Ruralization of US Department ofTransportation Management Risk A Handbook for Small Transit Operators December 1992 CAUTION CLIFFS AHEAD FEDERAL TRANSIT ADMINISTRATION Ruralization of Management: Risk A Handbook for Small Transit Operators Final Report December 1992 Prepared by Erskine S. Walther Transportation Institute A&T North Carolina State University Greensboro, North Carolina 2741 1 Prepared for University Research and Training Progrann Office of Technical Assistance Federal Transit Administration Washington, DC 20590 Distributed in Cooperation with Technology Sharing Program U.S. Department of Transportation Washington, D.C. 20590 DOT-T-93-14 1 = S. o- 3.S ? ^3CT iO3f-l e3(T 2C =3 53 r«-q =S £3 J33 2! 5 —Me12 'i-sa o=Zu 3ei «o m ^^ (O0 O O CN* 1Od^ f<NN od <«N^ p*- »d>i ifl s .s 2 e a g jl J i I 5 I Se(35 i«(35 i«n3 2u«£ 2 ^ g ^TE —awi ^wV) ^cn ^1uu ^uu < s ou o I E £ E e/3 u < E3 91 ISI Z\ III ;01 I6 e I ! 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M £ _ TABLE OF CONTENTS CMAr cK UNt: KUUUL lUN ANU LUINLtr b 1 IINII 1 1 1 First A Few Terms C o Loss c. o Hazard rem •J2 KlSK /I A Bodily Injury rroperty uamage A ort 1 Negligence 5 Statutory Liability 6 Strict or Absolute Liability 6 Deductible 7 Most Losses Are Partial 7 Insurance Carrier 8 Self Insurance or Retention 9 Concluding Comment 9 CHAPTER TWO: RISK MANAGEMENT PROGRAM ELEMENTS 1 1 The Five Parts Of A Risk Management Program 1 1 Risk Identification: Knowing A Risk When You See One 13 Risk Evaluation: How Risky Is A Risk? 1 5 Handling Risks 16 Loss Avoidance 16 Loss Prevention and Control 17 Retention/Self-lnsurance 18 Transfer 20 Implementation 21 Monitoring and Review 22 Concluding Comment 22 LHAr tK HKtfc; LIAdILI Y tArUbUKtb 2OS5r>-":;: 1 I I Introduction 25 Note On Pollution Liabilities 25 Differences Between Liability Coverages and Property or Personal Injury Coverages 26 Liability Through Contract 27 Statutory Liability 30 Liability Resulting From Intentional Torts 31 Negligence 32 Defenses Against Negligence 35 Liability Insurance 35 Professional Liability 37 Directors and Officers Coverage 37 Concluding Comment 38 THAPTFR FDI }R" Rl*sl< RFDI IPTIOW AMH n<s<; rOMTRHI 1 Introduction 39 Overview of Approach 40 Human Factors Approach 41 Generic Steps In Applying A Loss Control Program 42 Pre-Occurrence Steps (What To Do Before A Loss Occurs) 43 Equipment 43 Training 45 Routing 47 Biohazard Kits 48 Cleaning A Biohazardous Spill 50 Fire Extinguishers 52 ADA Wheelchair Requirements 55 Self-Inspections 55 Hazardous Materials 57 Occurrence Steps (What To Do While A Loss Occurs) 58 Post-Occurrence Steps (What To Do After A Loss Occurs) 58 Employee Dishonesty: Fidelity Bonds 62 Concluding Comments 63 11 CHAPTER FIVE: INSURANCE CONTRACTS: COMMON COMPONENTS 65 Introduction 65 Components of the Insurance Contract 66 Declarations Page 67 Endorsements or Exceptions 69 Concluding Comment 69 CHAPTER SIX: INSURANCE CONTRACTS: COMMERCIAL AUTO 71 Introduction 71 Commercial Auto: Business Auto Coverage Form 71 Umbrella Liability 78 Concluding Comment 78 CHAPTER SEVEN: INSURANCE CONTRACTS: COMMERCIAL PROPERTY AND UMBRELLA LIABILITY 79 Introduction 79 Commercial Property Insurance 79 Umbrella Liability Coverage 85 Concluding Comment 87 CHAPTER EIGHT: RISK EXPOSURE QUESTIONNAIRE FOR RURAL PUBLIC TRANSIT SYSTEMS 89 Who Are You? 89 What Do You Do? 90 What Do You Own, Rent or Lease? 94 What Procedures Do You Have? 102 What Are Your Experiences? 107 What Insurance Coverages Do You Have? 110 iii r CHAPTER NINE: QUESTlON-BY-QUESTION GUIDE TO THE RISK ctvADrrUvcoiUIKDtC nli^UjttorcTliUnNMNMAAIIKDtC 1M1oo 1 Introduction 6 1 1 Question-By-Question Review 4 1 1 wno Are you 11/41 r 1 1 lie wnat uo YOU uor D 1 1 wnat uo YOU uwn Kent or Leaser 1 oo IOC wnat rroceaures uo you naver wnat Are Your experiences 1 OQ What Insurance Coverages Do You Have? 129 Concluding Comment 129 CHAPTER TEN: OBSERVATIONS AND SUMMARY 131 Introduction 131 Observations 132 Concluding Comment 135 ENDNOTES 371 1 ACKNOWLEDGMENTS 139 APPENDIX A: LITERATURE REVIEW A-1 Introduction A-1 Representative Insurance