Insurance Exposure Limited for MTA

Overhead view of Sunday's Metro-North Railroad train
accident in the Bronx (ABC News). Latest news here.

By Mark E. Ruquet

Sunday’s disaster of the Metro-North Railroad train in the Bronx, N.Y., would typically raise serious concerns among insurers in terms of property damage and liability issues, especially where there is loss of life.

Four people died and more than 70 injured when the train derailed while going around a curve at excessive speed, the National Transportation Safety Board said yesterday. The train hit the curve at 82 mph, far above the 30 mph speed limit for that section of the track. Why this happened is still under investigation, but officials appeared to indicate that, right now, there is no evidence of mechanical failure.

Whether the fault is with the engineer, William Rockefeller, or mechanical, liability will be limited for both the Metropolitan Transportation Authority, which oversees operation of the rail line, and the insurance industry.

A captive (self-insurance) program, First Mutual Transportation Assurance Co., provides the MTA’s insurance. The program buys reinsurance on the private market at different layers, depending on the exposure, limiting its exposure. According to the MTA’s budget report, the agency is experiencing 10 percent increase on its entire program due to the hardening market. The exception is All Agency Excess Liability (Primary and Excess) that is increasing at 20 percent because it was underpriced and has been the subject of large losses since 2007.

Sunday’s accident will no doubt subject the program to another large loss, but unlike the private sector, there are limits to its loss. Under federal law, railroad liability losses are limited to $200 million per occurrence. 

Further, the award can be made “only if the plaintiff establishes by clear and convincing evidence that the harm that is the subject of the action was the result of conduct carried out by the defendant with a conscious, flagrant indifference to the rights or safety of others.”

Now there are reports that the engineer is saying he zoned out before the accident. There’s still a long way to go in this investigation, and before it is through, more than a few from the plaintiff's side may be questioning if $200 million limit is enough.

Update: 5 p.m. EST -- NTSB says no brake malfunction, no alcohol or drugs involved. The investigation continues.