Railroads lack insurance for major oil train disasters, feds say

The insurance policies that most railroads have cannot cover the costs of many crashes or derailments involving oil trains, the Department of Transportation said.

New safety rules for oil trains proposed last week would not mandate higher insurance levels than the $25 million common to the industry.

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But a DOT analysis released along with the rule found that the costs of oil train disaster average about $25 million, meaning many major incidents would exceed the threshold.

The DOT only called attention to the issue in its analysis.

An oil train derailment last summer in Quebec that kicked off discussion of crude-by-rail safety in North America cost far more than $1 billion. The carrier declared bankruptcy, when it realized it could not cover the costs.

“At this time, the maximum coverage available in the commercial rail insurance market appears to be $1 billion per carrier, per incident,” the DOT said in its analysis. “While this level of insurance is sufficient for the vast majority of accidents, it appears that no amount of coverage is adequate to cover a higher consequence event.”

The DOT also found that it is extremely difficult to estimate the national rate of crude and ethanol train incidents due to data limitations. Different DOT agencies collect data on hazardous material spills and derailments, though the derailment data do not identify the substances released.

“As a result, it is impossible to use [Federal Railroad Administration] data to identify crude and ethanol derailments,” the DOT said.

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