For most of us a train is a nuisance that ties up Main Streetwhile two miles of hoppers or tank cars roll by behind three diesellocomotives. Or it may be one of those fast-moving intermodaldouble-stack trains with containers of goods from China andelsewhere in Asia, travelling to cities for distribution to storesin time for Christmas sales. But whether the train is carryingsticks (lumber for new homes) or stones (aggregate and sand for newconcrete construction), or coal in a unit train to power anelectric plant so we can heat and light our homes in the dark ofwinter, a train often represents holidays. One rarely seesChristmas cards with railroad themes any more—artistic drawings ofa village depot and the puffing passenger train delivering visitingrelatives and friends or unloading packages from the expresscar.

Occasionally a railroad will run a “Santa Claus Special” or a“Polar Express” for kids, accompanied by at least one adult. Truerailroad buffs avoid these, except to take photos, as there arealways 2,000 kids and one Porta Potty at the point where the trainreverses. Also, it's generally not a good time to take one's firstAmtrak ride—the coaches will be jammed with travelers, and thecrews will be overworked. Now just wait until February orApril.

Lessons from Lac-Mégantic

As we saw with the Lac-Mégantic explosion of an oil tank cartrain in August, some cargos are more hazardous than others.Whether the derailment was the railroad's fault or the result of anearlier locomotive fire where the small-town fire departmentswitched the locomotive off, allowing the air brakes to release,will be a matter for the Canadian governmental agencyinvestigators. The accident has proven to be enlightening. As morecrude oil is being shipped by rail, questions arise about thequality of the oil. Don Phillips, a former Washington Postjournalist, now a columnist for Trains, noted in his October columnthat what caused the derailed cars to explode is a bigger mysterythan at first believed. “Light sweet crude oil alone is not thatreadily explosive,” Phillips writes. “It will burn and even willexplode under the right conditions, but not with the suddenviolence of the explosion that was recorded on film that night. Thequestions become: Was something else mixed with all or some of theBakken crude tank cars? Did the type of tank car, the DOT-111, havea role in the explosion? Was a large tank of propane near [thetracks] breached?”

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

Puzzling Claims

For those handling claims in the Lac-Mégantic tragedy, therailroad may not be the only culprit. As an international shortline, the Montreal, Maine & Atlantic (a subsidiary of RailWorld, Inc.) probably has many layers of liability insurance(unlike the “Big Seven” rail lines that may be largelyself-insured). However, it has declared bankruptcy anyway. Insurersand reinsurers around the globe will be setting reserves. But whatabout the question of the propane tanks? If such a tank was locatednext to the tracks where any derailment could rupture it, thenwould the owner of that tank not also have a liability exposure?Often these are leased from a propane company, which delivers andsets up the tanks. Would that company have an exposure? If it isdetermined that the fire department in the town of Nantes 11kilometers northwest of Lac-Mégantic was to blame, then what sortof insurance would they have?

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

For the property insurers and life insurers involved, the claimsshould be relatively easy to settle. The buildings that burned downwere total losses, so the policy limits would be paid. For indirectloss, the time to rebuild would need to be calculated. Lifeinsurers would also pay their policy limits. Whether they wouldhave a right of subrogation is unclear. As for the injured, Canadahas a universal medical care plan. It probably has some form ofsubrogation. The individuals injured or the estates of the deadwould have a right of legal action—and undoubtedly the attorneyswill find many culprits to sue. Misery does love company, doesn'tit? Although my textbook notes that Quebec has no-fault auto, itdoesn'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 biglocal or national news events. But just as little railroads wereconsolidated into big ones in the early 20th century, with mergerscommon through the 1960s to 1980s, now the big railroads arespinning off branches and spur lines to short-line operators,including lines such as the Montreal, Maine & Atlantic involvedin the Quebec loss. Many short lines are owned by corporations thatown short-lines all over the country. So who owns that rail trackrunning through your small town or outer suburban area? Quitelikely, it is a company operating on a shoestring maintenance andstaffing budget that was spun off by a UP, NS, CSX or BNSF, and itis moving cars of anything and everything down the line to the nexttown at whatever price the market will bear.

Handling a Short-Line Claim

My Casualty Fire & Marine InvestigationCheckliststext does not contain a checklist for handling ashort line railroad claim. It should, and if Thomson Reuters Westdecides on a ninth edition in a year or so, it will probably besomething like this:

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

2. Many of these forms will be “inland marine,” with somewhatdifferent terms and conditions than a property or vehicle policy.There are companies, such as R. J. Corman, specializing in railroadrepairs; they may already be on the scene by the time the adjusterarrives, and negotiation of the claim is likely to be with thecontractor as well as the insured. Consider the damage to whatever[products] the train was hauling, if it derailed. Who owns thecargo? 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 adjusterswill be thinking about liability. That will require examination tosee what types of liability coverage may be needed. Railroads aregenerally subject to the Federal Employers Liability Act (FELA),rather than state workers' compensation. FELA allows a third-partyliability claim against the employer if negligence is in any wayinvolved. Poor track maintenance or a broken wheel on a locomotivewould be considered negligence. Damage to third parties would behandled the same as any liability insurance claim. But if thedamage is severe, be cautious about excess liability and coverageissues. Determine if there are umbrellas or other excess liabilitypolicies 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 ofanother corporation. Many railroads in industrial areas are ownedby the industries they serve. There will also be contractsregarding the interchanged cars the short line was hauling when theaccident occurred. Who owns the damaged car(s)? What is the shortline'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 beargument as to whether the locomotive sounded its horn or theflashing signals were working. Federal railway regulations requiresignals of two long blasts, one short, and another long toot beforethe train reaches a crossing. Locomotives often have video camerasor recorders aboard. These devices may be vital in a disputedtrain/auto collision. Generally the railroad will be found to havethe right-of-way, despite lawsuits to the contrary. There can beother types of liability, as noted above in the Montreal, Maine& Atlantic Lac-Mégantic calamity. This is not the kind ofclaims investigation one can conduct by telephone from an office100 miles away; it requires “on the scene” inspection, photos,statements, copies of news stories, digging, and debating. In theU.S., some of this will be conducted by the National TransportationSafety Board (NTSB), which investigates airline, railroad, and busaccidents. The railroad will also investigate, as will state andlocal authorities. Rarely will all of these agree on causation, sothe claims adjuster will need to sort it all out and seek thetruth, whatever that may be, because everyone who might be liablewill deny that it was their fault.

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

7. Hazardous Materials: A nightmarefor any railroad—mainline or short-line—and their insurers is thehazmat loss. That's what happened in Lac-Mégantic. A hazmat claimgenerally falls under Comprehensive Environmental Response,Compensation and Liability Act (CERCLA), enforced by the EPA. Inshort, if you spill it, you clean it up—all of it, every drop—andthen pay a fine for having spilled it in the first place. There arehundreds of other state and federal environmental impairment lawsthat may also apply. Again, liability will be a major issue. The“spiller” may include not only the railroad hauling the car, butalso 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 itreaches its final destination without incident. But the remaining0.01 percent can explode, poison, erode, kill, damage, and ruinanything for miles around it. This is one area where environmentalimpairment liability coverage is a necessity—don't pay any of thatunder a CGL, as those policies have something called “the absolutepollution exclusion.”

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

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

“For your own sanity, get your rail modeler into a localclub—otherwise you'll find O gauge track running around the diningroom table or the bathtub, and it will take a bugle to get him todinner. 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.