[prettyquote]”There is not currently enough available coverage in the commercial insurance market anywhere in the world to cover the worst-case [train derailment] scenario.” — James Beardsley, global rail practice leader for Marsh & McLennan Cos.’ insurance brokerage unit.[/prettyquote]
The Bakken oil train that derailed and exploded in Lac-Mégantic, Quebec killed 47 people. It also made clear that the oil-by-rail industry is radically underinsured for the risks of shipping volatile Bakken crude. The financial risk falls instead on the taxpayers who would ultimately be expected to pick up the nearly incalculable costs of an oil explosion in an urban area.
The Lac-Mégantic disaster generated an estimated $2 billion in liabilities with the cleanup alone projected at $200 million. The train’s operator, MM&A, a short line railroad transporting the crude from a Canadian Pacific (CP) yard to a refinery in New Brunswick, had just $25 million in liability insurance. Soon after the accident, MM&A filed for bankruptcy protection. So far, the Canadian federal and provincial governments are paying the cleanup costs.
Under Quebec environmental law, the government can order the owner of spilled hazardous material to pay for and manage the cleanup, and the province ordered the US-based oil service companies involved with the crude oil shipment to take over the cleanup. These companies have refused Quebec’s order. They are in court fighting the government, just as they are fighting the wrongful death lawsuits filed on behalf of the town’s residents.
These oil service companies claim that, through the complicated legal structures used to ship oil, they were not technically the owners of the oil at the time of the explosion. The wrongful death lawsuits are not expected to be settled for years. Just so, CP Railway, which hauled the oil from North Dakota before turning it over to MM&A, and Irving Oil, whose refinery was the final destination for the oil, are also resisting legal liability.
Underinsurance is the norm
Tank cars are almost all owned by shippers and leasing corporations, not railroads. Railroads, however, operate under a “common carrier obligation,” which prohibits them from refusing to haul any legally allowable load even if would be inconvenient or unprofitable. In other words, they are actually required by law to transport hazardous materials, including volatile Bakken crude oil, in unsafe legacy DOT-111 tank cars until such time as the federal regulator determines these tank cars are no longer okay to use. And if the railroad hauls it, then they are liable for it.
