AAIS ROLLING STOCK COVERAGE FORM ANALYSIS

(February 2024)

INTRODUCTION

The American Association of Insurance Services (AAIS) IM 7330–Rolling Stock Coverage Form insures the moving property of a railroad. It consists of locomotives, passenger and baggage cars, repair and maintenance equipment, tankers, hoppers, boxcars, flat cars, refrigerated cars, auto carriers, and similar railroad cars designed for and used on railroad tracks. A unique coverage form is needed for this stock because of the values involved and the constant change in locations.

ELIGIBILITY

Any commercial operation that owns, operates, and or has a financial interest in railroad rolling stock is eligible.

POLICY CONSTRUCTION

AAIS Rolling Stock coverage requires at least these four forms:

CL 0100–Common Policy Conditions. This form contains five basic conditions that apply to all AAIS commercial lines coverage forms and policies.

IM 7900–Inland Marine Declarations
IM 7330–Rolling Stock Coverage
IM 7331–Schedule of Coverages–Rolling Stock Coverage

IM 7331–SCHEDULE OF COVERAGES–ROLLING STOCK COVERAGE (01 12 changes)

This Schedule of Coverages is used with IM 7330–Rolling Stock Coverage. IM 7331 contains the following information:

Policy Number (01 12 addition)

The 01 12 edition added a space to enter the policy number.

Coverage

Coverage is provided based on selecting one of the following:

Scheduled Rolling Stock
Schedule On File (with the insurance company)

Property Covered

The 01 12 edition added the word “Limits” in this and one additional place. Limit is a defined word.

This section requires two entries:

Catastrophe Limit

This is the most paid in a single occurrence.

One of two Rolling Stock Limits must be checked:

Refer to Rolling Stock Schedule
Refer to Schedule on File (with the insurance company)

Optional Coverages

There are two optional coverages. The corresponding box must be checked if coverage is desired, and a limit entered in the space provided.

Damage to Track and Roadbed

This coverage requires entering both an Occurrence Limit and an Annual Limit

Newly Acquired Rolling Stock

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Additional Debris Removal Expenses

The limit is $5,000 unless a different limit is entered.

Emergency Removal

The number of days is 365 unless a different number of days is entered.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

Expense to Clear Lines

The limit is $25,000 unless a different limit is entered.

Fire Department Service Charge

The limit is $25,000 unless a different limit is entered.

Pollutant Cleanup and Removal

The limit is $25,000 unless a different limit is entered.

Recharge of Fire Extinguishing Equipment

The limit is $50,000 unless a different limit is entered.

Rerail Expense

The limit is $25,000 unless a different limit is entered.

Note: This supplemental coverage has a $50,000 12-month aggregate limit. If the $25,000 occurrence limit is increased, the $50,000 aggregate limit should also be increased.

Valuable Papers

The limit is $50,000 unless a different limit is entered.

Deductible

The deductible that applies is entered in the space provided.

Valuation

There are two valuation options. One must be selected by checking the appropriate box. One of the sub-options for each must be selected.

Blanket Valuation

Association Of American Railroads (AAR) Valuation
Actual Cash Value
Agreed Amount

Individual Valuation

Refer to Rolling Stock Schedule
Refer to Schedule on File (with the insurance company)

Coinsurance

One of the following coinsurance options must be selected:

Waived
80%
90%
100%
Other Percent (specify)

Income and Extra Expense Coverage

There are three coverage options. One must be selected by checking the appropriate box:

Coverage Does Not Apply
Income and Extra Expense
Extra Expense Only

If either of the coverage options is selected, a limit for it must be entered in the space provided:

Income and Extra Expense Coverage Limit
Extra Expense Coverage Limit

There are three Waiting Period options. One must be selected by checking the appropriate box:

Waiting Period Does Not Apply
48 Hours
Other (Describe)

Additional Information

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

IM 7330–ROLLING STOCK COVERAGE FORM ANALYSIS

This analysis is of the 01 11 edition.

The terms "you" and "your" are the party(ies) identified on the declarations as the insured. "We", "us," and "our" is insurance company that provides coverage. These are the only two definitions in this introduction. However, there are many other defined terms used in this coverage form. The other terms can be found in the Definitions Section at the end of the coverage form. It is very important to review these definitions because of how they can broaden or restrict coverage.

Agreement

The insurance company agrees to provide the coverage described in the coverage form and in the schedule of coverages. The named insured agrees to pay the premium. This entire agreement is subject to all the coverage form's terms, conditions, endorsements, and definitions.

Property Covered

Coverage applies to the rolling stock property described below, subject to any exclusions or limitations that apply.

1. Coverage

Direct physical loss or damage by a covered peril to the named insured's rolling stock is covered. In addition, similar property of others in the named insured's care, custody, or control is covered.

Note: Railroad cars break down into several classifications:

Revenue cars provide income or revenue to the owner and fall into two categories:

Passenger cars or coaches transport passengers between points in return for payment of a fare or ticket. Passenger cars include coaches, dining cars, parlor cars, observation cars, and sleeping cars and combinations of these, to name just a few.
Freight cars consist of many types, mostly based on the type of property or commodity carried. They include auto carriers, boxcars, refrigerated cars, flatcars, gondolas, hopper cars, tank cars, stock cars, and well cars. The majority of all freight cars fall into one of these categories or other specialized cars designed to carry very specific property, such as motor vehicles or ocean-going shipping containers.

