Canadian Transportation Agency Suspends MMA/MMAC's Certificate of Fitness

OTTAWA, Aug. 13, 2013 /CNW/ - In an order issued today, the Canadian Transportation Agency suspended the certificate of fitness for Montreal, Maine & Atlantic Railway Ltd (MMA) and its wholly-owned subsidiary Montreal, Maine & Atlantic Canada Co. (MMAC), finding that the railways have not demonstrated that their third party liability insurance is adequate for ongoing operations.

Given the exceptional circumstances of the derailment in Lac-Mégantic, the Agency contacted MMA and MMAC seeking confirmation that they continued to hold adequate third party liability insurance coverage with respect to any continuing operations as stated in their certificate of fitness.

The Agency reviewed the companies' insurance coverage and additional information they provided and it is not satisfied that MMA and MMAC have adequately restored their third party liability insurance coverage to the same level as prior to the derailment at Lac-Mégantic, nor do they have the financial capacity to pay the self-insured portion.

Order No. 2013-R-266 suspends Certificate of Fitness No. 02004-3 effective August 20, 2013, permitting MMA and MMAC time to arrange for the orderly cessation of their operations in Canada.

"MMA and MMAC were given full and fair opportunity to demonstrate that they have secured adequate third party liability insurance coverage for their ongoing operations, which is a legislative requirement to operate a railway in Canada," said Geoff Hare, Chair and CEO of the Canadian Transportation Agency.

"This was not a decision made lightly, as it affects the economies of communities along the railway, employees of MMA and MMAC, as well as the shippers who depend on rail services. It would not be prudent, given the risks associated with rail operations, to permit MMA and MMAC to continue to operate without adequate insurance coverage," noted Mr. Hare.

The tragic derailment in Lac-Mégantic has raised important questions regarding the adequacy of third party liability insurance coverage to deal with catastrophic events, especially for smaller railways. Increasing shipments of crude oil and other hazardous materials by rail highlight the need to determine how best to ensure that railways, small and large, have appropriate levels of third party liability coverage, including for possible catastrophic events such as Lac-Mégantic.

Accordingly, this fall, the Agency will undertake a consultation and review of adequacy of insurance coverage requirements for the issuance of certificates of fitness required by federally-regulated railways.

About the Agency

The Agency is an independent administrative body of the Government of Canada. It performs two key functions within the federal transportation system:

  • As a quasi-judicial tribunal, the Agency, informally and through formal adjudication, resolves a range of commercial and consumer transportation-related disputes, including accessibility issues for persons with disabilities. It operates like a court when adjudicating disputes.
  • As an economic regulator, the Agency makes determinations and issues authorities, licences and permits to transportation carriers under federal jurisdiction.

For more information on the Agency's determination, please refer to Order 2013-R-266.

For more information on the Agency's certificate of fitness process, please refer to the Backgrounder on Issuing Certificates of Fitness for Railways.

For more information on third party liability insurance please refer to: Railway Third Party Liability Insurance Coverage Regulations.



Backgrounder: Certificate of Fitness for Federally-regulated Railways


The Canadian Transportation Agency (Agency) is an independent, quasi-judicial tribunal and economic regulator. It makes decisions and determinations on a wide range of matters involving air, rail and marine modes of transportation under the authority of Parliament, as set out in the Canada Transportation Act and other legislation.

The Agency's Role in Canada's Rail Transportation System

The Agency's role in the economic regulation of the rail industry includes:

  • determining railway costs for regulatory purposes
  • processing applications including certificates of fitness, approvals for railway line construction
  • determining regulated railway interswitching rates, the net salvage value of rail lines, and the railway revenue cap for the movement of western grain

The Agency also resolves disputes, such as level of service complaints by shippers and noise and vibration complaints.

Canada Transportation Act and the Railway Third Party Liability Insurance Coverage Regulations

The Canada Transportation Act prescribes that: "No person shall construct or operate a railway without a certificate of fitness".  Sections 90 to 94 of the Act require a person proposing to construct or operate a freight or passenger railway under federal jurisdiction to apply to the Agency for a certificate of fitness. The Agency issues such certificates if it is satisfied that there will be adequate third party liability insurance coverage for the proposed construction or operation.

