"Insurers weigh risks of an oil-train catastrophe"

John Kemp writing at Reuters:

In the event of a mass-casualty accident involving the derailment of a crude-carrying train in a densely populated urban area, who would be responsible for the compensation for deaths, injuries, damage to property and environmental clean up?

The short answer is the railroad operator. By law, the operator of any railroad in the United States or Canada cannot refuse to transport any cargo, no matter how hazardous, provided it conforms to applicable regulations.

Marine and air transportation carriers can limit their liability as a condition of carriage. But uniquely in the case of rail, the railroad operator cannot insist on an agreement sharing the risk with the shipper. The railroad operator is liable for all costs in the event of an accident up to an unlimited amount.

"Once the railway has received a car from a shipper, all of the risk and exposure associated with that car are then transferred to the railway even when the liability arising from the carriage of the dangerous goods is not caused by the negligence of the railway," Canadian National wrote in a letter to the Canadian Transportation Agency (CTA) on January 21.

"Should an incident occur within or near a densely populated area ... an incident ... has the potential to be truly catastrophic and result in billions of dollars in personal injury and property damage claims," the Association of American Railroads (AAR), which represents railroad operators, wrote in its own submission to the CTA.

"The damages potentially resulting from an exposure could risk the financial soundness and viability of the rail transportation network in North America," the AAR warned.

INSURANCE REVIEW
The transportation agency is urgently reviewing the rules covering third-party liability and minimum insurance cover following the rail disaster at Lac-Megantic, Quebec, in July 2013, when 63 tank cars containing crude oil derailed, causing a fireball that killed at least 42 people and destroyed the town centre.

Montreal, Maine & Atlantic, the train operator at Lac-Megantic, filed for bankruptcy protection just one month later when it became clear that costs arising from the accident would overwhelm the company.
The costs of the clean-up alone have been put at $200 million. Compensation for deaths, injuries and damage to property will add hundreds of millions more. Montreal, Maine & Atlantic had liability insurance of only $25 million, typical for a small railroad....MORE