Non-revenue cars are incidental or necessary to normal operations involving revenue cars. These include maintenance-of-way cars and handcars. This category also applies to cabooses, but they are no longer used.
Military cars are relatively rare and include specialized cars for artillery, infantry, anti-aircraft, anti-tank, platform, and military command operations.

2. Coverage Limitation

When Scheduled Rolling Stock is checked on the schedule of coverages, coverage applies to only rolling stock listed on IM 7332–Rolling Stock Schedule.
When Schedule on File is checked on the schedule of coverages, coverage applies to only rolling stock listed and described on a schedule that the named insured submits to the insurance company for its records. The schedule must describe each item of covered rolling stock and assign a limit to it.

3. Limit

The most paid for loss or damage to any one piece of rolling stock in a single occurrence is its limit on IM 7332–Rolling Stock Schedule or the schedule on file with the insurance company.

Optional Coverages

Two optional coverages are available. Coverage applies based on entries made for each on the schedule of coverages.

1. Damage to Track and Roadbed

a. Coverage

This applies only When Damage to Track and Roadbed coverage is checked on the schedule of coverages.

Reasonable and necessary expenses that the named insured incurs to repair or replace lost or damaged railroad track or roadbed are covered if a covered derailment or collision causes the loss or damage to the roadbed or track requiring the repair or replacement.

b. Coverage Limitation

Railroad track or roadbed are covered only if located on the named insured's owned, leased, or rented premises or if the named insured is legally obligated for loss or damage to the track or roadbed.

c. We Do Not Pay For

Expense to repair or maintain track or roadbed that is not described in this coverage is not covered.

d. Limits

The Occurrence Limit under Damage to Track and Roadbed on the schedule of coverages is the most that will be paid for covered expenses to repair or replace damaged rail track or roadbed sustained in a single occurrence.
The Annual Limit under Damage to Track and Roadbed on the schedule of coverages is the most that will be paid for covered expenses to repair or replace damaged rail track or roadbed during each separate 12-month policy period.

e. Separate Limit

This is separate coverage with its own limit. The limit is not considered a sublimit and is, therefore, not a part of the limit that applies for coverage under Property Covered.

Example: The brakes on the freight car caught on fire. It caught debris around the track on fire that overheated and damaged it. This optional coverage will pay for the damage to the track if the named insured owns the track or is legally obligated to pay for the repair.

2. Newly Acquired Rolling Stock

a. Coverage

This coverage applies only when Newly Acquired Rolling Stock coverage is selected on the schedule of coverages.

Direct physical loss or damage by a covered peril to newly acquired rolling stock is covered.

b. Time Limitation

The newly acquired rolling stock is covered for no more than 30 days after it is acquired. However, this is further limited to when the named insured reports the acquisition or the policy ends, whichever comes first.

c. Additional Premium Due

This is not free coverage so additional premium is due from the date of the acquisition.

d. Limit

The Newly Acquired Rolling Stock limit on the schedule of coverage is the most that will be paid in an occurrence.

e. Separate Limit

This is separate coverage with its own limit. The limit is not considered a sublimit and is, therefore, not a part of the limit that applies for coverage under Property Covered.

Example: CornMaize Products, Inc. processes and refines raw corn to produce syrup and other liquid corn products for industrial and consumer use. CornMaize has its own fleet of 40 rail hopper cars used to transport the harvested corn from country grain elevators to its processing and refining facilities. Because its fleet is fairly small and each unit can be readily tracked, CornMaize can usually report newly acquired hopper cars to the insurance company as soon as it takes possession of them. However, it appreciates this additional coverage in case an acquisition occurs before a long weekend or during a vacation period so that coverage is in place. CornMaize never worries that the 30-day period will expire because it always receives the manufacturer's invoice for the new equipment within 10 days of the delivery date.

Property Not Covered

Eight specific types of property are excluded:

1. Contraband

Property that is illegal to possess is not covered. Property that is legal to possess but being used as part of an illegal trade or being transported illegally is also not covered.

2. Lease or Rent to Others

Property that the named insured rents or leases to others is not covered while with that other party.

3. Loan to Others

Property the named insured loans to others is not covered with that other party.

4. Money and Securities

A number of types of property are not covered under this item. Accounts, bills, currency, food stamps, evidences of debt, and lottery tickets not held for sale, in addition to money, notes, or securities are all not covered.

Note: This property should be insured under Commercial Crime Coverage Forms.

Related Article: Commercial Crime Coverage Analysis

5. Property in Rolling Stock

Property that is contained inside the rolling stock or that is on it is not covered.

Note: This coverage form insures only the rolling stock itself. Transportation Coverage Forms should be used to cover property contained on or in rail cars.

AAIS Transportation Coverage Forms

ISO Annual Transit Coverage Form

ISO Trip Transit Coverage Form

6. Sold Property

Property that has been sold is not covered. There are no exceptions, so even property sold under an installment or other type of deferred payment agreement is not covered.

7. Vehicles

Any type of self-propelled vehicle designed for highway use – even if not licensed – is not covered.