Railway operations can vary a great deal in terms of the volume of traffic, commodity mix, scope of operations, whether in rural or urban areas, number of crossings etc. Because of this, the Regulations do not set definite amounts, neither minimum nor maximum.

On a case-by-case basis, the Agency determines whether the third party liability insurance is adequate by confirming that the:

  • risks have been fully disclosed by the railway company to the insurance broker and the amounts and nature of the coverage have been specified, based on the Agency's application form;
  • financial capability of the railway company to sustain its self-insurance portion;
  • financial strength of the insurance company to pay its contractual coverage; and
  • proposed coverage is not out of line with similar railway operations.

Legislation places the onus on the railway to notify the Agency in writing, without delay, whenever it cancels or alters its third party liability insurance coverage, or whenever a change in construction or operation may mean that its coverage is no longer adequate.

The Agency may suspend or cancel a certificate of fitness if it determines that the railway's insurance coverage is no longer adequate for its operations.

Railway Third Party Liability Insurance Coverage Regulations (http://laws-lois.justice.gc.ca/eng/regulations/SOR-96-337/index.html)

MMA and MMAC Operations in Canada

Montreal, Maine & Atlantic Railway, Ltd. (MMA) and the Montreal, Maine & Atlantic Canada Company (MMAC) certificate of fitness no. 02004-3 permitted them to operate a railway in Canada as set out below.

MMA to operate a railway:

  • between the Canada/United States border at mileage 32.63 of the Newport Subdivision and the Canada/United States border at mileage 43.32 of the Newport Subdivision, and
  • between the Canada/United States border near Saint-Léonard, New Brunswick and Saint-Léonard, New Brunswick.

MMAC to operate a railway:

  • between Saint-Jean, Quebec and Lennoxville, Quebec; between Ste-Rosalie, Quebec and Farnham, Quebec; between Farnham, Quebec and Stanbridge, Quebec; between Brookport at mileage 0.0 of the Newport Subdivision and the Canada/United States border at mileage 26.25 of the Newport Subdivision,
  • between Lennoxville, Quebec and the Canada/United States border near Boundary, Quebec, and
  • by virtue of an interchange agreement with the Canadian Pacific Railway Company, on the Canadian Pacific Railway Company's Adirondack Subdivision between Saint-Jean, Quebec and Saint-Luc Junction, Quebec.

Agency Order No. 2013-R-266 suspends this Certificate of Fitness.

Agency Review of Third Party Liability Insurance

The rail insurance industry is highly specialized and involves relatively few players. Railway companies have access to approximately 30 to 40 companies that are willing and able to offer railway liability insurance.

Insurance companies use a sophisticated risk management approach and effectively spread their risk by only assuming a share of the liability of a company. As a result, third party liability insurance policies come in discrete values ($5, $10, $20, $50 million, etc.) which are bundled together in liability stacks, typically involving multiple insurers to reach the desired level of protection.

Given the number of players in the rail insurance industry and their risk tolerance, there are practical limits to what railway companies can obtain in the market for third party liability insurance. Rail insurers manage their exposure to risks by requiring detailed disclosure of the risk profile of the applicants at the moment of applying for a policy, and subsequent reporting of certain events and changes in practices.

Third party liability insurance packages available for railway companies of similar size to MMA/MMAC, of which there are over 600 railways in North America, are typically in the $5$50 million range in aggregate.

Based on the information filed with the Agency in the past ten years, no federally-regulated railway company's claims have exceeded the limits of its third party liability insurance. However, the tragic derailment in Lac-Mégantic has raised important questions regarding the adequacy of third party liability insurance coverage to deal with catastrophic events, especially for smaller railways. Increasing shipments of crude oil and hazardous materials by rail highlight the need to determine how best to ensure that railways, small and large, have appropriate levels of third party liability coverage, including for possible catastrophic events such as Lac-Mégantic.

Accordingly, the Agency will undertake a consultation and review of adequacy of third party liability insurance coverage requirements for the issuance of certificates of fitness required by federally-regulated railways.


SOURCE Canadian Transportation Agency

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