CHAPTER SEVEN - INSTRUMENTALITIES OF TRANSPORTATION AND COMMUNICATION

 

 

INTRODUCTION

 

For many years the only ones who were willing to insure bridges were Inland Marine underwriters, principally because insurance companies that sell fire and casualty insurance were so divided that the only ones that would step forward were Marine underwriters.  This practice was so accepted by the time of the Nation-Wide Marine Definition, that it was accepted that bridges and tunnels can be insured by Inland Marine insurance, and it was later expanded to other areas, such as pipelines, power transmission lines, telephone and telegraph lines, radio and television equipment, etc.  Since there was such a diversity of coverage, it was difficult to name the category, but eventually they became known as “Instrumentalities of Transportation and Communication.”  Actually, that is just what they are.

 

Another reason for the Marine coverage on bridges and tunnels was that historically some of the biggest losses to bridges and tunnels were caused by ships going under a bridge (or crashing into it) or over a tunnel.

 

These coverages are so technical that full discussion of their provisions conditions and applications are beyond the scope of this text.  However, they are an important part of Inland Marine insurance, so some familiarity with the forms and their application is in order.

 

BRIDGES

 

The (earlier) 1953 Definition states that bridges cannot be insured under an Inland Marine policy if the only perils to be insured against are fire, lightning, windstorm, sprinkler leakage, hail, explosion, earthquake and riot or civil commotion.  The forms had originally been filed, but were later withdrawn, but present forms closely follow the previously-filed forms.

 

There are three basic forms:  Bridge Property Damage Form, Bridge Builders Risk Form, and Bridge Use And Occupancy Form.

 

BRIDGE PROPERTY DAMAGE FORMS

 

This form insures against direct physical loss or damage to completed bridges

 

PROPERTY COVERED AND PERILS

This policy is different than others inasmuch it covers direct physical loss or damage however caused.  One condition requires that the bridge be kept and maintained in a “thorough” state of repair, or the insurer will not be liable for any losses or damage.  There is another condition that states in essence that the policy will be void if the construction or “character” of the bridge is changed or altered in any material way.  Of course, temporary changes for repairs do not apply to this condition.

 

The only exclusions besides war and nuclear exclusion, is loss or damage caused by or resulting from inherent defect, wear and tear, gradual deterioration or expansion or contraction due to change of temperature, unless the bridge or a material part of it, collapses.

 

VALUATION

Valuation is based on actual cash value, with replacement cost coverage available for steel and concrete bridges.

 

COINSURANCE

There is an 80% coinsurance provision, but when replacement cost is covered, the coinsurance can be suspended for 18 months with a statement of compliance by a qualified engineer.

 

DEDUCTIBLE

Deductibles are a flat amount, usually one percent of the bridge value, and will apply after the application of the 80% coinsurance clause.

 

DEBRIS REMOVAL

Debris removal is an optional coverage, and is either an extension of the insurance under one form, or an additional amount of insurance under another.

 

 

 

 

 

BUILDERS RISK FORM

 

The Bridge Builders Risk Form insures against direct physical damages to bridges while they are being built and can be written either in Named Perils form or in All-Risks form.

 

PROPERTY COVERED

The policy covers the bridges entirely, including foundation, additions, permanent fixtures, etc., plus it also covers materials and equipment and supplies which will become part of the finished bridge, and any temporary structures.  There is no coverage for property in transit and the coverage only covers the property while it is at the stated site.

 

COVERED PERILS

There are the usual coverages of direct physical loss caused fire, windstorm, lightning, flood or rising water, ice, explosion, earthquake or collision (excludes any collision with materials at the job site unless the collision is caused by one of the other covered perils).  There is a lengthy exclusion for loss or damage due to suspension of construction.

 

The All-Risks form also excludes loss, damage or expense caused by wear and tear, gradual deterioration, expansion/contraction due to temperature change, and error, omission or deficiency in design, specifications or materials.

 

SPECIAL CONDITIONS

Unless the insurer agrees in writing, the policy will be void if the general design or method of construction is materially altered or changed; if it is assigned or transferred to another party or if there is any change in the ownership of the property; and if the insured conceals or misrepresentation any material facts; or is involved in fraud relating to the insurance.

 

REPORTING

The policy is a reporting form and it provides increasing amounts as the value of the property increases.  This entails a detailed explanation of how the values are to be reported and the policy premium provisions.  This is important in these policies as in case of a loss, the insurer will only be responsible on a proportional basis (as in a coinsurance clause).