Note: This property is more correctly insured under commercial automobile coverage forms.

8. Waterborne Property

This property is not covered. There are no exceptions.

Note: This exposure is unlikely to happen often or at all. In the unlikely event that an item of railroad rolling stock is on a barge or ferry, coverage on it should be arranged through the barge or ferry operator.

Coverage Extensions

Provisions That Apply To Coverage Extensions

There are two coverage extensions. The limit for each is either the limit on the schedule of coverages or the default limit included in the coverage form. These limits are part of the applicable limit for covered property and not in addition to it unless otherwise indicated. These limits are not added to or combined with limits for any other coverage extension or supplemental coverage and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Debris Removal

When a covered peril damages or destroys covered property, the cost to remove any created debris is covered under this extension. Debris removal does not include any costs for removing, restoring, or replacing polluted land or water or extracting pollutants.

There are two parts of the Limit section. The first is restricting any debris removal payment to no more than 25% of the amount paid for the actual direct physical loss or damage. The second part is that when the debris removal and the physical damage loss are added together, no more than the limit of insurance is paid.

An additional $5,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property.

Debris removal expenses must be reported to the insurance company within 180 days of the date of loss for this extension to apply.

2. Emergency Removal

a. This covers direct physical loss or damage to covered property removed from the scheduled location to avoid loss or damage from an impending covered peril. The loss can occur while in transit between the scheduled and sanctuary locations. This coverage is unique in that the property that is being moved is not subject to any exclusion while in transit or at a sanctuary location. However, the reason for moving the property must be due to covered peril.

b. Coverage applies for up to 365 days after the property is first moved but does not extend past the policy’s expiration date. An entry can be made on the schedule of coverages to increase the number of days.

Note: Coverage does not extend past the expiration date, which means that if the insured has property at a sanctuary location when coverage renews, the sanctuary location must be listed as a premises or coverage no longer applies.

Supplemental Coverages

Provisions That Apply To Supplemental Coverages

There are six supplemental coverages. Each has its own default limit that can be increased by entering a higher limit on the schedule of coverages. Limits for any supplemental coverage are separate from the applicable limit for covered property, not part of it.

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit for a supplemental coverage and the limit for covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension. They are also not subject to coinsurance provisions that apply elsewhere in the coverage form.

1. Expense to Clear Lines

When direct physical loss or damage to rolling stock caused by a cover peril occurs, the expenses the named insured incurs to clear rail lines or to recover, save, or preserve covered rolling stock are covered. These expenses are for clearing the lines but not for repairing the tracks or roadbeds. The most paid in a single occurrence is $25,000, but the limit may be increased on the schedule of coverages.

Example: Greg’s Scenic Train Tour provides wonderful dining experiences in a four county area. The train strikes a large moose and is damaged. Greg must pay to remove the moose from the track and arrange for a repair train to bring his train back to his station for repairs. This coverage pays all of these expenses.

2. Fire Department Service Charges

This coverage applies only if the named insured has entered into a written agreement with a fire department, prior to a loss, to pay charges when services are needed. When the fire department provides services to protect or save rolling stock threatened by a covered peril, the insurance company will pay up to $25,000 for a single occurrence. The limit can be increased.

Example: Grant’s Railway provides dining experiences within a four county area in Kansas. It contracts with different fire departments on its route to guarantee immediate service if a loss occurs. A fire occurs, and the Garrett County fire department responds. This coverage pays for the cost of fighting the fire but not for the EMT services provided to several passengers and employees who were overcome by smoke.

3. Pollutant Cleanup and Removal

The named insured's expenses to extract pollutants from land or water are covered if a covered peril that occurred during the policy period in any way caused their release or discharge. However, there are significant restrictions.

The expenses must be reported to the insurance company within 180 days of the date of loss.

Testing for, evaluating, observing, or recording pollutants costs are excluded except for those required as part of a covered pollutant extraction process.

A per location 12-month policy period aggregate limit of $25,000 applies. This limit can be increased.

4. Recharge of Fire Extinguishing Equipment

When the named insured’s fire extinguishing equipment must be recharged because it was discharged while fighting a fire due to a covered peril or an accidental discharge, the insurance company will pay up to $50,000 for the expenses incurred in the recharging. It will also cover expenses incurred to repair or replace faulty controls or valves that led to an accidental discharge.

However, expenses to recharge equipment as a result of a discharge during installation or testing are excluded.

The insurance company has the option to replace discharged equipment instead of repairing it if doing so is less expensive.

5. Rerail Expense

If a train derails, it must be rerailed. If the derailing results from a direct physical loss or damage by a covered peril to covered rolling stock, the expenses incurred to lift, upright and rerail the rolling stock are covered for up to $25,000 per occurrence.

This coverage does not include any expenses incurred to repair or maintain tracks or roadbeds.

An aggregate limit of $50,000 for all such incurred expenses exists in each separate 12-month policy period. Both the occurrence and the aggregate limits can be increased.

Example: Parkway Rail Tracks provides unique rail excursions that provide private rail accommodations for those who want to visit many tourist attractions without the frustrations of public transportation.

Scenario 1: Parkway’s engineer responds to a frantically waving sheriff by braking hard. This results in the train derailing. There is no coverage for the rerail expenses because a covered loss did not occur; civil authority is excluded from coverage.

