Thank you very much, Mr. Chair and members of the committee.
My name is Nina Frid and I am the director general responsible for dispute resolution at the Canadian Transportation Agency.
With me here today is the agency's general counsel, Ms. Liz Barker. Thank you very much for the invitation to speak about the agency's role and how it relates to your study on rail safety.
I'd like to start by offering a few words about the agency and its role and its mandate. The agency is an independent administrative tribunal and economic regulator at the federal level with jurisdiction over rail, air, and marine modes of transportation as well as accessibility for persons with disabilities for all of these modes, including extra-provincial bus transportation.
I brought the Canada Transportation Act of 1996 here with me, the agency's enabling legislation. It outlines the extent of the agency's jurisdiction and its role in administering the act. Section 5 of the act sets out Canada's national transportation policy, highlighting a vision of an economic, efficient, and accessible national transportation system that meets safety and security standards and contributes to the sustainable environment. The objective of the policy is to allow competition and market forces to be the prime agents in providing viable transportation services while using regulation and strategic public intervention to achieve the outcomes that cannot be achieved by market forces alone.
In rail transportation, the agency's authority applies only to railway companies under federal jurisdiction. Currently there are 31 operating federal railway companies. The full list is available on the agency's website and anybody can view it. Among those companies are some of the largest railway companies in North America such as CN and CP, our passenger rail VIA Rail, and there are also some smaller railways that would be considered short lines.
What makes a railway operation a federal undertaking? For example, if the lines of that railway company cross a provincial, territorial, or international boundary, it is deemed federal. So Canadian National and Canadian Pacific are classic examples. They cross the Canada-U.S. border, so they're federal. If you ever visit the agency's website to see the list of the federal railways, you will see another example of a company called the White Pass and Yukon Route Railroad company. That one operates across the B.C.-Yukon border, which is why it is deemed federal.
Another instance is the railway that is an integral part of an existing federal undertaking. For example, we have on our list the CSX intermodal terminals railway. It was deemed federal because it is an integral part of CSX Transportation, a large North American railway company.
With respect to federal railway companies, the agency performs a number of functions. It resolves disputes between railways and shippers regarding rail level of service, disputes between railways and citizens regarding railway noise and vibration, and other matters. The agency uses a range of dispute resolution mechanisms from facilitation and mediation to arbitration and adjudication.
As well—which is probably what you're mostly interested in—the agency issues certificates of fitness allowing railways to operate. The agency approves railway line construction, establishes inter-switching rates and determines maximum revenue entitlement for the movement of western grain and carries out a number of other functions.
The agency has no authority over railway safety or the transportation of dangerous goods. These matters are under the purview of Transport Canada.
As an economic regulator, the agency issues certificates of fitness for the proposed construction or operation of a railway. This is where we have a connection to the third party liability insurance coverage for a federal railway. Please allow me to explain in a few words.
Subsection 90.(1) of the Canada Transportation Act says, “ No person can construct or operate a railway under federal jurisdiction without a certificate of fitness.“
Subsection 92.(1) of the act states that:
The Agency shall issue a certificate of fitness for the proposed construction or operation of a railway if the Agency is satisfied that there will be adequate liability insurance coverage...
Subsection 92.(3) gives the agency the authority to make regulations related to certificates of fitness and railway third party liability insurance.
Subsection 94.(1) says that the holder of the certificate of fitness shall notify the agency in writing without delay if the liability insurance coverage has been cancelled or altered or if there has been a significant change in the operations of that railway that would mean that the agency has to revisit the liability insurance coverage.
It is very important to underline the fact that the legislation places the onus on the railway company and the holder of the certificate of fitness to inform the agency on a timely basis. The act also allows the agency to suspend or cancel a certificate of fitness if the agency determines that the liability insurance coverage is no longer adequate. How do we define adequacy? The agency issue of railway third party liability insurance coverage regulations, as the act allows...and I brought a copy with me. The regulations are available on the agency website, if somebody is interested. In those regulations, the agency determines the adequacy coverage on application by a railway in each case. You would hear an expression sometimes “on a case-by-case basis“.
Given the variety of railway undertakings at the federal level, as I mentioned earlier—and including on the one hand North American-wide railway companies like CN and CP, and on the other hand, seasonal tourist-operating undertakings—it was most reasonable to look at the adequacy in each individual case and application.
The regulations do not specify the minimum or the maximum amounts. Rather, the regulations outline a set of factors that the agency considers and applies consistently in reviewing each application and in determining the adequacy of third party liability insurance. These factors are all listed in the regulations but, to give you an idea, they include such things as the volume of traffic, the scope of the network—so we look at the freight miles or the passenger miles—the types of commodities carried, the types of population areas served, and the overall safety record of the applicant.
A typical third party liability insurance policy consists of two parts, essentially, the self-insured retention amount and an amount of coverage per occurrence and in the aggregate. The self-insured retention amount is what a railway must first pay, before the insurance company issues a payment to cover a claim. We think of it as a sort of deductible. The agency ensures, through its examination, that the applicant railway has the financial capability to pay the self-insured retention amount. The regulations require the railways to provide to the agency a written confirmation that they have fully disclosed to the insurer the nature and the extent of the proposed construction or operation and any associated third party liability risks. The regulations also require the railway to fully disclose all relevant information to the agency.
In the examination of an application for the certificate of fitness the agency verifies not only the financial strength of a railway company to pay its self-insurance portion, but also the financial strength of the insurance company to pay the contractual coverage obligation. The agency ensures that the proposed coverage is not out of line with similar railway undertakings. The specific amounts of third party liability insurance coverage for each federal railway are confidential, as well as the financial information that the railways provide to the agency for the examination. By the way, the railways make a claim for confidentiality for that information for competitive and commercial reasons.
The rail insurance market is highly specialized and it involves approximately 30 to 40 worldwide companies that are willing and able to offer railway liability insurance. And given their underwriters' risk tolerance there are practical limits to what railways can obtain in the market for third party liability insurance. Rail insurers manage their exposure to risks by requiring detailed disclosure of risk factors by the railway at the moment of establishing the insurance policy. And according to rail insurers the most significant they consider is the railway safety record.
I understand that the Minister of Transport and the Department of Transport have made significant improvements and continue to work on improving rail safety, but as I said this is outside of the agency's jurisdiction.
The tragic derailment of the MMA train in Lac-Mégantic in July 2013 was the worst rail disaster in Canadian history. Prior to this, based on information that has been filed with the agency, to date in the past 10 years no federal railway company's claims ever exceeded the limits of their third party liability insurance coverage.
That said, the tragic derailment raised very important questions at every level including at the level of adequacy of third party liability insurance to deal with catastrophic events like in Lac-Mégantic and especially for smaller railways. This is why the agency announced public consultation and review. It was launched this fall. Comments were received from 23 various groups of stakeholders including the FCM as you heard. We heard from shippers, railways small and large, as well as insurers. The agency produced a summary report and opened another round of consultations to allow for comments and we received an additional eight submissions. That second round closed on May 9. And the agency is at the point right now of analyzing all of this information and preparing recommendations. We're working very closely with our colleagues Transport Canada on their review. Our review is limited to the review of the regulations and the agency processes and procedures, whereas Transport Canada's review could be much broader.
Thank you.