Over the past several years several high profile derailments have made visible the increasing amount of crude oil and other hazardous material being transported by rail in Canada.
In July 2013, the Canadian town of Lac Mégantic was devastated when a train carrying tankers of crude oil derailed in the downtown core leaving 42 dead. Additionally, in January 2014, a freight train carrying dangerous goods, including crude oil and propane, derailed in northwest New Brunswick resulting in a large fire and evacuation of residents within a two kilometer radius.
These incidents highlight the liability and risks associated with the transportation of hazardous materials by rail and have prompted the Canadian Transportation Agency (CTA) to re-examine its approach to assessing the adequacy of third party liability coverage for railways. As part of this examination, the CTA has asked the insurance industry to provide comment on possible improvements to the current regulatory framework, as prescribed in the Railway Third Party Liability Insurance Coverage Regulations, as they relate to the transportation of commodities and passengers on railways.
Current regulation stipulates 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. The CTA’s procedure under the Railway Third Party Liability Insurance Coverage Regulations is to review the coverage of federally-regulated railways on a case-by-case basis to assess several risk factors including the volume of dangerous goods, volume of traffic, scope of operations, number of crossings and whether the railway runs through rural or urban areas. As these risk factors can vary greatly from situation to situation, the CTA has not established a minimum dollar value on coverage liability insurance limits for federally regulated railways.
As part of its current examination, the CTA has also asked the insurance industry to provide insight into whether or not regulations should be revised to establish minimum insurance requirements, if there should be a distinction between general commodities and dangerous goods, and whether or not a need exists for separate coverage requirements for Class 1 railways and shortline railways.
In developing its response to the CTA review, Burns & Wilcox Canada worked with its environmental, transportation, and commercial liability underwriters to share insight on a range of topics such as minimum liability coverage, financial disclosure requirements, and techniques to adequately assess a company’s financial health.
A consideration raised in the Burns & Wilcox Canada proposal was for the CTA to require a more robust Commercial General Liability (CGL) policy for operators instead of standard Third Party Liability protection. In its submission, Burns & Wilcox Canada noted that CGL policies provide broader coverage compared to Third Party Liability, including bodily injury, property damage and product liability. CGL policies can be extended to cover not only third parties but also employees, vendors and investors. Additionally, Burns & Wilcox Canada recommended the CTA increase insurance limits for dangerous goods and for the transportation of passengers. In case of a catastrophic loss, the costs will exceed the insurance limit easily; placing organizations at great financial loss.
The CTA’s review of Railway Third Party Liability Insurance Coverage Regulations is an important and significant step that will go a long way in making Canada’s transportation industry safer for all stakeholders. Burns & Wilcox Canada is proud to be involved in this process.