Scenario 2: Parkway’s car is forced off the track when a large freight train traveling at an excessive speed passes it. The expense to rerail the train is covered.

6. Valuable Papers

a. The insurance company pays the research costs and other expenses to restore, reproduce, or replace valuable papers and records that a covered peril damages. The costs and expenses must be necessary. The valuable papers can be in either paper or electronic media format.

b. There is no coverage for loss to valuable papers and records due to errors or omissions in processing or copying them.

c. The most paid in a single occurrence for such costs and expenses is $50,000. This limit can be increased.

d. Valuable papers and records are valued at their replacement cost. There is no deduction for depreciation. However, payment does not exceed the amount the named insured actually spends to repair or replace them.

Note: This means there is no payment for any valuable paper or record that sustains loss or damage but is not replaced.

Perils Covered

Coverage applies to risks of direct physical loss or damage unless the loss is limited or caused by an excluded peril.

Perils Excluded

1. Primary Exclusions

The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or resulting from these events.

a. Civil Authority

There is no coverage for loss that results from an order any civil or government authority issues. These orders may include seizure, confiscation, destruction, or quarantine of property, but this exclusion is not limited to only these. The only exception is when the loss or damage is caused by a civil authority destroying property to control a fire. This exception applies only if the fire is the result of a covered peril.

b. Nuclear Hazard

The insurance company does not cover loss or damage caused by or resulting from any nuclear reaction, radiation, or contamination. This is absolute and applies whether or not the nuclear incident was controlled, and by whatever means caused. Any loss the nuclear hazard causes is not treated as a loss that fire, explosion, or smoke causes. The only exception is when a fire results from the nuclear fire. Direct loss or damage from that fire is covered, but the damage from the nuclear hazard remains excluded.

c. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. Undeclared and civil war or warlike action by a military force are all considered war. All actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also considered war and excluded. In addition, acts of insurrection, rebellion, revolution, or unlawful seizure of power and any action any government authority takes to prevent or defend against any such acts are excluded. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.

Note: This means that the exception for resulting fire under the nuclear hazard is not covered when it results from war.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Contamination or Deterioration

Loss or damage that is caused by contamination or deterioration is excluded. This applies to corrosion, decay, fungus, mildew, mold, rot and rust. It also applies to any quality, fault, or weakness in covered property that causes it to damage or destroy itself. However, this exclusion is not limited to only these described causes.

This exclusion has an exception. Contamination or deterioration may result in a covered peril. In that case, coverage applies to the loss or damage that covered peril causes.

b. Criminal, Fraudulent, Dishonest, or Illegal Acts

Coverage does not apply to loss caused by, or that results from criminal, fraudulent, dishonest, or illegal acts that any of the following commit alone or in collusion with another:

The named insured
Others with an interest in the property
Others to whom the property is entrusted
The named insured's partners, officers, directors, trustees, joint venturers, members, or managers as applicable based on the named insured’s type of business organization
Employees of any if the above groups. Employees are excluded even if the act occurs when they are not at work.

Coverage applies if employees destroy property. It does not apply if employees steal.

This exclusion does not apply to covered property in the custody of carriers for hire.

c. Defects, Errors, and Omissions

There is no coverage for loss or damage caused by any act, defect, error, or omission related to design, specifications, workmanship, maintenance, repair, or remodeling due to negligence or any other acts. If any of these activities results in a covered peril occurring, coverage applies to the loss or damage that covered peril causes.

d. Electrical Currents

Loss or damage caused by electrical arcing or currents is excluded unless caused by lightning. However, if the excluded arcing or currents result in a specified peril occurring, the loss or damage of that specified peril causes is covered.

e. Explosion, Rupture, or Bursting

Coverage does not apply to loss or damage due to steam boilers, pipes, engines, or steam or gas turbines exploding, bursting, or rupturing. This exclusion applies to only loss or damage to the object where the loss occurred.

Note: This means that if a steam boiler bursts and damages equipment next to it, that equipment is covered but not the steam boiler.

f. Flat Wheel

Loss or damage when the wheel wears down due to braking actions, a braking mechanism failing to release after a braking action, or other reasons a wheel does not turn are not covered. These actions are known as flat wheel.

g. Loss of Use and Consequential Loss

Loss or damage caused by or that results from loss of use, delay, loss of market, or any consequential loss or damage of any kind is excluded.

h. Mechanical Breakdown

Loss or damage caused by a breakdown or malfunction that is mechanical, structural, or electrical is excluded. This applies even when the reason for the breakdown or malfunction is the result of a structural, mechanical, or reconditioning process. There is one exception. When a covered peril occurs due to any of these, coverage applies to the loss or damage caused by that covered peril.

i. Missing Property

Unexplained or mysterious disappearance of covered property is excluded when there is no physical evidence to suggest what happened to it, and the only proof that a loss occurred is based on an audit or physical inventory.

