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
"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.
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
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
As an economic regulator, the Agency makes determinations and issues
authorities, licences and permits to transportation carriers under
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
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
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
financial strength of the insurance company to pay its contractual
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
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 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
SOURCE: Canadian Transportation Agency
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