 

The policy may also be written on a flat premium basis known as a “completed value basis.” 

 

Deductibles also apply to both forms, and is a percentage of the total amount at risk at the time of loss.

 

VALUATION

This valuation provision is “tough” in this form as it states the insurer will not be liable for more than the cost or repairing or replacing the property damaged or lost with material of like kind and quality, after deducting depreciation.  The insurer is not liable for any loss  because of any law, ordinance, regulation, permit or license regulating construction or repair.

 

This policy is in force until the construction is completed or the expiration date of the policy, whichever occurs first. 

 

 

 

BRIDGE USE AND OCCUPANCY FORM

 

This form covers business interruption and loss of income resulting from necessary interruption of the use of the property resulting from direct loss or damage, however caused.  Revenue is defined as income from tolls and other operating sources that do not continue during the term of the policy. 

 

The policy contains a daily limitation for loss, limited to 1/365 of the policy amount.  Coverage applies only to loss of revenue after a 7-day waiting period (other waiting periods are available). 

 

Exclusions are similar to those in the other two builders forms, with 2 notable exceptions:  Losses because the insured failed to keep the property in good repair, and failure or breakdown of machinery unless caused by external causes not otherwise excluded.  The exclusion of government regulations, ordinance, etc., is part of the form, but may be eliminated in some cases.

 

There are provisions for establishing a provisional premium and amount of insurance, and a formula for establishing such premiums.  The amount of insurance can be increased automatically by 125%, and it typically contains a 100% coinsurance clause.

 

UNDERWRITING OF BRIDGE POLICIES

 

Obviously risks regarding bridges under construction and bridges that have been built are so different and that must be treated differently.  Either way, the type of bridge has a lot to do with evaluating the risk.  The type of material used for the construction of the bridge, whether truss or beam bridges and the method of construction must all be taken into consideration.

 

CONSTRUCTION MATERIALS

Bridges may be constructed out of steel, reinforced concrete, pre-stressed concrete and wood.  Many bridges are built out of more than one of these materials, such as concrete used for the lower part (substructure) and steel for the upper (superstructure).  Wooden bridges are usually small bridges, often built for the rustic appeal.  Railroad bridges may still be built out of wood as in many parts of the country wood (timber) is inexpensive.

 

TYPES OF BRIDGE STRUCTURES

There are several major types of bridge structures.  Truss or beam bridges are frequently used, particularly for railroads.  They consist of long beams across bridge piers, with concrete usually used for the decking.

• Arch bridges or multi-arched bridges is the type of structure where the load factor is higher than a typical truss or beam bridge.  The arch can be either above or below the decking.
• Suspension bridges are probably the best known bridges, such as the Golden Gate bridge.  The combination of the towers, the supporting cables and the esthetic styling create some difficult underwriting problems because this type of bridge has the potential for serious losses.
• The cable-stayed bridge is where the decking or the road is supported by cables that directly transfer the load to a central tower.  The Skyway Bridge south of St. Petersburg, Florida, is an attractive example of this type of bridge. 
• Another common bridge is the box-girder constructed bridge, which consists of a long span, usually over wide rivers or valleys.  Generally they are used for bridges at a higher elevation than the surrounding area, thus allowing for traffic to pass under the bridge.

 

BRIDGE BUILDING SYSTEMS

One common method of building bridges is the use of “falsework” whereby temporary bridge supports or piers are erected which carry the weight of the bridge until the bridge has been completed and the load-bearing part of the bridge can support the loads.  After the bridge is completed, the falsework is removed.

 

Prefabrication or cantilevering is a system whereby sections of the bridge are prefabricated, then hoisted into place (usually by cranes), and then joined together to make the bridge.  This is done after the piers have been installed and are in place and ready to accept the load.

 

BUILDERS RISK EXPOSURES

 

Builders risk policies are generally written to insure the owner of the bridge or the bridge building contractor(s).  The principal underwriting concerns can be divided into the following areas of concern:

 

• Foundations, which support the piers, are considered along with the bed upon which they are placed.  The strength of the foundations must be enough to support the completed bridge and the weight of the traffic using it.
• Abutments must be thick enough and solid enough to avoid collapse if there should be excessive rain.  Actually, abutments consist of the dirt and rocks, etc., usually evacuated from nearby areas.  Frequently they can be covered with concrete or rock to keep them from washing away or slipping. 
• Caissons are the base for the piers.  On land they are built before the piers can be constructed, in water they are usually floated out to the bridge and then sunk into the ground.
• Reinforced concrete footings and pile caps are cast at the construction site.  Particular care must be taken when constructed in the water, as a round “wall” is erected on the bed of the body of water, and then the water is pumped out and it is then filled with concrete.  Many things can go wrong during this operation.
• Piers are usually made of concrete, but can be made of steel or stone and even wood in some cases.  Sometimes prefabricated piers are used, and every time that they are handled, this makes them more subject to failure.
• The Superstructure obviously is particularly susceptible to windstorm damage