The one exception is that this does not apply to covered property while it is in the custody of carriers for hire.

j. Pollutants

There is no coverage for loss caused by or resulting from any release, discharge, seepage, migration, dispersal, or escape of pollutants. There are three exceptions:

A specified peril causes the event
Coverage provided in Supplemental Coverages 3. Pollutant Cleanup and Removal
When a pollutant release results in a specified peril, the resulting loss from that specified peril to covered property is covered.

k. Processing or Work

Loss or damage resulting from processing or other work being done on the property is excluded. If these actions result in a covered peril occurring, coverage applies to the loss or damage that covered peril causes.

l. Temperature/Humidity

Coverage does not apply to loss that dryness, dampness, humidity, changes in, or extremes of temperature causes. However, if a covered peril occurs due to any of these, coverage applies to the loss or damage that covered peril causes.

m. Voluntary Parting

When property or title is voluntarily surrendered to others, there is no coverage for any loss or damage to that surrendered property. This applies even if the reason for the surrender was due to a fraudulent scheme, trick, or false pretense.

n. Wear and Tear

Loss caused by wear, tear, marring, or scratching is excluded. However, if a covered peril occurs as a result of any of these, coverage applies to the loss or damage that covered peril causes.

What Must Be Done In Case Of Loss

1. Notice

The named insured must promptly notify the insurance company or its agent of a loss. The notice must include a description of the property lost or damaged. If a criminal act caused the loss, the appropriate law enforcement agency must also be notified. The insurance company has the right to require that any notice to it be in writing.

2. You Must Protect Property

During and after a loss, the named insured must take all reasonable steps to protect covered property from further loss. The insurance company pays reasonable costs the named insured incurs, but to do so, the named insured must maintain accurate records to substantiate the costs. Paying these costs is not in addition to the policy limits. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

Note: It is important to realize that any such costs incurred will reduce the amount available to pay the actual loss.

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days after the company requests it. The information provided must include the time, place, and circumstances involved with the loss and information on any other insurance coverage that may apply. It must also include the named insured’s interest and the interest of others concerning the property involved, including lienholders, loss payees, and mortgagees. Any changes in title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations more than once, but such requests must be reasonable. If multiple persons are examined, the company has the right to examine each individual separately.

5. Records

The named insured must produce any records related to the loss. The insurance company must be allowed to make copies and take extracts of them as often as it reasonably requests. Records include tax returns and bank microfilms of all related cancelled checks, but records are not limited to just these.

6. Damaged Property

Damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

7. Volunteer Payments

The named insured has the right to make payments, assume obligations, pay or offer rewards, or incur other expenses. However, unless the insurance company's has given written approval for such actions, the named insured cannot expect any reimbursement. The only exception is that the insurance company will pay for the costs incurred to protect property as item 2. above describes.

8. Abandonment

The insurance company decides when and if it will take ownership of the named insured’s property. The named insured is, therefore, not permitted to abandon damaged property to the insurance company until the insurance company agrees in writing to accept it.

9. Cooperation

The named insured must cooperate with the insurance company. Any actions required of the named insured within this policy must be performed.

Valuation

1. Valuation

A valuation must be selected on the schedule of coverages. If Blanket Valuation is selected, the valuation selected on the schedule of coverages applies to all covered property. However, if Individual Valuation is selected, a valuation decision can vary by piece of rolling stock, and the selection must be entered on the rolling stock schedule. There are three valuation choices:

a. AAR Valuation

The value of covered property is based on Association of American Railroads (AAR) rules.

b. Actual Cash Value

The value of covered property is its actual cash value at the time of. Actual cash value includes a deduction for depreciation.

c. Agreed Amount

The value of covered property is based on that item’s limit on the schedule of coverages.

2. Pair or Set

The value of a loss that involves damage to or loss of one part of a pair or set is based on a reasonable proportion of the value of the entire pair or set. However, the loss of one part of a pair or set is not considered a total loss.

Note: This recognizes that the value of the whole is greater than the value of individual parts but that the remaining parts still have value as separates.

3. Loss to Parts

The value of a lost or damaged part of property that consists of several parts is the cost to repair or replace only the lost or damaged part.

How Much We Pay

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

Note: Insurance is meant to restore a person’s pre-loss financial position, not to improve or enhance it.

2. Deductible

The insurance company pays only the amount of loss that exceeds the deductible amount on the schedule of coverages.

3. Loss Settlement Terms

Subject to other items in this section, the insurance company pays the least of the following:

The amount determined under Valuation

The cost to repair, replace, or rebuild the property with material of similar kind and quality
The limit that applies to the covered property

4. Coinsurance

a. When coinsurance applies to a coverage provided, the insurance company pays only part of the loss if the limit is less than the percentage of the value of the covered property on the schedule of coverages.

b. The following are the three steps to determine the amount of loss to be paid:

Step 1. Multiply the percentage on the schedule of coverages by the covered property’s value at the time of loss.

Step 2. Divide the covered property’s limit by the result determined in Step 1.

Note: There is no coinsurance penalty if the result is 1.00 or higher.

Step 3. There is a coinsurance penalty when Step 2. is less than 1.00. Subtract the deductible from the amount of loss and then multiply the total amount of loss by the percentage determined in Step 2.

The insurance company does not pay more than the amount determined in step 3. or the limit, whichever is less. It does not pay any remaining part of the loss.

c. If there is more than one limit on the schedule of coverages, this procedure applies separately to each limit.

d. If there is only one limit on the schedule of coverages, this procedure applies to the total of all covered property insured under that limit.

e. This coinsurance provision does not apply unless a coinsurance percentage is entered on the schedule of coverages.

