The struggling Maine-based rail company involved in last month’s deadly train crash in Lac-Megantic, Quebec, lost its license to operate in Canada on Tuesday after regulators there decided it doesn’t carry enough liability insurance.
While the railroad is still legally allowed to operate on the Maine side of the border, the ruling is seen as another major blow to the bankrupt company’s chances of survival.
U.S. Rep. Michael Michaud, D-Maine, said Tuesday he will call for a congressional hearing to examine rail safety and insurance issues highlighted by the July 6 accident that killed 47 people just 10 miles from the Maine border.
Michaud’s announcement came in response to questions about the Canadian Transportation Agency’s decision to prohibit the Montreal, Maine & Atlantic railroad company from operating in Canada because of inadequate coverage.
The company carries $25 million in insurance, but damages in the Lac-Megantic accident are expected to reach at least $200 million.
Michaud called the Canadian decision “concerning, given its impact on the ability of our businesses to ship Maine products to market.” He said the matter is complicated and “in need of increased scrutiny,” but said it was premature to call for new federal regulations requiring rail insurance in the United States. Railroads operating in the U.S. are not currently required to carry liability insurance.
“I’m committed to working with the state in the best interests of our communities and businesses that rely on this rail line,” Michaud said in a written response to questions from a reporter. “Having access to rail is critical to our economy, and the needs of our shippers must remain a priority throughout this process.”
Investigators in Quebec continue to investigate why a parked and unattended MM&A train with 73 tank cars of crude oil rolled downhill at nearly 60 miles an hour before derailing in Lac-Megantic, causing explosions and fire that destroyed 40 buildings and killed dozens.
Canadian authorities said that this fall they will re-evaluate the government’s insurance requirements for small railways that increasingly carry hazardous materials such as crude oil.
The revocation of the railway’s operating license in Canada takes effect Aug. 20, according to the statement by Canadian authorities. It will probably result in the layoffs of the roughly two dozen workers in Canada still with the company following the disaster, said CEO Ed Burkhardt.
Nearly 70 of the company’s Maine employees have already been laid off. They and the businesses that have used the rail line are waiting to see whether the company will survive, resume freight service and rehire workers.
Burkhardt said Tuesday that staff members were examining what Tuesday’s order will mean for the company.
The company’s third-party liability insurance is capped at $25 million, and covers property damage, bodily injury, fire suppression and environmental cleanup. Environmental cleanup costs are expected to top $200 million, and that does not include any damages awarded in lawsuits.
Following the disaster, MM&A contacted Canadian authorities to verify that its insurance and permits with the agency would continue to be valid.
The railroad was given “full and fair opportunity” to demonstrate it had obtained adequate liability insurance following the crash, said Geoff Hare, chairman and CEO of the Canadian Transportation Agency.
“This was not a decision made lightly, as it affects the economies of communities along the railway, (rail company) employees, as well as shippers who depend on rail services,” Hare said in the statement. “It would not be prudent, given the risks associated with rail operations, to permit (the rail line) to continue to operate without adequate insurance coverage.”
Although there is no federal requirement in the United States for railroad operators to carry liability insurance, all carriers likely have some coverage to protect themselves and the cargo of their customers, said Kevin Thompson, spokesman for the Federal Railroad Authority.
The only rail company that is required by federal law to carry insurance is quasi-public Amtrak, Thompson said, which carries $200 million in coverage per accident or incident.
There also is no state requirement for rail companies that operate on private tracks to carry insurance, said Nate Moulton, director of the Maine Department of Transportation rail program.
“We could pass rules, but we couldn’t enforce it,” Thompson said. “The federal rules take precedence.”
Private rail lines that use tracks owned by the state must carry some insurance. About 320 miles of more than 500 miles of state-owned track are currently active, Moulton said.
The damage from the accident in Quebec blocked Montreal, Maine & Atlantic trains from traveling from Maine to other routes in Canada, curtailing its operations and cutting deeply into its revenues.
Five days ago, the company filed for bankruptcy court protection in both Maine and Quebec, a move made to give its owners time to find a buyer or reorganize its affairs so it could continue to operate, an attorney for MM&A said at the time.
Burkhardt, the company’s chairman, said the company does not plan to appeal the ruling, and that it will make finding a buyer more difficult.
“Why would we (appeal)? What’s the gain?” Burkhardt said. “We’re looking at this is all we can say right now. We’re not sure how we’ll respond. We may just follow that order and shut down in Canada. It may not affect operations in the U.S.”
Earlier, Burkhardt had said all essential rail services in Quebec, Maine and Vermont would continue, with the exception of trains running through Lac-Megantic itself.
The Canadian decision will likely interrupt the ability of at least one company, Tafisa, a Canadian producer of particle board, to ship its product out of the country, said Chalmers “Chop” Hardenbergh, editor of Atlantic Northeast Rails & Ports, a shipping trade publication. Tafisa’s Lac-Megantic plant is the largest such facility in North America, according to its website.
Hardenbergh said Tafisa had planned to truck its products to other points on the MM&A line, but those plans could be interrupted now.
“We already know (MM&A) is not viable as it is now,” Hardenbergh said. “This is just a stake in (the rail company’s) heart, if it’s not changed.”
Matt Byrne can be reached at 791-6303, or at: