Florida plans to purchase up to $200 million in liability insurance over the next three years as it begins construction of what could become a statewide railroad system that eventually connects Tampa to Orlando to Miami.

State lawmakers during a December special session approved the insurance purchase as part of a broader agreement intended to help lure nearly $4 billion in federal aid. State officials hope the legislation will free up the federal funds by showing Florida's commitment to two planned rail projects in Central Florida and an existing line in South Florida.

Florida is buying liability insurance because the state plans to indemnify CSX Transportation, which is selling 61 miles of railroad track in Central Florida to the state. These tracks will be used for a commuter rail project known as SunRail. CSX wants the indemnification because it will continue to use the tracks for freight operations, and company officials say adding commuter rail trains will expose them to significant risks.

The indemnity provision — along with the accompanying insurance purchase — had been one of the most contentious elements of the rail package. State legislators scuttled the deal with CSX twice in the last two years over liability concerns.

This final deal is similar to one in place for Tri-Rail, an 81-mile commuter rail line that runs from West Palm Beach to Miami. The state will spend $10 million to set up a self-retention fund that will be used as a deductible for the liability insurance policies and to pay off smaller claims related to the rail system.

Rep. Gary Aubuchon (R-Cape Coral), sponsor of the rail legislation, pointed out that in 20 years the state has never been forced to tap into its liability policy for Tri-Rail, and that state officials hope the same will happen with its other rail projects.

"We are making it very clear what the responsibility of the liability is," said Aubuchon. "We are funding and insuring appropriately what the risk is."

Insuring Bad Behavior?

However, several state legislators were uncomfortable with the liability provision and tried unsuccessfully during the special session to alter it.

State Sen. Dan Gelber (D-Miami Beach), said it was wrong to have the state assume so much risk, noting for example that in certain instances the state agreed to indemnify CSX for punitive damages or malfeasance of its employees. Gelber said the idea behind it remains relatively untested in the courts.

"It is contrary to public policy to allow people and entities to insure against intentional misconduct," said Gelber, an attorney. "You are accepting misconduct as being acceptable and insurable behavior. You cannot insure yourself for committing a DUI (driving under the influence) and killing someone."

Aubuchon and other supporters say the final legislation has improved from earlier versions that would have shielded CSX from more damages. Under the new law, CSX would be solely responsible for any loss, injury, or damage to its people and property if only a freight train is involved in an accident.

If there is a collision between a state train and a CSX train, the two sides will be responsible for damage to their people and property. But if there is a collision between a CSX train and a state train due to willful misconduct of the freight train operator, or if the accident results in punitive damage, then the state is only required to pay amounts above the $10 million self-retention fund. Anything above the $200 million insurance policy is subject to the state's sovereign immunity limits.

Rep. Adam Fetterman (D-Port St. Lucie), an attorney, questioned the wisdom of putting taxpayers "on the hook" for up to $200 million. Aubuchon contended that taxpayers were only on the hook for the amount of the insurance premium. "A protection has been put in place," said Aubuchon. "A $200 million insurance policy protects the taxpayers."

Small Steps First

Florida will not purchase $200 million in liability insurance right away.

Dick Kane, a spokesman for the Department of Transportation, said the plan is to initially purchase $30 million worth of coverage during the construction portion of the SunRail commuter rail project. When that train is up and running by 2012, the state will purchase the rest of the additional insurance.

Kane said the coverage will be stacked and sought from multiple carriers in both the global and domestic market. The state is expected to pay about $2 million a year, although some of the money will be recouped from those who are covered by the insurance, including CSX. Kane would not say how much the company was expected to pay, noting instead that it would come out of the approximately $3.2 million in fees that CSX would be charged to use the state-owned rail lines.