Ottawa proposes new insurance requirements for railways hauling crude oil, toxic inhalation hazards

Canadian railways moving dangerous goods will have new minimum insurance requirements if a bill tabled Friday is passed into law.

Transport Minister Lisa Raitt introduced Friday the Safe and Accountable Rail Act in the House of Commons.

“The Canadian Transportation Agency (CTA) will assign legislated minimum levels of insurance to railways based on the type and volume of dangerous goods they transport,” Transport Canada stated in a release. “Railways will have to demonstrate coverage before the CTA would issue the Certificate of Fitness they need to operate.”

Currently, railways regulated federally are not required to have a specific dollar value of liability insurance limits.

Read More – Senate energy report calls for ‘appropriate’ minimum liability coverage for rail companies

Instead, prior to issuing certificates of fitness, CTA reviews the insurance coverage of railway firms on a case-by-case basis.

But under the legislation proposed Friday, the ruling Conservatives plan to impose minimum levels of insurance, which would depend on the type of quantity of dangerous goods transport.

“For example, if a railway moves no crude oil, but between 4,000 and 50,000 tonnes of toxic inhalation hazards, it will require $250 million in insurance,” Transport Canada noted.

Major incidents in Canada include the July 6, 2013 derailment of a Montreal, Maine and Atlantic (MMA) train hauling crude oil in Lac- Mégantic, Quebec, which resulted in 63 deaths.

“The tragic derailment in Lac-Mégantic has raised important questions regarding the adequacy of third-party liability insurance coverage to deal with catastrophic events, especially for smaller railways,” CTA stated in a press release that summer, in which it announced the suspension of MMA’s certificate of fitness.

Read More – Feds rule Lac-Mégantic railway operator has adequate liability insurance to continue operating until Oct. 18

In addition to crude oil, toxic inhalation hazards are also a risk for railway insurers, experts with Marsh Canada Ltd. and Willis Group suggested to Canadian Underwriter in 2013.

About 200,000 Canadians were evacuated west of Toronto in November, 1979 after a Canadian Pacific train had 23 cars derail in Mississauga. Three cars with propane exploded and a car with chlorine “suffered a hole in its shell 2.5 feet in diameter,” Mr. Justice Samuel Grange wrote in a report on a commission of inquiry that he chaired. “Miraculously no casualties were suffered,” Justice Grange noted in 1980.

“To address concerns that some short line railways may have difficulty absorbing the costs of the minimum insurance requirements, the $100 million and $250 million levels will be phased in over time,” the federal government stated Friday in a backgrounder on the Safe and Accountable Rail Act. “Initial insurance requirements corresponding to half of the full amount will come into force 12 months after the bill receives Royal Assent.”

The full levels would be mandatory a year later.

“Railways requiring either $25 million or $1 billion are not expected to need more time to adjust, so those levels would take effect immediately after the legislation comes into force.”

The federal government said Friday the Safe and Accountable Rail Act would introduce new liability and compensation rules, based on the “polluter pays” principle.

This “makes railways and shippers responsible for the cost of accidents, protecting taxpayers and communities by ensuring that adequate resources are available for compensation if an accident were to occur.”

Currently, the Railway Third Party Liability Insurance Coverage Regulations 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.

They must be covered for named perils pollution or “risks associated with seepage, pollution or contamination,” CTA noted in a discussion paper released in late 2013. In that paper, CTA asked stakeholders whether there should be more and/or different third-party liability insurance requirements for the transportation of certain commodities, such as dangerous goods.

After the Lac- Mégantic tragedy, MMA was issued a cleanup order but was granted creditor protection under the Companies’ Creditors Arrangement Act. In court filings in 2013, MMA indicated it had not received indemnity from its insurers. Court documents indicated at the time that MMA had a policy with XL Insurance Company Ltd., with a per occurrence limit of US$25 million, covering covered evacuation expenses, fire suppression expenses, pollution clean-up expenses, bodily injury and property damage. MMA also reported at the time it had an inland marine policy with Traveler’s Property and Casualty Company of America, covering property, rolling stock, track and repairs and business interruption.