Off Track

The Canadian Transportation Agency (CTA) is asking federally regulated railway operators, as part of a recently released discussion paper on liability insurance requirements, whether or not there is a need to revise rules to establish minimum coverage requirements for liability insurance. Stakeholder input on the adequacy of insurance coverage for the issuance of certificates of fitness required for federal railway companies and possible improvements to the current regulatory framework on insurance requirements is due January 21.

Rail safety has been in the news of late following a number of derailments, the most high profile of which was the tragic loss of almost four dozen lives in July in Lac-Mégantic, Quebec.

CTA currently reviews the insurance coverage of federally regulated railway firms on a case-by-case basis, examining a number of risk factors, including the volume of dangerous goods transported. The paper was issued November 19, about a month after the ruling Conservatives announced the federal government plans to require federally regulated railway operators to carry “additional insurance.”

The discussion paper poses several questions, one being whether or not the government should mandate “minimum requirements.”

Unlike other industries that have liability risk stemming from their handling of hazardous materials – such as operators of nuclear reactors – railways regulated federally are not mandated to have a specific dollar value of liability insurance limits. By contrast, nuclear reactor operators must have basic liability insurance of at least $75 million for each nuclear installation, an amount that federal natural resources minister Joe Oliver has commented will be increased, through legislation, to $1 billion.

Oliver also plans to require major crude oil pipelines to have a minimum “financial capacity” of $1 billion “to respond to any incident and remedy damage.” That capacity could include insurance coverage. 

Risk factors vary widely

But for railways, CTA explains, the government does not set a dollar value on coverage requirements because the operators “can vary a great deal” on risk factors such as volume of traffic, commodity mix, scope of operations, number of crossings and whether they run through rural or urban areas. The Railway Third Party Liability Insurance Coverage Regulations do stipulate that operators must be covered for third-party liability, third-party bodily injury or death, including injury or death to passengers and third-party property damage, excluding damage to cargo.

In addition, railway operators must be covered for named perils pollution or “risks associated with seepage, pollution or contamination,” the paper notes.

CTA reports there are 30 federally regulated railways. The agency reviews coverage for each of these operators and has the authority to issue and suspend certificates of fitness. CTA issues certificates of fitness only “if it is satisfied that there will be adequate third-party liability insurance coverage for the proposed construction or operation,” notes an e-mail from a CTA spokesperson.

One certificate that CTA did suspend was that for Montreal, Maine and Atlantic (MMA) Railway Ltd., whose freight train with 72 crude oil tanker cars derailed in Lac-Mégantic. CTA announced in August that MMA had not demonstrated its third-party liability insurance “is adequate for ongoing operations.”

Two months later, CTA postponed – until February 1, 2014 – the date that its suspension of MMA’s certificate would take effect. MMA was found to have “demonstrated that there is adequate third-party liability insurance coverage, including self-insurance,” for its railway operations to February 1.

Commenting on the decision to allow MMA to continue to operate until February 1, CTA stated October 16 that it found “a significant decline” in the overall volume of commodities – including dangerous goods – transported by MMA, and the volume of dangerous goods was forecast to drop by more than 80%. The railway’s risk exposure was reduced because MMA stopped shipping crude oil and “the distance over which dangerous goods are carried has been reduced” by 90%.

The ruling was based on risk factors, including class and volume of dangerous goods transported, that the agency is mandated to examine when deciding whether or not to issue a certificate of fitness. Among the other risk factors considered for each railway operator are passenger ridership, passenger and freight train miles, volume of railway traffic, types of population areas served, number of level crossings, speed of trains, train crew training, method of train control and the applicant’s overall safety record.

As part of its public consultation, CTA is now asking if those factors are sufficient, if the list should be expanded or if any factors on the list should be removed.

In the case of MMA, the railway had a policy with XL Insurance Company Ltd. with a per occurrence limit of US$25 million, note court documents filed along with the company’s application for protection under the Companies’ Creditors Arrangement Act (CCAA). XL covered MMA for pollution clean-up expenses, bodily injury and property damage, while a separate inland marine policy with Travelers Property and Casualty Company of America covered MMA for property, rolling stock, track and repairs and business interruption.

In its CCAA submission last summer, MMA noted it had not received any indemnity either from Travelers or from XL, “notwithstanding claims presented. “

Need for varied requirements?

CTA is asking stakeholders if there should be more and/or different third-party liability insurance requirements for the transportation of certain commodities, such as dangerous goods. Questions include whether or not regulations should be revised to establish minimum requirements, if there should be a distinction “between general commodities and dangerous goods,” and whether or not a need exists for separate coverage requirements of Class 1 railways (such as Canadian National and Canadian Pacific) and shortline railways.

Beyond the public consultation, the federal government has suggested it plans to strengthen the law mandating railway insurance. “As efforts to clean up and rebuild Lac-Mégantic demonstrate, railway companies must be able to bear the cost of their actions,” Governor General David Johnston read from the recent Speech from the Throne on October 16. “Our government will require shippers and railways to carry additional insurance so they are held accountable.”

As well, the Standing Senate Committee on Energy, the Environment and Natural Resources has suggested there be a minimum level of insurance. “The scope of the Lac-Mégantic disaster and the reported difficulties in securing funding for loss of life and personal and property damages, as well as environmental clean-up and other liabilities, underscores the need for minimum thresholds for liability coverage,” notes a committee report, Moving Energy Safely: A Study of the Safe Transport of Hydrocarbons by Pipelines, Tankers and Railcars in Canada, released in August.

Some provinces already mandate a specific dollar value for the railways they regulate. CTA does not regulate railways that “reside wholly within the boundaries of a single province,” adding the majority of provinces require “insurance coverage for third-party liability.”

For example, Ontario Regulation 301/96 stipulates that railway operators in the province must have liability coverage, with a “primary limit” of at least $10 million per occurrence, for third-party bodily injury or death, third-party property damage (excluding damage to cargo), passenger liability and named perils pollution.

In Quebec, provincially regulated railways transporting hazardous substances are required to have $10 million in liability coverage, while those carrying passengers must have $20 million and others must have $5 million in coverage.

CT A is also asking those taking part in the public consultation if any mechanisms should be established in the regulations “to ensure that railway companies notify their insurer” of changes that could mean its coverage is no longer adequate. Would administrative monetary penalties be an “appropriate mechanism” to enforce compliance? Should there be a mechanism to ensure railway firms notify their insurers of all substantive changes on a timely basis? nger adequate.