GSIS

Cargo Liability Insruance: Should Shipper's Share Liability with Railways

When it comes to Cargo Liability Insurance, North America's rail system is in a quandary.

Firstly, railroad operators are not allowed to refuse any cargo, no matter how hazardous it may be, as long as appropriate regulations are met. Secondly, current legislation deems railways liable for all damages incurred in any railroad mishap and up to an unlimited amount, even if the mishap did not occur due to railroad negligence. This is different from marine and air carriers who may limit their liability as a condition of carriage.

Backed by the Association of American Railroads (AAR), these rules have been under review since a disastrous accident in Quebec, Canada, last July forced a small railroad to file bankruptcy. 

Sixty-three (63) tank cars containing crude oil derailed in Quebec last July. Forty-two people died and the town center was destroyed. Reparations, including clean-up and compensation for death, injury, and property damage, will cost hundreds of millions of dollars. The small railroad, Montreal, Maine & Atlantic, had liability insurance of only $25 million. Overwhelmed by the costs of the accident, the company filed for bankruptcy a month later. 

Some believe the minimum amout of cargo liability insurance required by railways should be raised. This requirement alone may put some small railroads out of business. Others, like the AAR, insist that there simply is not enough coverage possible to adequately address catastrophic events like that in Quebec.

Other measures are taken when shipping hazardous cargo by rail. Trains carrying dangerous materials are designated as "key trains" and held to speed restrictions, prioritized over all other trains on the network, and are routed away from heavily populated areas when possible.

Railroad advocates insist the best solution is shared liability between shipper and railway as a condition of carriage. Such an arrangement will boost coverage in the event of an accident. Some claim it may also motivate shipping companies to take better safety precautions when preparing materials for shipment.

Hazmat shippers disagree, citing their rail transportation rates were already increased in order to compensate for risks. Shippers also claim that keeping liability assigned to railroads maintains higher standards for safety and accountability.