Not all crude oil is the same. That from Alberta may differ from the Bakken oil from North Dakota, or the crude produced by fracking in Texas. Two-thirds of North Dakota's oil is shipped by rail. More oil will be transported by rail than by pipe in the coming decade, as pipelines are less flexible, and oil may be needed in places where a pipeline does not run. The U.S. Department of Transportation is seeking plans for building safer tank cars to haul oil and other toxic or explosive materials.

Puzzling Claims

For those handling claims in the Lac-Mégantic tragedy, the railroad may not be the only culprit. As an international short line, the Montreal, Maine & Atlantic (a subsidiary of Rail World, Inc.) probably has many layers of liability insurance (unlike the “Big Seven” rail lines that may be largely self-insured). However, it has declared bankruptcy anyway. Insurers and reinsurers around the globe will be setting reserves. But what about the question of the propane tanks? If such a tank was located next to the tracks where any derailment could rupture it, then would the owner of that tank not also have a liability exposure? Often these are leased from a propane company, which delivers and sets up the tanks. Would that company have an exposure? If it is determined that the fire department in the town of Nantes 11 kilometers northwest of Lac-Mégantic was to blame, then what sort of insurance would they have?

Or, would they have sovereign immunity under Quebec or Canadian law? What about the builder of the DOT-111 tank cars, possibly Union Tank Car Co., if one of the cars was found to be defective? It is not even clear why the train derailed—apparently the locomotives ran through town and out the other side before coasting to a stop; why not the rest of the train? Furthermore, what about the owners of those tank cars? The Montreal, Maine & Atlantic didn't own them—they were just hauling them from their interchange with a Canadian railroad to a siding in Portland.

For the property insurers and life insurers involved, the claims should be relatively easy to settle. The buildings that burned down were total losses, so the policy limits would be paid. For indirect loss, the time to rebuild would need to be calculated. Life insurers would also pay their policy limits. Whether they would have a right of subrogation is unclear. As for the injured, Canada has a universal medical care plan. It probably has some form of subrogation. The individuals injured or the estates of the dead would have a right of legal action—and undoubtedly the attorneys will find many culprits to sue. Misery does love company, doesn't it? Although my textbook notes that Quebec has no-fault auto, it doesn't show if it has joint and several liability. Being French, it is more likely to have statutory codes than English common law, maybe even Napoleonic Law.

Railroad wrecks are rare, which is why they are usually big local or national news events. But just as little railroads were consolidated into big ones in the early 20th century, with mergers common through the 1960s to 1980s, now the big railroads are spinning off branches and spur lines to short-line operators, including lines such as the Montreal, Maine & Atlantic involved in the Quebec loss. Many short lines are owned by corporations that own short-lines all over the country. So who owns that rail track running through your small town or outer suburban area? Quite likely, it is a company operating on a shoestring maintenance and staffing budget that was spun off by a UP, NS, CSX or BNSF, and it is moving cars of anything and everything down the line to the next town at whatever price the market will bear.

Handling a Short-Line Claim

My Casualty Fire & Marine Investigation Checkliststext does not contain a checklist for handling a short line railroad claim. It should, and if Thomson Reuters West decides on a ninth edition in a year or so, it will probably be something like this:

1. Coverage Analysis. Any short line is going to have a multitude of insurance coverages, some with fairly large deductibles, and many with excess layers atop the primary forms. They may be with one broker or agent, but likely will involve a variety of insurers. So the first step is to see what policies are available, and which may be applicable to the particular claim at hand. The property coverages will apply to the locomotive and any damaged cars for which the short line may be liable, whether they own them or are just hauling them. A line with only one or two locomotives may be out-of-business if its locomotive is severely damaged, so look for business income (BI) coverage as well as other material damage coverage. If the track or a bridge is torn up, then how will that be repaired?

2. Many of these forms will be “inland marine,” with somewhat different terms and conditions than a property or vehicle policy. There are companies, such as R. J. Corman, specializing in railroad repairs; they may already be on the scene by the time the adjuster arrives, and negotiation of the claim is likely to be with the contractor as well as the insured. Consider the damage to whatever [products] the train was hauling, if it derailed. Who owns the cargo? Was it insured? Who was the shipper, and who the consignee? What will these parties be seeking, and are the claims covered?

