Who pays if a crude oil train crashes? No mandates for rail insurance

Times Union | May 2, 2015 | Column by Brian Nearing

No federal, state minimum insurance requirements in U.S. for hazard-laden trains

Oil train cars in the Port of Albany on Wednesday April 22, 2015 in Albany, N.Y. (Michael P. Farrell/Times Union)

Albany

Lessons learned in Canada about woefully inadequate insurance after a runaway crude oil train's fiery explosion incinerated 47 people and the heart of a small town are seemingly being lost here in the U.S.

On the floor of the Canadian Parliament in Ottawa last month, lawmakers debated a potential tax on oil rail shipments and a requirement that train owners eventually have up to $1 billion in insurance liability to cover damages after potentially catastrophic accidents.

When the small railroad behind the Canadian explosion at Lac Megantic, Quebec, in July 2013 went bankrupt, it left behind just $25 million in insurance, not nearly enough to cover massive cleanup and rebuilding costs currently estimated at $2 billion or more. That's leaving Canadian taxpayers to cover the bills, and prompted lawmakers in February to introduce the Safe and Accountable Rail Act.

The law would tax oil shipped by rail to create a fund of up to $250 million to cover damage that exceeds railroad insurance, which would be set at $1 billion minimum for large railroads, and phased in to reach up to $250 million for smaller railroads that carry oil over relatively short distances.

But in the U.S., as currently in Canada, there are no federal or state minimum insurance requirements for railroads carrying crude oil or any other kind of hazardous cargo, or taxes on crude oil that could help cover cleanup costs after oil train accidents.

By comparison, New Yorkers who own a passenger car must carry at least $100,000 in liability insurance in case they accidentally kill people or destroy property.

On Friday, the federal Transportation Department issued new rules on crude oil trains to gradually phase out older, less sturdy oil tankers, reduce train speed limits in larger populated areas, and improve brakes, but were silent on mandatory insurance or taxes on crude oil shipments to help pay for cleanups, as is being proposed in Canada.

There are no federal regulations requiring railroads to "have any type of insurance," said Mike England, a spokesman for the Federal Railroad Administration this spring. After any potential railroad accident, responsibility for cleanup and repairs "vary by state," he added.

New York has no insurance requirements for freight railroads and is "not aware of any states having a minimum dollar requirement," said Beth DeFalco, a spokeswoman for Gov. Andrew Cuomo. She said Cuomo upped the cap on a state oil spill cleanup fund, paid for in part by a tax on shipped oil, from $25 million to $40 million in this year's budget because of the risk of oil train accidents.

But even the expanded cap falls far short of what a cleanup could cost. DeFalco said after any accident, the state would "hold responsible parties accountable for cleanup costs."

After the Lac Megantic tragedy roused U.S. concerns over oil train safety, opposition to the trains began growing in the region and elsewhere in the state.

The two terminals at the Port of Albany together are permitted to handle up to 2.8 billion gallons of crude oil annually.

"It makes sense for the railroads to carry increased minimum levels of insurance. We need to protect our communities and the environment from the health and safety disaster they face if a real train disaster happens," said Willie JanewayAdirondack Council's executive director.

In the U.S., the railroad lobby has been pushing since 2007 for a federal law similar to that being considered in Canada, with a tax on oil shipments, but also with provisions that would limit potential financial liability on railroads after accidents to the amount of their insurance, and shift the risk for extra costs to the federal government, like a 1950s-era law does for the nuclear energy industry, said Rob Doolittle, a spokesman for freight railroad CSX.

CSX is a major carrier of tens of millions of gallons of crude oil from the Bakken fields of North Dakota that move eastward, traveling through New York, into the Port of Albany, and on the Hudson River to refineries in New Jersey and Pennsylvania.

Doolittle said such an insurance cap to protect railroads "recognizes the shared responsibility of safely moving hazardous materials, which the railroads are required to do under their common carrier mandate." Under federal rules, railroads must to accept cargo under federally established safety rules.

Doolittle wouldn't say how much liability insurance CSX now carries other than calling it "substantial."

The other major railroad that carries Bakken crude oil, Canadian Pacific, does not comment on its insurance liability limits, said spokesmanMartin Cej.

In Ottawa last month, CP Director of Governmental Affairs Robert Taylor spoke briefly on the proposed law, saying the railroad supported its intent, but also questioned why oil companies would be responsible for $250 million to the cleanup fund, while the railroad would have to bear the expense of four times that amount of liability insurance.

Assemblywoman Patricia Fahy, a Democrat representing Albany, last year proposed a law requiring oil storage farms — like those fed by oil trains and run at the port by Buckeye Terminals, of Houston, and Massachusetts-based Global Partners — to put up financial guarantees to cover potential multimillion-dollar costs of dealing with spills, fires or explosions.

The bill passed the Assembly in 132-2 vote, with broad bipartisan support, but stalled in the GOP-controlled Senate, never coming to a vote. Fahy said she hopes to reintroduce the bill this month.

"We want to use the private sector to say, if this handling of so much crude oil is safe, then we will insure it," she said. And Fahy said the increase in the state oil spill cleanup fund, which is used to launch cleanups when those responsible cannot or will not pay, remains a "far cry from could possibly be needed in the event of another catastrophe."

In the U.S., insurance firms have begun beefing up insurance policies available to railroads. In October, insurance giant AIG announced it was offering a $1 billion umbrella policy for railroads hauling crude oil that would kick in only after a railroad had exhausted its initial $1.5 billion in insurance from somewhere else.

The company said it was "responding to the demands of North America's largest rail companies contending with record rail traffic and the growing number of rail cars carrying potentially hazardous materials, such as crude oil." The rail industry says the largest railroads transported more than 407,000 carloads of crude oil in 2013, up from 9,500 carloads in 2008, an increase of nearly 4,300 percent.

And in June, another insurance firm, Aon Risk Solutions, announced it was launching a new "custom liability product" for railroads that would "protect the communities and environment where railroads operate."

The issue of risks railroads face from catastrophic accidents has been known for years by federal officials, even before Bakken crude oil began flowing through the nation's rail network.

A 2009 U.S. DOT study found "the most controversial factors that affect rail rates for the shipment of hazardous materials are insurance and liability considerations."

Railroads said available insurance coverage was not enough to protect them from potential bankruptcy after a multibillion-dollar disaster. The DOT report agreed: "While a "nightmare scenario" that would result in ruinous liability is highly improbable, we realize that it is not completely impossible either – given the right circumstances."

According to that 2009 report, large railroads typically have about $750 million to $1 billion in coverage, costing them between $18 million and $25 million a year. Because of the potential cost of a catastrophe, railroads warn they "are forced to "bet the farm" with every movement of dangerous, explosive material like crude oil that after a disaster could "likely force the (railroad) carrier into bankruptcy," the report found.

bnearing@timesunion.com • 518-454-5094 • @Bnearing10

http://www.timesunion.com/tuplus-business/article/Who-pays-if-a-crude-oil-train-crashes-No-6238612.php

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PAUSE, People of Albany United for Safe Energy
PAUSE is a grassroots group of individuals who have come together to promote safe, sustainable energy and fight for environmental justice. We engage the greater public to stop the fossil fuel industry’s assault on the people of Albany and our environment.