Runaway Risk

Stated intentions and actual changes have been swift after a runaway train brought parts of a small Quebec community to complete ruin in early July.

The shock delivered by the Lac-Mégantic derailment was just starting to round into hope for recovery when the first lawsuits were filed. These are perhaps a good thing if they serve to reveal how best to avoid risks that contributed to the tragedy in the future, but will surely take years to unfold and keep the wound exposed for a community striving to heal.

The early morning of July 6 was transformed into a disaster zone when an unmanned Montreal, Maine & Atlantic (MMA) train, parked uphill from Lac-Mégantic, started to move down the 1.2% grade, picking up speed as it did so.

The train derailed near the centre of Lac-Mégantic, and the locomotives separated, ending up a half mile away. The contents of several cars carrying crude oil from a shale deposit exploded, destroying much of the surrounding property and claiming the lives of almost four dozen people.

The disaster has raised questions around rules and procedures, work practices and preparedness. And many of the issues laid bare by the devastation have insurance-related costs or ramifications.

Consider the hit to company reputation, potential D&O liability and effects (short and long term) on the environment.

Already the Lac-Mégantic derailment is revealing itself as cost, beyond the extraordinary toll paid by the victims.

Much of damage that resulted is covered under home insurance policies. As one example, Intact Financial Corporation recently stated that the derailment will have a $25 million impact on its third-quarter results.

For its part, MMA has announced its divisions north and south of the border have filed petitions for creditor or bankruptcy protection. “It has become apparent that the obligations of both companies now exceed the value of their assets, including prospective insurance recoveries, as a direct result of the tragic derailment,” Ed Burkhardt, chairman of the companies, says in a release.

“The filing will provide the proper structure to permit the companies to serve customers, to preserve well-paying jobs, to provide for the payment of post-filing obligations, and to ensure that all creditors are treated equitably and in accordance with well-established laws,” the release adds.

It is hoped the filings do not divert the spotlight away from factors that led to the incident. Light will likely be shed by the Transportation Safety Board of Canada investigation now under way, perhaps including thorough recommendations on how to manage risk in future.

Within days of receiving advisory letters from the board, Transport Canada issued emergency directives. Among other things, all rail operators in Canada must ensure that “no locomotive attached to one or more loaded tank cars transporting dangerous goods is operated with fewer than two qualified persons on a main track or sidings.”

Quebec’s environment minister issued a directive of his own July 29, notes a briefing from the law firm Norton Rose Fulbright. The environmental clean-up and decontamination order was issued to Montreal, Main & Atlantic Canada Co., Montreal, Main & Atlantic Railway Ltd., Western Petroleum Company and World Fuel Services Corporation (the last two being the owners of the spilled oil). They had 30 days to contest the order.

Among other things the ministerial order requires the corporations to recover the oil and other contaminants discharged into the environment (including in the town and nearby river); prevent the spread of the spilled oil; and submit a comprehensive action plan, together with a timetable, notes the briefing.

“These measures indicate the Quebec government’s clear intention to exercise its powers under the Environment Quality Act to force the owner of the spilled oil and the corporation which had custody and control of it to take responsibility for the environmental clean-up and decontamination work.”

It can only be hoped that clearer intentions, matched by clearer risk management, apply some kind of positive to this tragic negative.