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In a 43-45 campaign game using the latest beta (.72) I see a couple dozen hexes of 100% rail damage in in southern Italy the turn after Italy surrendered. Is this a consequence of the surrender? I can find no mention of this happening in the living manual.

In section 18.1.2 in the manual it mentions that some hexes can switch to Allied control. When that happens, the rail is damaged. They can then switch back to German control but the rails will still be damaged.

Thanks Joel.

Several turns on there is no attempt by the AI to repair the damaged rail sections. Can the Axis player do anything to repair the rails?

That's something we have on our list to look at. In theory, moving construction units to the HQs in the area should cause some automatic repair, but we have had reports that this doesn't seem to work in southern Italy.