3. Liability: Casualty adjusters will be thinking about liability. That will require examination to see what types of liability coverage may be needed. Railroads are generally subject to the Federal Employers Liability Act (FELA), rather than state workers' compensation. FELA allows a third-party liability claim against the employer if negligence is in any way involved. Poor track maintenance or a broken wheel on a locomotive would be considered negligence. Damage to third parties would be handled the same as any liability insurance claim. But if the damage is severe, be cautious about excess liability and coverage issues. Determine if there are umbrellas or other excess liability policies on top of the primary layer, or any deductibles.

4. Review of contracts is crucial. Who actually owns the railroad? It may be a separate corporation, or it may be a subsidiary of another corporation. Many railroads in industrial areas are owned by the industries they serve. There will also be contracts regarding the interchanged cars the short line was hauling when the accident occurred. Who owns the damaged car(s)? What is the short line's responsibility? What about contractual liability for delay? In a “just in time” delivery system, delays are costly.

5. Who was at fault? If a locomotive hits a car, there may be argument as to whether the locomotive sounded its horn or the flashing signals were working. Federal railway regulations require signals of two long blasts, one short, and another long toot before the train reaches a crossing. Locomotives often have video cameras or recorders aboard. These devices may be vital in a disputed train/auto collision. Generally the railroad will be found to have the right-of-way, despite lawsuits to the contrary. There can be other types of liability, as noted above in the Montreal, Maine & Atlantic Lac-Mégantic calamity. This is not the kind of claims investigation one can conduct by telephone from an office 100 miles away; it requires “on the scene” inspection, photos, statements, copies of news stories, digging, and debating. In the U.S., some of this will be conducted by the National Transportation Safety Board (NTSB), which investigates airline, railroad, and bus accidents. The railroad will also investigate, as will state and local authorities. Rarely will all of these agree on causation, so the claims adjuster will need to sort it all out and seek the truth, whatever that may be, because everyone who might be liable will deny that it was their fault.

6. Damages: This will always be the toughest part of a railway accident, largely because so many entities will be involved. The railroad may (or may not) be able to fix its own locomotives and repair the track or bridges. Thus, contractors may be involved. The cargo must be collected and evaluated. Was it damaged? If it was something like coal or lumber, this could be a matter of reloading. With a container, the contents might have been damaged. It may need to reach its destination and be opened for examination before damage can be assessed. Damage to third parties depends on liability. Should a derailment damage a building or home, such losses will be like any other similar damage claim.

7. Hazardous Materials: A nightmare for any railroad—mainline or short-line—and their insurers is the hazmat loss. That's what happened in Lac-Mégantic. A hazmat claim generally falls under Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), enforced by the EPA. In short, if you spill it, you clean it up—all of it, every drop—and then pay a fine for having spilled it in the first place. There are hundreds of other state and federal environmental impairment laws that may also apply. Again, liability will be a major issue. The “spiller” may include not only the railroad hauling the car, but also the owner of the car and the owner of what's in the car. Railroads haul all sorts of toxic stuff, and 99.09 percent of it reaches its final destination without incident. But the remaining 0.01 percent can explode, poison, erode, kill, damage, and ruin anything for miles around it. This is one area where environmental impairment liability coverage is a necessity—don't pay any of that under a CGL, as those policies have something called “the absolute pollution exclusion.”

So, fun lovers, a short line is more than a stop on the Monopoly! board. It is an exciting and growing industry that affects every corner of this nation. When something goes wrong, it will fall to claims adjusters to resolve, just like any other catastrophe. I don't often visit toy shops, but I see them at the mall. I don't see the old Lionel trains running around the Christmas trees; nowadays, it is robotic spacemen and super-galactic monsters that the kids apparently ask Santa to bring them.

The first book I ever sold was called The Daisy Picker's Guide. I sold perhaps six copies after it was reviewed in a railfan magazine back in 1968. It was a manual for the bored spouse or girlfriend of a railroad buff who gets talked into going on a railfan trip behind some ancient “smokealotof.” This patient soul picks daisies or pets some curious cow in a farmer's field, while the rail nut takes photos of the train as it puffs down the track. The book talks about all aspects of the hobby, including modeling.

“For your own sanity, get your rail modeler into a local club—otherwise you'll find O gauge track running around the dining room table or the bathtub, and it will take a bugle to get him to dinner. And for gosh sake, don't call them 'toy trains.' Nope. That's a different hobby.” With that, I must say, “Merry Christmas” to all.