 

COMPLETED BRIDGES

The factors involved in underwriting completed bridges are quite different than the underwriting of bridges under construction.  The risks are numerous, including possible damage from floods, ice, ship collision, dredging close to the bridge, windstorm, earthquake and just normal wear and tear on the bridge must be considered. 

 

For loss of income and business interruption insurance, consideration must be given to how long it would take to repair or replace the bridge under the “worse scenario.”  Checking for alternate routes to alleviate traffic problems in case the bridge is unable to be used, is necessary.

 

 

TUNNELS

 

Tunnel insurance is also a nonfiled class and they are insured much like the bridges, i.e. direct physical loss during construction, after construction and loss of income.

 

Tunneling by its very nature, is unique.  The variety of material that the tunnel runs through runs the gamut from mountain tunnels to underwater tunnels.  The techniques vary widely, such as using prefabricated sections for underwater tunnels, to using explosives and drills to penetrate rocky areas.

 

Each type of tunnel has its own risks.  For instance, when tunneling through rock, there are risks of the tunnel collapsing or the roof falling, plus the always-present danger when explosives are used.

 

Much as in bridge insurance, the condition of established tunnels, the maintenance and repairs, are prime underwriting questions.  The type of traffic through the tunnel determines the exposure to fire and explosion.  The questions are many, and every tunnel is different.

 

 

DAMS

 

Dams are also unique in their applications.  Each is an engineering triumph and some generate power, others are used for more mundane purposes, such as irrigation and for flood control in cases of rising waters.  Dam insurance is a nonfiled class.

 

Dams are built of differing material, depending upon the geographical location, the amount of water that it will restrain, and the purpose of the dam.  Some dams, like the large dams that produce hydroelectric power, are constructed of reinforced concrete and must depend upon firm and solid footings.  Some dams are built between rock formations which then become part of the function of the dam.  Those dams built to divert rivers during flood stages can be constructed of dirt, rocks, concrete and sometimes metal.  These dams are called “cofferdams” and must be high enough to contain the water at its highest point during the flood seasons. 

 

During construction of hydroelectric dams, particular attention must be paid to the turbines and other equipment that will be transported and installed at the dam.  In addition, during construction care must be taken that the water is not too high, so that it would allow water to flow over a cofferdam.  In certain parts of the country, the hazards of earthquake must be seriously considered

 

 

PIERS, WHARVES, DOCKS AND SLIPS

 

The Definition includes piers, wharves, docks and slips, dry docks and marine railways.  This is a nonfiled class of business.

 

This is another unique class(s) of business, and each situation is different.  As with many Inland Marine coverages of this type, common sense seems to be the principal tool of the underwriters.  Obvious hazards such foots, marine traffic, location, type of material, etc., etc. will be considered.

 

Coverage may be either on an All-Risks basis, or Named Perils.  In the 1953 Definition, perils of fire, lightning, windstorm, sprinkler leakage, hail, explosion, earthquake, riot and civil commotion cannot be covered.  This is mentioned as some states still use the 1953 Definition.  Therefore, the only perils that can be insured in those states would be damage caused by floating ice, a boat/ship ramming the structure, flood, or something other than a boat or ship ramming into the structure.  Generally, losses due to marine life are excluded from the All-Risks coverage.

 

 

PIPELINES

 

Pipelines are another “instrumentality of transportation” under the 1976 Definition.  “All property at manufacturing, producing, refining, converting, heating or conditioning plants” are excluded.  Pipelines are a nonfiled class of business and insurance can be written on the construction of a pipeline, or on a completed pipeline.  The contents of the pipeline can be covered, and loss of income because of damage to the pipeline, can also be covered.  Some policies will also cover tanks and the contents of the tanks, when operated as part of a pipeline. 

 

Parts of pipeline construction can be insured separately, such as the pipeline crossing a body of water when the pipeline may be pre-assembled and joined over the water.

