Skip to main content

The Globe and Mail

MM&A’s bankruptcy reveals glaring gaps in rail insurance rules

I love my job – absolutely love it. But working in an industry that's bleeding jobs makes me wonder, just occasionally, whether I should have been a lawyer.

Thursday was one such day. Fighting for a seat in a small courtroom on the 16th floor of Montreal's austere courthouse, I was dismayed, as I am always in bankruptcy proceedings, at the number of lawyers vying for the remains of Montreal Maine & Atlantic Railway Inc. The scene played out as the smoke over Lac-Mégantic's ravaged downtown has barely cleared.

Just like the booming intellectual property practice in the tech sector, where a legal fight is never to be missed, there is no shortage of work in the insolvency business. That is more than you can say about print journalism, which tellingly welcomed Jeff Bezos, a brilliant entrepreneur and an avid reader who knows little about news, as if he were a saviour.

Story continues below advertisement

With all the lawyers hovering around MM&A, one might think that there is a lot of money to be salvaged. There isn't, at least not on the Canadian side of MM&A. In court documents, the subsidiary listed $48-million in liabilities but only $18-million in assets. The American parent company looks richer with assets estimated between $50-million and $100-million, but Washington can lay claim to a sizable part of that through the Federal Railroad Administration, MM&A's biggest creditor. And then there is the court-appointed monitor – in this case RSM Richter Inc. – which gets paid before everybody else.

Getting to the front of the creditors' queue is vital. The bankruptcy proceedings that will proceed in parallel in Canada and the U.S. have thus set the stage for an acrimonious stand-off between the Lac-Mégantic victims, the insurers and the American and Quebec governments, who both claim to be secured creditors, although the province will have to make its case. The stakes are particularly high for Quebec, which is currently paying all the clean-up work, a $200-million job, according to MM&A's estimates.

This legal fight might not have been so fractious if the financially struggling railway had availed itself of a more generous insurance policy. The only one listed in court proceedings is the $25-million insurance provided by XL Insurance Co., which could only cover a minor accident – and nothing close to a tragedy on the scale of Lac-Mégantic.

MM&A did not only carry lumber. Starting last year, the rail company relied increasingly on shipments of highly flammable fuel and other hazardous chemicals to restore profitability sapped over the years because of failures among its forest product customers. Why wasn't it better insured? In Quebec, that question is on everybody's mind. And the answer is vague.

The Canadian Transportation Agency, an independent regulator, determines whether a railway carries adequate third-party liability insurance. CTA first determined MM&A was properly insured in 2002, at a time when fewer quantities of crude where being transported by rail. But just how exactly that decision was made is unclear.

The decisions are based on case-by-case analyses that consider the scope of a railway's operations and the products carried, explained a CTA spokesperson. But CTA also considers a railway's ability to pay its insurance premiums and whether a company's coverage is out of line with comparable railway operations – which isn't reassuring. If there are other struggling railway companies out there, they may well be as poorly insured as MM&A.

"Regulations do not set definite amounts, neither minimum, nor maximum," wrote Jacqueline Bannister in an e-mail. Asked if Ottawa is considering stronger insurance requirements for railway companies after the deadly July derailment, Ashley Kelahear, press secretary for Transport Minister Lisa Raitt, kept to the government's script. Only when the multiple investigations under way are complete will Ottawa respond to their findings.

Story continues below advertisement

In the meantime, you can add rail insurance policies to single-hull rail tankers, one-man crews, rail maintenance and the ever-growing list of concerns the Lac-Mégantic tragedy has violently unearthed.

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to