August 10, 2013

Maine railway's insurance far short of damage

The company faces over $200 million in crash claims but only has a $25 million policy, angering Quebec residents.

By Tom Bell
Staff Writer

The Maine railroad whose runaway train caused the fiery disaster last month in Quebec is insured for just a small fraction of the costs it faces for the cleanup and compensation for victims.

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This aerial photo shows a fire in the town of Lac-Megantic as seen from a Sûreté du Québec helicopter Saturday, July 6, 2013 following a train derailment that sparked several explosions in Lac Megantic, Quebec. (AP Photo/Sûreté du Québec via The Canadian Press)

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A woman comforts her friend while they sit on the grass at the Polyvalente Montignac, the school sheltering the people who were forced to leave their houses after the explosion, in Lac Megantic, July 7, 2013. Nearly 50 people died in the crash and 30 buildings were destroyed. (REUTERS/Mathieu Belanger)


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The Montreal, Maine & Atlantic Railway expects the environmental cleanup from the derailment of the train carrying crude oil to cost $200 million.

Moreover, the railroad is being sued by relatives of the 47 people killed in the accident and by owners of the 30 buildings in Lac-Megantic that were destroyed. The value of the claims is expected to be in the tens of millions of dollars.

Facing those costs, the Hermon-based Montreal, Maine & Atlantic Railway has an insurance policy capped at $25 million, according to documents that the company's Canadian subsidiary filed Wednesday in Quebec Superior Court in Montreal. The liability policy covers property damage, bodily injury, fire suppression and environmental cleanup.

The railroad has a second insurance policy, but that appears to cover only its mobile equipment, such as locomotives and rail cars.

The huge expense of the cleanup in Lac-Megantic indicates that the railroad is vastly underinsured, said Lindsay Newland Bowker, a retired environmental risk manager who lives in Stonington.

She said the accident should be a wake-up call for Maine because a similar accident could happen here and the state's taxpayers would have to fund the cleanup.

"This could be Old Orchard Beach. This could be Saco. This could be Lincoln," said Bowker, who was the risk manager for the New York City Department of Environmental Protection from 1986 to 1998. "This could be us, and it will be us if the state does not get off its dime and use more of its authority."

The accident occurred July 6 when an unattended train hauling 72 cars filled with crude oil rolled down a hill and derailed, setting off explosions and fires in the center of Lac-Megantic.

In Quebec, particularly in Lac-Megantic, people are furious that the railroad filed for bankruptcy protection and carried so little insurance.

The town of Lac-Megantic paid nearly $8 million to cover the first few weeks of cleanup costs after work crews threatened to walk off the job because they feared the railroad wouldn't pay them.

Quebec's provincial government registered Thursday as a guaranteed creditor in hopes of getting back money it has already spent on the cleanup.

Federal Transport Minister Lisa Rait said in a prepared statement that the bankruptcy "does not mean that MM&A is off the hook for their responsibilities to the people of Lac-Megantic."

Canadian rules require railroad operators to carry liability insurance, but do not mandate a specific coverage limit. A quasi-judicial panel decides on a case-by-case basis whether a railway operator's third-party liability insurance is adequate, according to Canadian Underwriter, a trade publication.

It could not be determined Thursday whether railroad operators in the United States have requirements for liability insurance.

George Betke of Damariscotta, a principal of two short-line railroads in Oklahoma and one in New York state, said he is unaware of any insurance mandate by the Federal Railroad Administration, which oversees the nation's railroads.

Betke said the amount of insurance that railroads carry depends on the mix of cargo, the terrain they cover, exposure to grade crossings and the speed of the trains.

He said the $25 million plan carried by the Montreal, Maine & Atlantic Railway is about average for short-line railroads, which travel at speeds of 10 to 25 mph.

No railroad operator could anticipate the "kind of perfect storm of bizarre circumstances that has precipitated MMA's bankruptcy," Betke said.

Ted Talbot, spokesman for the Maine Department of Transportation, said the state doesn't know the level of liability coverage carried by any of the railroads that operate in Maine. Railroads are under the jurisdiction of the federal government, he noted.

"We don't have any kind of oversight over the rail industry," he said. "Same with the trucking industry. We don't know when they are coming. We don't know where they are going. We don't know what they are hauling."

The Maine Department of Environmental Protection has a designated fund to cover cleanup costs for oil spills, but its current value is only $2.7 million.

The fund is paid for by a 3-cent fee on every barrel of petroleum cargo that is transported through the state. It has been cut by 60 percent since 2005 because of a sharp decrease in tariffs collected from companies that ship oil, and because of legislators' decisions to use money from the fund.

Tom Bell can be contacted at 791-6369 or at: 

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Additional Photos

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Firefighters look at a train wagon on fire at Lac Megantic, Quebec, July 6, 2013 after a runaway oil train crashed and caused numerous explosions. 47 people died and much of the Quebec town was destroyed. The company faces over $200 million in crash claims but only has a $25 million policy.(REUTERS/Mathieu Belanger)

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A burnt out vehicle sits near the wreckage of a train car following a train derailment in Lac Megantic, Quebec, July 7, 2013 that killed 47 people and destroyed much of the town. (REUTERS/Christinne Muschi)


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