemnity Provisions, but Questions Remain

		ARAA Addresses Many Liability Concerns, but Railroad Officials Question the Applicability of the Statute’s Liability Cap

ARAA introduced tort reform measures that limit the overall damage passenger claims to $200 million, including punitive damages to the exten permitted by state law, against all defendants arising from a single  accident or incident. Questions Remain Regarding Indemnification for Gross Negligence and Willful Misconduct

49 U.S.C. While the Court of Appeals stated in the O&G Industries opinion that it  was the intent of Congress to permit indemnity agreements regarding any  claims against Amtrak, STB, when setting the terms of agreements  between Amtrak and freight railroads, has held that it is against public  policy to indemnify an entity against its own gross negligence or willful  For example, in a 2006 decision, STB held that an indemnity misconduct. Various Factors, Such as Financial Conditions and Federal and State Laws, Influence Negotiations of Liability and Indemnity Provisions

The Rail Passenger Service Act of 1970 provides that Amtrak and the freight railroads may  contract for Amtrak’s use of the facilities owned by the freight railroads. Several Factors Influence Negotiations of Liability and Indemnity Provisions

Freight railroads’ business perspective. Financial conditions at the time of negotiations. Specifically, freight railroads are requiring more insurance coverage  for new commuter rail projects than what they had required in some pas agreements. For  Federal and state laws. Officials from this freight railroad told us they are seeking  increase the level of insurance in their existing agreement from $250  million to $ th $500 million in insurance, in part, because the cap has not been tested in  court and because the cap does not cover third-party claims. Amtrak’s statutory rights influence the negotiations of liability and  indemnity provisions in agreements between Amtrak and freight railroads  as well as between Amtrak and commuter rail agencies. liability and indemnity provisions. Commuter Rail Agency, Amtrak, and Freight Railroad Officials Identified Several Options for Facilitating Negotiations

Commuter rail agency, Amtrak, and freight railroad officials identified  several options for facilitating negotiations of liability and indemnity  provisions, including amending ARAA, establishing alternatives to  commercial insurance, increasing commuter rail agencies’ leverage in  negotiations with freight railroads, and separating passenger and freight  rail infrastructure. While each of the options could facilitate negotiations on liability and indemnity provisions, each option has advantages and  disadvantages to consider. Commuter Rail Agency, Amtrak, and Freight Railroad Officials Suggested Amending ARAA to Address Concerns

Officials from commuter rail agencies, Amtrak, and freight railroads cited  amending ARAA as an option for facilitating negotiations on liability and  indemnity provisions. Amtrak provided  technical comments, which we incorporated where appropriate. DOT and  STB had no comments on the draft report. ntify liability and indemnity provisions in agreements among  We conducted legislative research to identify federal statutes, federal an tate court cases, and STB decisions that related to contractual liability  sand indemnity provisions of passenger and freight railroad agreements.
Why GAO Did This Study

The National Railroad Passenger Corporation (Amtrak) and commuter rail agencies often share rights-of-way with each other and with freight railroads. Negotiating agreements that govern the shared use of infrastructure can be challenging, especially on issues such as liability and indemnity. As requested, this report discusses (1) the liability and indemnity provisions in agreements among passenger and freight railroads, and the resulting implications of these provisions; (2) federal and state court opinions and Surface Transportation Board (STB) decisions related to contractual liability and indemnity provisions of passenger and freight railroad agreements; (3) factors that influence the negotiations of liability and indemnity provisions among passenger and freight railroads; and (4) potential options for facilitating negotiations of liability and indemnity provisions. GAO obtained information from all existing and proposed commuter rail agencies, Amtrak, and major freight railroads through site visits or telephone interviews. GAO analyzed the liability and indemnity provisions in agreements between commuter rail agencies, Amtrak, and freight railroads. GAO also reviewed federal and state laws, STB decisions, and court cases related to liability and indemnity provisions. The Department of Transportation and STB had no comments on the report. Amtrak provided technical comments, which we incorporated where appropriate. GAO is not making recommendations in this report.

What GAO Found

The liability and indemnity provisions in agreements between commuter rail agencies and freight railroads differ, but commuter rail agencies generally assume most of the financial risk for commuter operations. For example, most provisions assign liability to a particular entity regardless of fault--that is, commuter rail agencies could be responsible for paying for certain claims associated with accidents caused by a freight railroad. The provisions also vary on whether they exclude certain types of conduct, such as gross negligence, from the agreements. The provisions also require that commuter rail agencies carry varying levels of insurance. Because commuter rail agencies are publicly subsidized, some liability and indemnity provisions can expose taxpayers as well as commuter rail agencies to significant costs. Federal statutes, STB decisions, and federal court decisions are instructive in interpreting liability and indemnity provisions, but questions remain. In response to industry concerns, Congress enacted the Amtrak Reform and Accountability Act of 1997 (ARAA), which limited overall damages from passenger claims to $200 million and explicitly authorized passenger rail providers to enter into indemnification agreements. However, questions remain about the enforceability and appropriateness of indemnifying an entity for its own gross negligence and willful misconduct. A federal court of appeals, in a recent decision regarding Amtrak, overturned an earlier court opinion, holding that it was against public policy to indemnify for gross negligence and willful misconduct because this could undermine rail safety. STB, however, has held, when setting the terms of agreements between Amtrak and freight railroads, that it is against public policy to indemnify an agency against its own gross negligence or willful misconduct. Several factors influence the negotiations of liability and indemnity provisions, including the freight railroads' business perspective, the financial conditions at the time of negotiations, the level of awareness or concern about liability, and federal and state laws. For example, some freight railroad officials told us they are requesting more insurance coverage for new commuter rail projects than what they had required in some past agreements, in part, because ARAA's liability cap has not been tested in court and does not cover third-party claims. Statutes governing Amtrak also influence the negotiations between Amtrak and other railroads. Options for facilitating negotiations on liability and indemnity provisions include amending ARAA; exploring alternatives to traditional commercial insurance; providing commuter rail agencies with more leverage in negotiations; and separating passenger and freight traffic, either physically or by time of day. For example, officials from commuter rail agencies and freight railroads suggested amending ARAA to expand the scope of the liability cap to include third-party claims. Although each of these options could facilitate negotiations on liability and indemnity provisions, each option has advantages and disadvantages to consider.