Canadian Underwriter

Bill proposing mandatory insurance coverage for railways hauling dangerous goods reaches second reading

March 31, 2015   by Canadian Underwriter

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A bill proposing to mandate specific levels of insurance for Canadian railway operators – of $1 billion in some cases – was tabled Monday in Ottawa for second reading in the House of Commons.

MPs debated Bill C-52, the Safe and Accountable Railway Act, introduced by Conservative Transport Minister Lisa Raitt.

Currently, Canada’s Railway Third Party Liability Insurance Coverage Regulations stipulate that railway operators must be covered for third-party liability, third-party bodily injury or death. However those regulations do not mandate a specific coverage limit. The Canadian Transportation Agency – which has the authority to issue and suspend certificates of fitness – currently reviews each railway’s insurance coverage on a case-by-case basis.

Bill C-52, the Safe and Accountable Railway Act, was tabled in the House of Commons for second reading. It proposes additional insurance requirements for railways hauling crude oil and other dangerous goods

Montreal Maine and Atlantic Railway – whose crude oil train derailed July 6, 2013 in Lac-Mégantic, Quebec, killing 63 – filed for protection in 2013 under the Companies Creditors Arrangement Act.

“Under the Canada Transportation Act, federally regulated railways must carry insurance, but the Lac-Mégantic tragedy has proven that the measures now in place are simply not sufficient,” Raitt said Monday in the House of Commons.

Related: TSB assesses damage from crude oil train derailment

After the Lac-Mégantic derailment, “we realized that MMA had $25 million in liability insurance,” said Hoang Mai, NDP MP for the Montreal area riding of Brossard-La Prairie, Quebec. “That amount does not even begin to cover the $400 million that has been spent to date on cleaning up and rebuilding, and that cost may still go up.”

Bill C-52 “identifies specific levels of insurance that must be carried, depending upon the type and volume of dangerous goods that the railway transports,” Raitt said.

“Class 1 railways carry significant quantities of dangerous goods, and they will be required to hold $1 billion in insurance,” said Larry Maguire, Conservative MP for Brandon-Souris, Manitoba, adding that Canadian National Railway Company and Canadian Pacific Railway Ltd. “customarily carry more insurance than that.”

Related: Rail Risk

“At the other end of the spectrum, railways carrying little or no dangerous goods would be required to hold $25 million in insurance,” Maguire said of Bill C-52. “For short-line railways carrying higher amounts of dangerous goods, there would be an initial requirement to hold either $50 million or $125 million in insurance. One year later, those levels would increase to $100 million and $250 million respectively. This phase-in period would allow short-line railways time to adjust to the new requirements. The (Canadian Transportation) Agency would be able to make inquiries to determine whether railways are maintaining the correct amount of insurance, and must revoke or suspend the certificate of fitness of any railway that fails to comply.”

Raitt said Monday that the insurance requirements proposed under Bill C-52 “would come into force 12 months after the bill’s royal assent, giving the insurance market the necessary time to adjust, and railways enough time to obtain the necessary insurance, which is usually purchased on an annual policy.”

The Safe and Accountable Rail Act also introduces new liability and compensation rules, based on the “polluter pays” principle. 

“Bill C-52 would provide the (Canadian Transportation) Agency with the ability to apply administrative monetary penalties to any railway failing to comply with insurance level requirements or failing to report a change in its operations that could affect its insurance,” Maguire said. “These penalties would go up to $100,000 per violation.” 

Currently, federal regulations stipulate that railways must be covered for named perils pollution or “risks associated with seepage, pollution or contamination,” CTA stated in a discussion paper released in late 2013. At the time, CTA invited public input on whether there should be more and/or different third-party liability insurance requirements for the transportation by rail of commodities, such as dangerous goods.

With Bill C-52, the government is proposing a supplementary compensation fund to cover damages, arising from crude oil accidents, which exceed the mandatory insurance limits.

“The fund would be financed by the shippers of crude oil through a levy of $1.65 per tonne,” Maguire said. “Railways would collect the levy and remit it to the government and the funds would be kept in a special account on the consolidated revenue fund. Once the fund reaches the targeted capitalization of $250 million, the Minister of Transport could stop the levy and then reinstate it again when and if ever necessary. The fund would be managed by an administrator appointed by the Governor-in-Council. The administrator would be responsible for establishing and paying out claims.”

Bill C-52 has yet to be put to a recorded vote because the time allocated Monday for government orders expired.

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