I just need a clue as to what liability insurance typically costs, on a tourist railroad, with grade crossings but not on or connected to the general system. The amount in this case would be 10 million (this amount 'suggested' by a excursion limited liability law here in AR), per year. But would love to see what amount other operations are insured for, and what it costs for them. But I don't know if we're talking $500 or $50,000.

I just hate to bug a real insurance agent, I've seen the forms and I honestly don't have exact answers to all their questions yet.

It's going to be closer to $50,000 than it is to $500.

My insurance exceeds $25,000 and we do not haul passengers.

Last time I checked, several years ago, a $10 million liability policy was running about $50k a year...it may be more now. That's about $4200.00 a month.

Why? That's what the agents are there for, to advise you and help you get the best policy at the best cost.

There are two well known firms that deal with all facets of insurance for tourist railways & railway museums: McRail and Hamman-Miller-Beauchamp-Deeble (HMBD). Both are fine insurance agencies and both are very supportive of the Association of Tourist Railroads & Railway Museums. Both will be at the ATRRM fall conference next week (17-19 September) at the Illinois Railway Museum.

This issue illustrates another good reason for attending the ATRRM conferences. You can talk direct to providers like the two I mention above, and you can talk to your colleagues in the other tourist railroads or museums and ask them direct about their insurance coverage and costs.

See you at IRM?

Thanks!

I think that these two firms are best identified as insurance brokers -- they deal with multiple insurance firms. And generally insurance brokers have a higher fiduciary duty to their clients; often by state law or regulations. Brokers will analyze the customer's needs and recommend coverage for the needs of the business. They may change a fee, but that is because they are not selling on commission.

An agent only represents a single firm. As the term implies, he acts as an intermediary for the insurance company and is a commission paid sales agent.

An operation I am familiar with is off-general-system but still has grade crossings, and owns their own railroad. For business at the rough level of 5000 passengers a year, it pays about $12,500 on average for ALL its insurances, including building and property insurance, volunteer injury insurance (cheap) and the big one, train operation insurance. Having glanced at the books of a couple other museums, this is about typical for operations of this size.

For what total liability amount, Robert?

I got an estimate from HMBD of around $5,000 for a basic minimum $2,000,000 policy that pretty much only covered a limited number of visitors. The premium increases based upon number of anticipated riders/visitors.

While I agree with the general advice to not be afraid to talk to the brokers that make a business out of the insurance needs, here's the checklist you need to think about before you even make that first call.

1) Who is being insured, and for how much? For example, if you're running on a publicly-owned corridor as an operator, the owner will set your liability limits. And, there is a high likelihood you have to insure them against any related actions, as well as your own actions, as part of that policy to 'hold harmless' as part of your operating agreement. If there is a freight operator involved on a line segment, they may need insured as well if they are doing any maintenance, dispatching, or crew services. If you actually own your own property, you get to make that call - far simpler.

2) What is your activity level? That comes from a couple issues - one being the number of projected visitors, and the other being the projected revenue levels. Note that depending on how you are organized, special event, dinner train and gift shop revenue tends to significantly muddy that number, make sure to break that out for analysis. So you need to know that before you move forward on insurance.

3) It's not all just liability insurance. You may have to insure against property loss, volunteers, directors insurance, workmen's compensation for any paid employees, and in a few rare cases, flood insurance. Those are smaller, but often missed, issues. And, if for some reason you're thinking about being a real railroad and interchanging freight cars, the liability insurance for freight interchange activity is another 'big' number.

Once you have those thoughts together, it's time to call one of the broker specialists.

This is an area that you really need to think about, focus on, and work on, because as I'm working with existing railroads and startups, it tends to rapidly become the biggest number on the financial statement, the most-likely single reason to make a project financially infeasible, and one of the primary reasons an existing operation folds when a big bill hits - the cost of liability and other insurance.

The difference in policy costs strictly based on liability limits is a basic 'starter number' with an additional amount on additional coverage - usually on a $1M increment. The bigger numbers required by larger railroads and publicly-held corporations are simply to protect them if they are anywhere in the ownership/operation liability chain, $200M and up is not uncommon, and it's not just to make you crazy or 'go away' - if a railroad corporation is in the liability chain the lawyers typically target them as a matter of course. So while you may get an initial 'we'll talk about it', that consideration has to be there at all times.

That previous comment about the price increasing with increase ridership reminds me of my experiences buying freight railroad insurance. The various insurance companies had a minimum charge, no matter how small your operation was. At some secret level, they would want more than the minimum. But, they would write the individual policy to charge per your estimated unit of activity, in your case, per passenger. At the end of the policy period, they would audit your activity, and if it was more than the estimate you furnished when you applied for the policy, you were billed for the excess; if less, you paid the minimum. I learned to estimate very high, and honestly say that I hoped to have more activity than last period, even though it might be a false hope.
If the minimum was $18,000, and I estimated 1,000 riders based on last season, the price was $18 per rider, with a minimum charge of $18,000, plus $18 for each rider over 1,000. If next time, I estimate 2,000 riders, hoping that our lack of advertising will cause ridership to double, the price will be $9 per rider, with a minimum charge of $18,000, plus $9 for each rider over 2,000. I probably won't have a nasty surprise at the end if we get a few more riders.
If you are all volunteer, except for a paid ticket seller, they may charge per Dollar of payroll, hoping that you will hire another person, and cause the insurance charge to double.
Try not to allow an Independent Agent to become "Agent of Record" for insurance companies, preventing any other agent for dealing with them. Insurance agents have different ways of getting paid. The same policy from 1 agent may be $18,000 plus a $500 fee direct to him. Another agent offers the same policy with no fee at $19,080. His commission is in the higher price! The insurance company sells the policy both ways, as the individual agent prefers.

I''m told that another issue to discuss is whether your operation has paid employees who are in train service, since they might need coverage under FELA instead of normal workmen's compensation coverage.

True enough, although OP was saying they weren't connected to the general system.

When we're doing a feasibility analysis for a project, the liability exposure (particularly back to any deep-pockets entities, primarily railroads) is a key issue. And finding a way to structure a deal to get around that becomes job 1. Something as innocuous as a public corporation holding a land lease can be just as bad as running directly on them. Even if you aren't connected, vestigial land rights can still be buried in there, and good lawyers will find them if they exist.

One of the things you would think would be significant but isn't is some of the seemingly obvious hazards some particular operations face: bad grade crossings, potential runaways, etc. Surprisingly few operations are reviewed for specific and unique hazards 'until' the first incident.

It kind of reminds me of the cartoon I saw once of the insurance agent interviewing a biker gang member covered in leather, tattoos and swastikas and wearing a skull helmet. "So, sir, for the difficult question on your application - do you smoke"?

FYI, It's never a good idea to answer a question like that.
Why? If someone is suing you through your insurance carrier and you've answered the question on a forum like this, and they do a Google search (trust me, attorneys and insurance carriers have plenty of people to scour the internet for such stuff), the answer might turn up and then they know exactly what amount to ask for and how much they can get out of you, and you've lost any bargaining position.