 

Generally, coverage is provided on an All-Risks basis, with exclusions that pertain to the type of risk being insured.  Typical exclusions would be losses due to wear and tear, gradual deterioration, mechanical or electrical breakdown, defective design, plans or specification or defective workmanship and material, and the contraction-expansion of the pipeline due to change in temperature.  Collapse is usually covered, so if the collapse was caused by the contraction or expansion of the pipeline due to temperature changes, then it would be covered.

 

Underwriting considerations are numerous, and depend mostly on geographical features.  Areas where the pipelines go underwater are of particular interest, not only because of construction hazards, but also because of repair difficulties for completed pipelines.

 

 

POWER AND TRANSMISSION LINES

 

Power and transmission lines are also covered under the Definition and is a nonfiled class of business.  All-Risks of direct physical loss or damage is the usual coverage.  Since power and transmission lines can be either high up in the air on concrete poles, or under the ground in tunnel-like covers, exclusions can vary widely.  Generally they exclude the usual wear and tear and deterioration, mechanical breakdown, change of temperature, faulty materials, short circuits unless fire ensures, property under repair, flood, earthquake and employee dishonesty, war and nuclear incidents.

 

Coverage extensions can be purchased to cover debris removal, certain tower repair situations, loss of income and extra expense coverages.  The policy can usually be voided if there is any change in the construction, design, etc., of a tower, and there is usually a 100% coinsurance clause.

 

 

RAILROAD ROLLING STOCK

 

Coverage for railroad rolling stock is not covered under the Definition, and actually is sort of a “step-child” as even though it may not be “legitimately” Inland Marine, it has traditionally been insured as an Inland Marine coverage.  It was a filed form until the 1980’s, when it was withdrawn, so in general, it is an unfiled and unregulated form.

 

There are several classes of people who have an interest in railroad rolling stock, such as public transit authorities, shippers, railroads and private car lines, utilities, and even individuals, lessors and lessees.  Some of these own their own railroad cars, some own and lease, and some simply lease railroad cars.  Railroads may exchange cars between railroads (at which time they become “foreign” cars), and the railroads responsibilities for these “foreign” cars are covered by association regulations.  For some individuals, there are tax ramifications that make ownership of the cars quite financially attractive.  If the car is leased, then the contract between lessee and lessor spells out the responsibilities of each.

 

COVERED PROPERTY

 

The property covered by these forms would encompass locomotives, passenger cars, passenger coaches, box cars, flat cars, tank cars, etc., - not to forget the children’s friend, the Caboose!  The property is almost always scheduled.

 

COVERED PERILS

 

The policy may be either All-Risks or Named Perils.  Named perils are the usual fire, lightning, collision, strike or riot, plus derailment or overturn.  The All-Risks form usually excludes wear and tear, gradual deterioration, latent defect, loss due to artificial current to electrical equipment, and mechanical breakdown or structural failure.  As typical, the exclusions will not be excluded if a covered perils ensues.

 

VALUATION

 

Determining the value of rolling stock is rather unusual, and will be either replacement cost, actual cash value, or the “settlement value.”  Settlement value is a method established by a railroad association ruling that takes into consideration (depending upon how old the stock is and the type of rolling stock insured) the (a)  the Depreciated value; (b)  120% of the Salvage value, or (c)  the Salvage value only – depending upon which is the greater.  Of course, there are specific rules as how to determine the Depreciated value and the Salvage value.

 

DETERMINING LIABILITY

 

Subrogation is used considerably in the insuring of railroad rolling stock, particularly where “foreign” cars are involved.  Typically, if the amount of loss to a damaged car is in excess of the valuation amount, then the responsible railroad has the option of either keeping the car and paying the valued amount to the railroad car owner, or if the car is not damaged to the valued amount, then railroad that owns the car may either have the car returned to them, or have the railroad that damaged the car pay for the repairs.  These rules may seem clumsy or complicated, but the railroads are used to them as they all belong to the American Association of Railroads who outline the railroad’s responsibilities in the AAR Rules of Interchange.

 

SPECIALTY RAILROADS

 

There are many “Specialty” or “Short-Line” railroads operating in the United States.  Their purpose varies widely, from hauling freight for short distances, to hauling passengers around a theme park.  Some move very slowly while others (usually transporting goods) move quite rapidly.  Some of them are pulled by electric or diesel locomotives, others by vintage or coal-burning steam locomotives.  They account for less than 10% of the total railroad industry.

 

These railroads are so specialized that each situation must stand on its own.  Obviously the forms are nonfiled and each situation has its own unique perils, hazards and liabilities, so the forms are “tailor-made” to fit the particular situation.