5. Catastrophe Limit

The most the insurance company pays in a single occurrence or loss is the Catastrophe Limit on the schedule of coverages.

This statement is absolute. No matter how many buildings, premises, pieces of equipment, applicable coverage extensions or supplemental coverages, or where the equipment is located, the catastrophe limit is the most paid in a single occurrence.

Note: When new rolling stock is added to the schedule of coverages, it is very important to increase the catastrophe limit. It is also very important to change this limit when values are modified at renewal. This cap can be easily overlooked until the claims adjuster uses it to cap a major loss.

6. Insurance under More Than One Coverage

Two or more coverages in the coverage form may apply to the same loss. In that case, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

7. Insurance under More Than One Policy

a. Proportional Share

The named insured may have other coverage subject to the same terms as this coverage form. In that case, this coverage form pays only its share of the covered loss. That share is the proportion that its limit of insurance bears to the limits of insurance of all insurance that covers on the same basis.

b. Excess Amount

There may be other coverage available to pay for the loss other than as described in 7. a. above. In that case, this coverage form pays on an excess basis. It pays only the amount of covered loss that exceeds the amount due from the other coverage, whether collectible or not. Any payment is subject to the limit of insurance that applies.

Loss Payment

1. Loss Payment Options

a. Our Options

The insurance company has the following four loss payment options if a covered loss occurs.

Pay the value of the lost or damaged property
Pay the cost to repair or replace the lost or damaged property
Rebuild, repair, or replace the property with similar property, to the extent possible and within a reasonable period of time
Take any part or all of the property at the agreed on or appraised amount

b. Notice of Our Intent to Rebuild, Repair, or Replace

The insurance company must notify the named insured of its intent to rebuild, repair, or replace within 30 days after receiving a properly completed proof of loss.

2. Your Losses

a. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured unless another loss payee named in the policy is involved.

b. Conditions for Payment of Loss

The insurance company pays a covered loss within 30 days after it receives a properly prepared proof of loss and the amount of loss is established. The amount of loss is determined through either a written agreement between the company and the named insured or after an appraisal award is filed with the company.

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

The insurance company has the option to adjust and pay losses that involve property of others to either the named insured acting on the property owner’s behalf or to the property owner.

b. We Do Not Have to Pay You if We Pay the Owner

The insurance company is not obligated to pay the named insured when it pays the property owner. In addition, if the property owner sues the named insured, the company has the option to defend the named insured in that suit.

Other Conditions

1. Appraisal

The insurance company and the insured may not always agree on the value of a covered claim. This condition provides one method to resolve disputed claims.

Either party can request an appraisal to determine the value of a disputed claim. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and give their appraiser's name to the other party. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within that time period, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the claim’s value. They submit any differences to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the umpire’s cost and other expenses equally.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party with custody of the named insured's property.

3. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

Note: This condition applies only if the named insured is an individual.

a. Your Death

If the named insured dies, the person who has custody of the named insured's property is an insured until a qualified legal representative is appointed. The named insured’s legal representative becomes an insured once he or she is appointed. Both are insureds, but only concerning the property this coverage form insures.

b. Policy Period is not Extended

This coverage does not extend past the policy’s expiration date.

5. Misrepresentation, Concealment, or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact related to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. Its rights of recovery may be voided if it intentionally misrepresents or conceals a material fact or information. This means the insurance is treated as simply having never existed versus denying a particular claim.

6. Policy Period

Only covered losses that occur during the policy period are paid.

7. Recoveries

Paying the loss does not end the obligations of the named insured and the insurance company toward one another. Additional provisions apply if the insurance company pays a loss and the lost or damaged property is subsequently recovered, or the parties responsible for the loss pay for it.

Either party that recovers property or payment must inform the other. Recovery expenses that either party incurred are reimbursed first. If the named insured keeps the recovered property, it must refund the amount of the claim the insurance company paid unless the company agrees to a different amount. If the claim paid is less than the agreed loss due to applying a deductible or another limitation, any recovery is prorated between the named insured and the insurance company based on the company's respective interest in the loss.

8. Restoration of Limits

Payment of a claim does not reduce the limit available for future claims.

9. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must help the insurance company secure those rights. The company is not obligated to pay a loss if the named insured hinders or impairs the company's rights of subrogation. However, the named insured can agree in writing to waive recovery rights from others before a loss occurs.

10. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form are met. Suits must be brought within two years after the named insured first knew about a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues related to that specific state.

11. Territorial Limits

Covered property must be located in the 48 contiguous states of the United States, Alaska, Hawaii, or Canada.

Note: This territory is more limited than in other coverage forms. In particular, it appears that coverage does not apply in the District of Columbia or Puerto Rico.

Definitions

Defined terms are used throughout the coverage form. It is important to review the definitions because coverage can be restricted and expanded within the definition. Eight terms are defined:

1. Limit

The amount of coverage that applies to the insured property.

2. Pollutant

This is a broad and expansive term. It is solids, liquids, thermal or radioactive contaminants, and irritants. It includes, but is not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials intended for recycling, reclamation, and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants.

