PHMSA Looking at Rail Hazmat Insurance

Earlier this week DOT’s Pipeline and Hazardous Material Safety Administration (PHMSA) published a request for comments in the Federal Register (81 FR 48885-48886) to seek public comments on its on-going study addressing liability issues with rail transportation of hazardous materials. This study was required by §7310 of the Fixing America's Surface Transportation (FAST) Act of 2015 (PL 114-94).

Study Requirements

The FAST Act required PHMSA to prepare a report on the current state of “of insurance for railroad carriers transporting hazardous materials” {§7310(a)} as well as addressing what level and type of insurance would be necessary to both “allocate risk and financial responsibility

for claims” {§7310(b)(2)(A)} and “ensure that a railroad carrier transporting hazardous

materials can continue to operate despite the risk of an accident or incident” {§7310(b)(2)(B)}.

Public Input

In support of this study and report requirement PHMSA is soliciting public input on response to nine specific topics. They include:

• The current level, structure, and type of liability insurance coverage (including self-insurance and retentions) available for hazardous materials transportation by rail;

• The appropriateness of the current levels of liability insurance coverage for hazardous materials transportation by rail;

• The drivers of the current coverage limits for hazardous materials transportation liability insurance;

• The impact of foreign requirements related to insurance and liability coverage;

• Data relating to, any previous or current initiatives for sharing the cost of insurance and/or legal liability for hazardous material by rail incidents between shipper and carrier;

• Alternative approaches from other industries that may be applicable to liability and insurance related to hazardous materials transportation by rail;

• Alternative programs that impose fees to fund secondary liability coverage and/or create liability caps;

Written comments may be submitted via the Federal eRulemaking Portal (www.Regulations.gov; Docket # PHMSA-2016-0074). Comments should be submitted by September 9^th, 2016.

Commentary

Railroads have long maintained that they bear the bulk of the potential liability for accidents involving the transportation of hazardous material by rail. While their safety record for hazmat transportation is pretty impressive the possible consequences of a major hazmat release in a rail accident can be quite large. This was more than adequately demonstrated a few years back during the derailment of a crude oil train in Quebec, Canada where large portions of the center of a town were incinerated.

There have been a number of attempts by the railroad to get the Surface Transportation Board to allow railroads to charge hazmat shippers a liability premium for shipments of hazardous material.

Hazmat shippers, on the other hand, note that the majority of railroad accidents are the result of deficiencies in railroad operations, either errors committed by railroad employees, or failure to adequately maintain railroad equipment (most often the actual rail lines). Shippers do not feel any obligation to assume any measure of liability for accidents caused by railroad errors.

Hopefully, the PHMSA report will include a look at the three different types of liabilities related to hazmat shipments; shipped-product safety liability, railcar maintenance liability and operational liability.

Shippers are responsible for the proper classification, packaging and marking of hazmat shipments. They generally argue that their liability should be limited to the results of errors associated with those responsibilities. Railroads argue that the inherent characteristics of hazardous materials increase the potential consequences and costs associated with railroad accidents. Since they are required by law to accept any properly classified, packaged and marked hazardous material shipment, railroads argue that the liability for the increased cost of the consequences of a hazmat release should be borne, at least in part, by the shipper.

The PHMSA report to Congress needs to clearly identify the issues of joint and severable liability for the consequences for hazardous material releases during railroad accidents. PHMSA is clearly not going to be able to resolve the issue; that is going to be an issue for either Congress or the Courts.

To ensure that PHMSA has all of the information necessary to adequately inform Congress about this hazmat shipping liability issue, the chemical industry will need to ensure that they are fully involved in the comment process. They need to fully document what they what they see as the limits of their liability in a hazmat release and what steps they take to protect themselves against the costs associated with that liability.