Industry Literature of Relevance A-1 Transit Specific Literature A-3 Concluding Comment A-6 APPENDIX B: BIBLIOGRAPHY B-1 APPENDIX C: STATE RTAP COORDINATORS C-' 1 iv CHAPTER ONE: INTRODUCTION AND CONCEPTS Orientation To The Report It is often said that we are born into a world of stories and of storytelling. This report is an attempt to tell the story of Risk Management in an easy-to-read, to the point, perhaps witty, and hopefully helpful way. Although it relies on scholarship, it is not written in the traditional "scholarly way." It is an attempt to translate the Risk Management message from the conceptual order and often legalistic language of the insurance and risk management professions into the meaning-producing language of the small transit operator. Basically, this report is an original exercise to tell the story of Risk Management in a way that will help answer the questions and, in some cases, calm the anxieties of the provider of transit services and elevate their understanding of the issues and the concepts to an action-oriented level of knowledge. The report is an attempt at making a complex process simpler. While it is primarily written for the smaller operator providing paratransit and/or fixed route transit, it should be of value to any transit operator. Introduction To The Concept of Risk Management Risk management is nol insurance. Insurance is only one of several methods for dealing with risk. Insurance is a method for reducing the uncertainty of the financial loss that often follows a physical loss (loss of or damage to physical property or from personal injury) or from a liability loss (a financial loss following a negligent act). In this report, insurance will be discussed as one tool in the overall process of risk management. Since it is a rather important tool, it will receive detailed attention, but always as part of an overall risk management process. Risk management may well be viewed as an overall managerial philosophy. It provides a way of viewing your organization, how it Page 2 CHAPTER ONE: INTRODUCTION AND CONCEPTS behaves (operates) and how it is or should be run. More technically, risk management is a process of identifying and evaluating all pure risk exposures faced by the transit system and selecting the appropriate method or methods for eliminating, reducing or otherwise handling the risk. The emphasis here is on the process Effective risk management is . not a one shot activity, nor is it simply a once a year review activity. It is an on-going process. Much of what constitutes that process is already being done by most rural transit systems, only it is not recognized as part of an overall system or process of risk management. For example, if a rural public transportation system has a vehicle preventive maintenance program or a defensive driving training program, then it already has part of a risk management program in place. First A Few Terms Before delving into the basic parts of a risk management program, defining a few basic terms may be helpful. The purist among you may not like the looseness of some of these definitions, but their essential correctness is sound. When these discussions move to insurance policies, then the language will begin to tighten. When it comes to an insurance policy, the meanings of words have to get precise. But for now, the focus is on understanding the concepts behind the words. Loss A loss is something that costs you money. It may be in the form of property that has been damaged or destroyed and has to be replaced or repaired. It may be real property (a building, for example) or personal property (a rider's glasses or maybe his/her wheelchair). It might be in the form of bodily injury when you physically hurt or "damage" another person. This can range from a simple scratch upon boarding to an accidental death. Losses may also arise from cases of liability -- injury to others from negligence or from intentional action. When you buy insurance, you will be buying different types of coverage for different types of losses; i.e., bodily injury coverage is