3. Rolling Stock

These are railroad cars designed for use on railroad tracks and used on those tracks. Locomotives, passenger and baggage cars, repair and maintenance equipment, tankers, hoppers, boxcars, flat cars, refrigerated cars, auto carriers, and similar or related railroad cars are all rolling stock if so designed and used.

Example: Paul built a full size locomotive from Legos. This is not rolling stock because it is not designed to be used on railroad tracks, even though it may look like a locomotive.

4. Schedule of coverages

Any page that is labeled as such that contains coverage information. Declarations and supplemental declarations are included.

5. Sinkhole collapse

The earth’s surface suddenly settling or collapsing into an underground opening created by water acting on limestone or some other rock formation. This definition does not include the value of the collapsing land or the cost of filling the sinkhole.

6. Specified perils

The named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, weight of sleet, snow or ice and windstorm. Two terms need further explanation.

Falling objects do not include loss to personal property stored in the open. Damage to the interior of buildings or personal property stored in buildings damaged by a falling object is not included unless that falling object first breaches the building's exterior.

The cracking or breaking of part of a system or appliance that holds water or steam that causes the sudden or accidental discharge or leakage of the water or steam is water damage.

7. Terms

All policy provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

8. Volcanic action

An airborne volcanic blast or shock waves, ash, dust, and particulate matter. The cost to remove that ash, dust and particular matter is paid only if the covered property sustained direct damage from it. Lava flow is also considered volcanic action.

ENDORSEMENTS AND SCHEDULES

AAIS has developed the following endorsements and schedules for use with the Rolling Stock Coverage Form.

IM 7332–Rolling Stock Schedule

This schedule is used to list and describe covered rolling stock and to enter the limits that apply when coverage is written on a Blanket Valuation basis.

IM 7333–Rolling Stock Schedule–Valuation Basis

This schedule is used to list and describe covered rolling stock and to enter the limits that apply when coverage is written on an Individual Valuation basis.

IM 7334–Additional Coverages Endorsement

This endorsement adds three supplemental coverages that can be selected on IM 7335–Additional Coverages Schedule. They are Continuing Rental or Lease Payments, Rental Reimbursement, and Rolling Stock You Lease or Rent to Others.

IM 7335–Additional Coverages Schedule

This schedule is used with IM 7334–Additional Coverages Endorsement to select various additional coverages and to enter the required limits, waiting periods, and deductible amounts.

IM 7336–Flat Wheel Coverage

This endorsement covers loss or damage to covered rolling stock when rolling stock wheels flatten. The limit and deductible are entered in the spaces provided on the endorsement schedule.

IM 7337–Income and Extra Expense Coverage (01 12 change)

This endorsement covers the loss of net income and extra expenses the named insured incurs when its business is interrupted by direct physical loss or damage to covered railroad rolling stock by a covered peril. Coverages and limits selected are on IM 7331–Schedule of Coverages–Rolling Stock Coverage. The 01 12 edition made a slight change in the definition of Restoration Period.

IM 7338–Earthquake and Flood Coverage Endorsement (11 12 change)

This restrictive endorsement excludes earth movement and flood coverage. It also provides optional supplemental coverages for earthquake (not full earth movement coverage) and flood. Coverages, limits, and deductibles selected are on IM 7339–Earthquake and Flood Schedule–Rolling Stock Coverage. The 11 12 edition updated and changed the definition and exclusion of Earth Movement.

IM 7339–Earthquake and Flood Schedule–Rolling Stock Coverage

This schedule is used with IM 7338–Earthquake and Flood Coverage Endorsement to enter the coverage provided and the limits and deductibles that apply.

IM 7340–Expanded Coverage Territory

This endorsement replaces the territorial limits in the coverage form. The revised territory adds U.S. territories and possessions, Puerto Rico and Mexico.

UNDERWRITING CONSIDERATIONS

Underwriting rolling stock involves several different factors, such as:

Type and nature of equipment used
The type of operations conducted, such as freight or passenger operations or maintenance operations
Evaluation of the named insured in areas such as management, financial condition, previous business success, and the way it performs operations
Liability of one railroad to another on rail cars they interchange or to owners of railroad cars being hauled
Geographical and climatic conditions in the course of transit
Conditions at fixed locations, such as repair shops, switching yards, storage yards, holding areas, and terminals
Type of freight, commodity, or property being transported

Types of Equipment

Underwriting railroad rolling stock begins with clearly understanding the nature and type of property covered. Locomotives include diesel, electric, or steam engines that provide the power to pull or operate the rest of the rolling stock. Diesel locomotives are used for both freight and passenger service, over the road, short line, and yard switching operations. Electric locomotives are used for freight and passenger operations and are not normally used on longer over-the-road trips. Steam locomotives are largely out of normal service but are occasionally used for passenger service.

Passenger equipment includes a variety of non-powered rail cars, including coaches, baggage cars, diner cars, observation cars, parlor and lounge cars, and Pullman (or deluxe sleeper) cars.

Freight operations involve many different cars. Each has specific uses and applications.

