Bill would require high-risk rail shipments to have higher insurance limits

Published: May 15, 2015

Updated: July 24, 2018

Author: Callum Micucci

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A new bill in the House of Commons would require shipping companies to increase their insurance coverage limits on high-risk shipments by rail, following the Lac-Mégantic railway disaster in 2013.

Bill C-52 would amend the Canada Transportation Act to establish the minimum level of liability insurance required for certain types of cargo. Depending on the volume and nature of the cargo, liability limits would range from $25 million to $1 billion. Not following the new laws could mean a fine of up to $100,000.

While most railway companies already have insurance, it’s about getting the proper level of insurance for the type and volume of cargo. Obviously, if there’s a risk the cargo could destroy a small town, as in the case of the Lac-Mégantic disaster, $1 billion of liability insurance doesn’t seem like such an outrageous number.

However, the smaller rail companies are likely to be the hardest hit. While the large companies can afford the increased liability limits, it could “knock some short-line [railways] out of business,” said lawyer François Tougas to the Financial Post.

“Wherever you set [the insurance] it’s going to have an impact.”

Another change stemming from the new legislation is a “compensation fund” that uses a “polluter pays” principle, which currently only applies to crude oil shipments. It will be $1.65 per tonne of shipped goods, or approximately 23 cents per barrel of crude. This pool of money will be used to cover “losses, damages, costs, and expenses from railway accidents that involve crude oil or other dangerous good exceeding the minimum liability limits of the shipper, according to the Financial Post.

The final change is a shift in liability when it comes to railway disasters. The government will not need to prove fault or negligence, with certain exceptions, to charge railway shipping companies for the costs of accidents, lawyer Brandon Mewhort told the Financial Post.

The Lac-Mégantic rail disaster happened in July 2013, when an unattended 74-car freight train carrying crude oil rolled downhill and derailed, exploding in the town’s centre. Thirty buildings in the core of the town were destroyed in a one-kilometre blast raduius. Forty-seven people died as a result. Estimated cleanup costs, excluding litigation costs, was $200 million.