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Cano Bobblehead Night or Epic Disaster in the Making?

It was still the ninth inning when fans began filtering out of the stadium. The Seattle Mariner’s were wrapping up a 3-2 win over Detroit on a warm, spring Saturday night. It was a perfect day at the ballpark.

Yet there was chance—unlikely but entirely possible—that it could have been a an epic disaster. With perhaps 40,000 people heading out into the city, this train came barreling past within just a few yards of Safeco Field.

In case you’re wondering, that is almost certainly a loaded oil train. It’s a hundred or so tank cars each carrying roughly 30,000 gallons of a notoriously explosive type of shale oil. It’s exactly the same kind of train—loaded up exactly the same kind of fuel—that resulted in a deadly disaster in a small town in Quebec.

Risk Assessment for Railroads

[prettyquote]”There is not currently enough available coverage in the commercial insurance market anywhere in the world to cover the worst-case [train derailment] scenario.” — James Beardsley, global rail practice leader for Marsh & McLennan Cos.’ insurance brokerage unit.[/prettyquote]

The Bakken oil train that derailed and exploded in Lac-Mégantic, Quebec killed 47 people. It also made clear that the oil-by-rail industry is radically underinsured for the risks of shipping volatile Bakken crude. The financial risk falls instead on the taxpayers who would ultimately be expected to pick up the nearly incalculable costs of an oil explosion in an urban area.

The Lac-Mégantic disaster generated an estimated $2 billion in liabilities with the cleanup alone projected at $200 million. The train’s operator, MM&A, a short line railroad transporting the crude from a Canadian Pacific (CP) yard to a refinery in New Brunswick, had just $25 million in liability insurance. Soon after the accident, MM&A filed for bankruptcy protection. So far, the Canadian federal and provincial governments are paying the cleanup costs.

Under Quebec environmental law, the government can order the owner of spilled hazardous material to pay for and manage the cleanup, and the province ordered the US-based oil service companies involved with the crude oil shipment to take over the cleanup. These companies have refused Quebec’s order. They are in court fighting the government, just as they are fighting the wrongful death lawsuits filed on behalf of the town’s residents.

These oil service companies claim that, through the complicated legal structures used to ship oil, they were not technically the owners of the oil at the time of the explosion. The wrongful death lawsuits are not expected to be settled for years. Just so, CP Railway, which hauled the oil from North Dakota before turning it over to MM&A, and Irving Oil, whose refinery was the final destination for the oil, are also resisting legal liability.

Underinsurance is the norm

Tank cars are almost all owned by shippers and leasing corporations, not railroads. Railroads, however, operate under a “common carrier obligation,” which prohibits them from refusing to haul any legally allowable load even if would be inconvenient or unprofitable. In other words, they are actually required by law to transport hazardous materials, including volatile Bakken crude oil, in unsafe legacy DOT-111 tank cars until such time as the federal regulator determines these tank cars are no longer okay to use. And if the railroad hauls it, then they are liable for it.

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CIT Group, Not CSX, Owner of Lynchburg Oil Tank Cars

Media accounts of the Lynchburg oil train fire are routinely misreporting that the tank cars belong to the CSX railroad. In fact, CSX does not own the tank cars. As we pointed out in our train spotting piece, their true ownership is revealed by the markings on their sides, CBTX or CTCX, that are clearly … Read more