 

 

STUDY QUESTIONS

 

1.  Which of the following is NOT a type of Inland Marine Bridge Form?

      A.  bridge property damage         

      B.  bridge Builders Risk

      C.  bridge construction financing credit

      D.  bridge occupancy

 

2.  The Bridge form is different than most other Inland Marine forms, because

      A.  it does not cover direct physical loss or damage to a bridge.

      B.  the bridge must be completed and in operation before it can be insured under an Inland Marine coverage.

      C.  the policy covers direct physical loss or damage however caused.

      D.  it must be issued only by a Marine insurer.

 

3.  Which of the following will not void a Builders Risk (Bridge) policy, assuming the insurer had not agreed in writing?

      A.  The completed bridge is to be used as a toll bridge, a fact that had not been decided when the bridge construction began.

      B.  The general design of method of construction is materially altered or changed.

      C.  The policy is assigned or transferred to another party or if there is a change in ownership of the property.

      D.  The insured conceals or misrepresents material facts or is involved in fraud relating to the insurance.

 

4.  The Bridge Use and Occupancy Form

      A.  covers loss of income only from any cause.

      B.  covers business interruption and loss of income resulting from necessary interruption of the use of the property resulting from direct loss or damage, however caused.

      C.  covers business interruption and loss of income resulting from necessary interruption of the use of the property resulting from direct loss or damage, caused from insured perils only.

      D.  covers only privately owned toll drawbridges.

 

5.  Bridge Builders Risk policies are generally written

      A.  to insure the owner of the bridge only,

      B.  to insure the bridge building contractor only.

      C.  to insure only privately owned toll bridges.

      D.  to insure the owner of the bridge or the bridge building contractor(s).

 

6.  Tunnels may be insured under Inland Marine forms.  Which of the following is true?

      A.  Tunneling is unique, they are all different, and the risks are never identical to other tunnels.

      B.  Tunnels may be insured if they are only through mountains; tunnels under water is covered by Marine insurance,

      C.  Once the tunnel has been built and insured, the continued maintenance of the tunnel is of no concern to the insurer, only to the Federal Government.

      D.  The form is “boilerplate”, and is filed with the State Insurance Departments.

 

7.  Which of the following is not eligible for insurance under an “instrumentality of transportation” pipeline form?

      A.  A pre-assembled portion of a pipeline crossing a body of water.

      B.  The contents of a pipeline.

      C.  Loss of income due to damage to the pipeline.

      D.  Losses due to mechanical breakdown.

 

8.  Ceno Gas Co. runs a pipeline carrying natural gas through 3 states.  In an area where the ground was particularly hard and rough, the pipeline is on steel supports aboveground as much as 15 feet.  The pipeline is insured under the Inland Marine form with the usual exclusions of wear and tear, gradual deterioration, etc., including contraction-expansion of the pipeline due to change in temperature.  The area where the pipeline is exposed is in an area of moderate temperatures and few storms, however a storm brought a sudden cold front through, and the temperatures dropped over 30 degrees in an hour.  Because of this, the steel supports of the pipeline and the pipeline itself, contracted so rapidly that the supports collapsed, rupturing the pipeline.

      A.  Only the contents would be covered.

      B.  Since the collapse was caused by the temperature change, and since collapse was covered, this damage to the pipeline would be covered under the policy.

      C.  The policy does not cover contraction of the pipeline, so the insurer is not liable.

      D.  Only reconstruction of the supports would be covered by the policy.

 

9.  Railroad Rolling Stock can be covered by Inland Marine insurance,

      A.  but there are not many people who have an interest in this type of insurance at all.

      B.  and public transit authorities, shippers, railroads and private care line, utilities and even individuals are interested in this type of coverage.

      C.  but this type of policy only covers railroad rolling stock that is owned by the operators.

      D.  but there is no tax ramifications so ownership of cars is not attractive.

 

10.  In determining the loss value under Railroad Rolling Stock insurance, “settlement value” is one method.  “Settlement Value”

      A.  is a method prescribed by law, that states that only a court of law can settle the value.

      B.  is a method established by the Railroad Association that takes into consideration several pertinent factors, such as age and type of equipment, depreciated value and the salvage value.

      C.  is the amount that rolling stock of the same type and age, can get in the open market.

      D.  is the same as the replacement cost.

 

ANSWERS TO STUDY QUESTIONS

 

1C     2C     3A     4B     5D     6A     7D     8B     9B     10B