Tanker cars carry flammable, nonflammable, and food grade liquid products.
Hopper cars come in both covered and open forms. Open hopper cars carry bulk commodities such as coal and other non-perishable property. Covered hopper cars are used to carry bulk commodities such as grain, chemicals, plastics, cement, feed, salt, and flour.
Boxcars are used for any commodity that must be protected from weather conditions. Property on boxcars is usually palletized.
Flat cars are used to carry large, bulky items, either within or outside crates, in cases where weather is not a consideration.
Refrigerated cars carry any commodity that requires refrigeration.
Ore cars haul iron ore, copper ore, and other ores from mines to processing facilities.
Stock cars carry animals and livestock (such as cattle, hogs, and sheep) from farms and feed lots to stockyards and processing operations.
Auto carriers transport all varieties of motor vehicles from the manufacturers to a variety of delivery sites. These cars usually have three levels and are either fully or partially enclosed to protect the property against weather conditions and acts of vandalism.
Piggyback carriers haul motor cargo trailers. The fifth wheel is engaged when the trailers are hoisted on the flat car.
Roadrailers are hybrid cars that are part boxcar and part truck trailer. They have retractable rail wheels and truck tires and can be pulled by either a locomotive or a truck tractor. They are used like boxcars for any commodity that must be protected from the weather. Their primary operation is on the rails. They operate on the highway only at the beginning of a trip and at the end.
Gondola cars transport property that does not need protection from the weather. Commodities usually carried include sand, gravel, scrap metal, and similar property.
Pulpwood carriers carry pulpwood to paper mills. They usually have closed ends and stakes on the sides.
Circus cars transport circus equipment and livestock. They are also used for advertising, office operations, and sleeping arrangements.
Cabooses used to be the operations center of trains where the conductors and brakemen controlled and maintained operation of the entire train. They are usually the last car and have either four or eight wheels. For the most part, they are no longer used.
Maintenance equipment is used to maintain other railroad equipment or the tracks and roadbed. The type of equipment varies based on the railroad's operations. Examples are snowplows, snowplow tenders, crew cars, rail detector cars, ballast cleaners, office cars, hand cars, and miscellaneous cars used to clean catenary (cable or chain) systems, signal equipment, and pile driving equipment.

Operations

While railroad rolling stock coverage is usually written in the name of the railroad or the owner of the rail cars, other interests may be included. Examples are shippers, public transit authorities, utilities, individuals, lessors, and lessees. Shippers can either own or lease railroad cars. Leasing usually occurs when a shipper is involved with certain commodities that require specialized railroad cars, such as hopper, gondola, and ore cars.

Railroad operations insure their own equipment and equipment that belongs to other railroads accepted in an interchange. Railroad cars accepted in interchange transactions are referred to as foreign cars and the railroad's responsibility for them is detailed in the Rules of Interchange of the Association of American Railroads (AAR).

Public utilities frequently have their own unit trains. This may include locomotives and cars or simply the cars, with the railroad providing the locomotives. The railroad occasionally provides the entire train. Unit trains operate under the guidelines of special operating agreements that establish the rights and responsibilities of each of the parties to the transaction.

Private car lines own specialized equipment, such as refrigerated cars and tank cars. These cars move through the entire railroad system under the direction and supervision of railroad personnel. They move in general or specifically assigned routes according to the AAR's Rules of Interchange.

Single individuals or groups of individuals may purchase railroad cars on a short line railroad operation as a tax shelter. Boxcars and hopper cars are the primary types of cars usually purchased under these circumstances.

If the named insured is a lessor or lessee, the terms of the lease agreement must be reviewed and understood to determine each party's rights and responsibilities.

Management

The named insured's management issues must be examined. Some general areas to explore include its financial condition, previous loss experience, the number of years successfully engaged in this business, and its attitude towards (and implementation of) loss control and prevention initiatives. Other areas include the experience and extent of training of the personnel actively engaged in operations, the status of labor relations, and maintenance and care of track and track beds.

Valuation

Equipment details are essential. Equipment must be identified as owned, leased, loaned, or rented. Each item of insured equipment should be identified by type, name of manufacturer, model number, serial number, year manufactured, and its current value based on the method used to determine valuation. The coverage form includes using AAR valuation as an option. This is based on a formula that establishes settlement value based on the type and age of the car, as found in AAR's Rules of Interchange. More information is available at the AAR website at www.aar.org.

Location exposures

Because the property covered is primarily mobile in nature, transit is the primary exposure, but location exposure considerations must also be taken into account. Location exposures are important at storage and switching yards and terminals. The fire protection service and water supply available to fight a fire must be evaluated. Fire extinguishers should be adequate, appropriate, and serviced regularly. Standpipes and hoses should also be available and in good condition. Employees should be trained in fire prevention and their roles and duties in case of a fire. These storage and yard areas should be cleaned regularly to remove brush, trash, and other debris that accumulates. The location of the yard to adjacent industrial areas that may present fire or explosion exposures must also be evaluated. It is best for railroad cars to be spread out within a storage area and not be clustered together to reduce the number that might be involved in a fire or explosion. Location risks must be evaluated from the standpoint of flood to ensure that the location has adequate elevation if it is adjacent to bodies of water. Tracks, track beds, and signals at the location should be in good condition, tracks should be level, and curves should be adequate to minimize overturn. Earthquake zones where covered property operates must also be evaluated. Always keep in mind that most equipment operates in more than one such zone.