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Crews work in the area of the derailed tanker cars in Lac-Mégantic, Que., on July 14, 2013. The Canadian Transportation Agency is reviewing how it determines the minimum insurance amounts for railways after the disastrous crash. (Peter Power/The Globe and Mail)
Crews work in the area of the derailed tanker cars in Lac-Mégantic, Que., on July 14, 2013. The Canadian Transportation Agency is reviewing how it determines the minimum insurance amounts for railways after the disastrous crash. (Peter Power/The Globe and Mail)

Railways face higher insurance costs in review of Lac-Mégantic crash Add to ...

The Canadian Transportation Agency is reviewing how it determines the minimum insurance amounts for railways after the disastrous crash at Lac-Mégantic, where the shipper’s policy was shown to cover only a small part of the estimated damages.

The federal regulator says it will begin consultations on insurance for railway companies this fall. The review comes two months after a Montreal, Maine & Atlantic train loaded with crude oil jumped the tracks in the Quebec town, causing a series of fiery explosions that destroyed a portion of the downtown core and left 47 people dead.

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At the time of the accident, the company’s third-party liability insurance was worth $25-million – a fraction of the expected costs of cleaning up after the devastating accident. Documents filed with a Quebec court last month indicate MM&A expects the environmental cleanup alone to cost more than $200-million, and the company is also facing numerous lawsuits from the families of those who died in the crash.

MM&A has been granted creditor protection and is under court supervision while it deals with claims related to the derailment.

A spokeswoman for the CTA said she was not aware of a situation during the past 10 years in which a federally regulated railway did not have adequate insurance coverage to deal with a claim.

“However, 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,” Jacqueline Bannister wrote in an e-mail. She said increasing shipments of crude oil and other hazardous material by rail, “highlight the need to determine how best to ensure that railways, small and large, have appropriate levels of third-party liability coverage, including for possible catastrophic events such as Lac-Mégantic.”

The CTA is responsible for determining whether a railway’s third-party liability insurance is sufficient before it can operate in Canada. The agency looks at each company’s planned operations, possible risks and financial strength, as well as standard practices in the industry, Ms. Bannister said.

MM&A’s insurer revealed earlier this summer that the average short-line railway in North America holds about $32-million in third-party liability insurance. That’s $7-million more than what was held by MM&A at the time of the accident, but still significantly less than would be needed to deal with the financial repercussions of another disaster like Lac-Mégantic.

“I think you will find that governments and rail insurance providers around the world will be looking at third-party liability insurance coverage levels in light of this catastrophic event,” Ms. Bannister wrote.

A spokeswoman for insurer XL Group said she could not comment because of the ongoing claim.

MM&A stopped hauling crude oil over the summer and is currently attempting to sell its business out of bankruptcy court. The company’s Quebec and Maine railway system is a crucial part of the route that links oil producers in North Dakota to the Irving Oil refinery in New Brunswick and MM&A’s trustee told the Associated Press earlier this month that several potential buyers have expressed interest.

After the derailment, federal regulators ordered MM&A to halt operations in Canada over concerns about the adequacy of the company’s insurance coverage. They later reversed the decision and allowed MM&A to continue to to operate until the beginning of October.

Investigators are still working to determine how the accident occurred but have pointed to insufficient brakes as one factor that allowed the parked train to roll down a hill toward Lac-Mégantic.

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