Canadian Underwriter


March 1, 2015   by Angela Stelmakowich, Editor

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Seeking ways to better manage the risks associated with oil-by-rail transport – as well as to deal with the often negative and costly fallout from derailments, collisions or worse – is gaining momentum in Canada.

Ottawa looks to be moving forward with tougher protections for rail tanker cars, proposing new requirements that would give shippers until 2025 to upgrade rail tank cars by ensuring they are more resistant to punctures and valve failures following derailments and collisions.

The proposal comes in the wake of a number of fiery and high-profile accidents both in Canada and in the United States. These events have included those near Gogama, Ontario and another not far from Gregg, Manitoba.

In its newly released report, Review of the Canadian Transportation Safety Regime: Transportation of Dangerous Goods and Safety Management Systems, the Standing Committee on Transport, Infrastructure and Communities recommends to Transport Canada that the department, among other things, ensure all Class 11 tank cars used to transport flammable liquids meet enhanced protection standards that significantly reduce the risk of product loss when these cars are involved in accidents; implement a comprehensive reform of the liability and compensation regime for rail to ensure that victims and their families obtain the compensation they deserve, that the polluter-pays principle is upheld, and that taxpayers are not forced to pay for compensation, remediation and reconstruction costs in the event of a rail disaster; and require railways to use on-board voice and video recordings as part of a company’s safety management system.

Just a few weeks before the report’s release, Ottawa introduced legislation to strengthen rail safety and accountability through a new liability and compensation regime for federally regulated railways. This includes minimum insurance requirements (levels are based on an analysis of rail accident cost data and the potential severity of accidents involving

certain types of dangerous goods); a compensation fund financed by levies on crude oil shippers; increased information-sharing (including railway companies sharing information with municipalities); and stronger oversight powers for both the federal transport minister and Transport Canada inspectors.

“These changes are part of the government’s commitment to strengthen oversight and increase collaboration between communities and the rail industry, addressing issues raised in the Transportation Safety Board of Canada’s (TSB) final report on the Lac-Mégantic derailment, as well as concerns of the Federation of Canadian Municipalities,” Transport Canada reported.

The TSB’s final report included a recommendation that Transport Canada “must take a more hands-on role when it comes to railways’ safety management systems – making sure not just that they exist, but that they are working and that they are effective.”

In a recent posting, François Tougas and Ryan Gallagher of McMillan LLP write that the amount of insurance required of a railway company would depend on the quantity of crude oil and toxic inhalation hazard (TIH) commodities transported. “If claims exceed available insurance and the amount in the compensation fund, the federal government may draw on the Consolidated Revenue Fund (primarily taxpayer-funded) to cover such claims, with possible recovery of those monies by way of a further levy on railway companies.”

It was reported earlier this year that $200 million will be distributed in settlement funds to families of those who died as a result of the Lac-Mégantic derailment, as well as to other parties.

But the full costs – insurance, government response, reputational harm and, most important, human loss – have been far greater. It is unlikely all adverse oil-by-rail events can be eliminated. But with the recent requirements, and those now being contemplated, associated risks can be better managed and the severity of any events that do occur can, hopefully, be minimized.

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