Thursday, May 9, 2013

STB Order on TIH Liability Indemnification

Last week the Surface Transportation Board issued their ruling on a request by Union Pacific Railroad that the STB allow certain measures in its toxic inhalation hazard (TIH) chemical tariff schedule relating to requiring shippers to indemnify UP against all liabilities not caused by UP’s own negligence or fault. The STB denied UPs request. This is part of the ongoing conflict between railroads and TIH shippers.

Railroad Issues

Under the longstanding common carrier obligation railroad have a legal duty to provide reasonably priced carriage for all TIH cargos properly offered. Railroads acknowledge that obligation, but note that they assume a huge potential liability every time they transport a rail car containing TIH materials. If that car is involved in an incident where there is a release of a toxic gas, particularly a catastrophic release, they face potential law suits and other legal actions that could literally bankrupt a Class I railroad.

Over the years the various railroads have attempted to take a number of action to reduce their potential liability. They have attempted to add TIH surcharges, restrict locations from which they would accept or deliver TIH cargos, limit the routes and interchanges over which they would transport TIH cargos, and place burdensome rules on the handling of TIH cargos. In almost all cases they were stopped or severely limited in the application of these measures by the STB in its regulatory capacity.

Liability Indemnification

In this case UP requested that the STB issue a declaratory order in support of the liability provisions of Items 50 and 60 of UP Tariff 6607, “General Rules for Movement of Toxic or Poison Inhalation Commodity Shipments over the Lines of the Union Pacific Railroad”. According to the STB decision the first item “requires TIH shippers to indemnify UP and any parent or affiliated companies against ‘any and all liabilities [emphasis added] except those caused by the sole or concurring negligence or fault’ of UP” (pg 2).

STB Decision

The Board ruled against UP because the language and effects of the UP were overly broad. The Board had problems with the tariff language in two specific areas:

• Indemnification for liabilities not due to the presence of TIH; and
• Indemnification for liabilities for which protection is available without up’s tariff provisions.

In the first instance UP had argued that while there was no specific language in the tariff limiting the liability indemnification specifically to TIH associated liabilities that in actual application that is what the tariff provisions meant. STB was not impressed with this line of argument, noting that “leaving such an ambiguity in place would not adequately inform TIH shippers what service terms they are accepting under the tariff” (pg 4).

In the second instance UP had reported that the $1.2 billion dollars of commercial liability insurance that it was able to purchase in 2012 would not have been enough to cover its liabilities in the event of a catastrophic release in a major urban area. UP noted that those liability costs could run in the tens to hundreds of billions of dollars in that case. STB rejected that argument because under the language in the tariff the shippers “would also be required (sic) to protect UP from smaller liabilities against which UP can already protect itself through insurance” (pg 4).

There was nothing, however, in the language of the decision that indicated that the Board had any general objections to the efforts of railroads to include liability indemnification in their TIH related tariffs. They were very careful to only address the overly broad application in this particular instance. This is part of a long standing STB policy to narrowly rule on TIH issues.

I suspect that we haven’t seen the last of this issue.

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