Transport Committee on April 10th, 2014

[Andy Bite]

Our understanding is that the level of insurance that are being talked about, in the order of the billion dollars you referenced, would be sufficient coverage for the nature of the incidents that could potentially arise as a result of the care and attention being taken to manage the safe transportation of crude oil or other dangerous goods. The exposure to that level of liability coverage would seem unlikely because I believe, apart from Lac-Mégantic, which was a very unfortunate and unique situation, there haven't been situations arise prior that have tested or gone beyond the liability coverage arrangements.

[Jeff Watson, Conservative, Essex, ON]

In the marine mode of transport, can they refuse to ship dangerous goods?

[Bob Bleaney]

I actually don't know the answer to that question.

Greg, do you have an answer to that question?

[Greg Stringham]

Yes, I can answer that.

From that perspective it is commercial. It is not a common carrier. The closest model to that would be the pipeline model where they do take the crude oil as it's given to them as well. But on the marine side it's a commercial side of things, and of course there are similar types of things for inspecting the ships before they come in, as you would on the railcar side of things.

[Jeff Watson, Conservative, Essex, ON]

Crude oil has shared liability in marine, so why wouldn't you accept joint liability? Hazardous substances outside of crude will soon have that. Why not joint liability when it comes to rail?

[Greg Stringham]

I can answer that.

As you know, ships carry their own liability for shipping insurance. They have a limit to that, and that's where the fund comes in that we can draw on from this perspective. It's very similar to the hybrid model we're proposing on the rail side of things, where the capability is held by the shipper or by the rail company.

I just want to answer Bob's question—

[Jeff Watson, Conservative, Essex, ON]

That's not what you're proposing. You're proposing that rail companies assume all the risk. You're not proposing joint liability. Pooled risk for rail companies, but not pooled risk for the shippers.

[The Chair, Conservative, Larry Miller]

Okay.

We'll let Mr. Stringham speak.

[Greg Stringham]

Yes, I'll conclude that.

We're proposing the hybrid model. We believe the insurance model is sufficient for the main line but not for the smaller companies. As we look at that insurance model, only a certain amount of insurance can be acquired jointly, whether it be by us or whether it be by the rail company. It's not like you can take what they can [Inaudible—Editor] up to their limits and then say the insurance model is big enough that you can add to that from others. The liability is captured by a global insurance market. Whoever buys into that market will be assessing the risk associated with that.

[The Chair, Conservative, Larry Miller]

Thank you.

I'll now move to Ms. Morin.

You have five minutes.

[Isabelle Morin, NDP, Notre-Dame-de-Grâce—Lachine, QC]

Thank you very much.

I am going to follow my colleague’s lead.

Mr. Stringham, you compared the transportation model to that of pipelines. Actually, we have the Ship-source Oil Pollution Fund, a fund that was established to make sure that taxpayers would not be paying in the case of an accident.

You have just said that insurance models are sufficient. A little earlier, Mr. Bleaney told us that, apart from the extraordinary situation in Lac-Mégantic, costly accidents do not happen very often. That disaster happened last summer and taxpayers were asked to pay because the insurance companies were not able to. There were donations of several million dollars. Canada and Quebec have each promised to contribute $95 million. That is $190 million in tax money. The accident happened and the MMA said that its insurance company could not cover the costs.

The current model is not working. That was proven less than a year ago. Taxpayers had to foot the bill to clean up the lake, to get rid of all the waste, to provide families with tax relief, to tear down buildings, and so on. Taxpayers paid for all that. But the railways are carrying your products.

Mr. Stringham, you said that the fact that you were paying the railway was the equivalent of contributing to the insurance costs. But you did not convince me. We saw the proof that the model is not working last July. As Mr. Watson said, a professor who came to testify to the committee suggested that you should be contributing the insurance more actively.

Be specific: what are your suggestions for avoiding future disasters like Lac-Mégantic? A similar accident could happen again because the DOT-111s are still in use. If it does happen, what will the result be? Will the governments of Quebec and Canada have to foot the bill again? Will taxpayers again have to pay for an accident caused by a private company?

Mr. Stringham and Mr. Bleaney can answer.

[Bob Bleaney]

I can approach the answer from the standpoint that what we're talking about with regard to the hybrid model that was discussed is exactly to ensure that we cover the small rail lines with an adequate form of liability coverage. The reason for that need is that the smallest rail transporters don't have the capacity to access the larger market for the sake of liability coverage. That's why we've proposed a hybrid model that would facilitate their being able to take out whatever insurance they can, which again is something that ends up being paid for by the shipper.

Then they can supplement that with pooled resources to find a way to—

[Isabelle Morin, NDP, Notre-Dame-de-Grâce—Lachine, QC]

Can you be more specific about what a hybrid model would look like? Who would be responsible for what?

[Bob Bleaney]

In the hybrid model, and I'll ask Greg to weigh in on this as well, for the sake of the smaller rail transportation companies that can't access large amounts of liability coverage in the same way the mainline carriers can, they would be supplemented in their access to funds by way of pooled funds that would be available in the event that there was an incident and they exhausted the level of insurances they would otherwise have. They would have access to additional funds that would be available to facilitate the cleanup and address the incident that was in play.

Greg, do you want to elaborate on that any further?

[Isabelle Morin, NDP, Notre-Dame-de-Grâce—Lachine, QC]

Where exactly do these additional funds come from? Would it be similar to the Ship-source Oil Pollution Fund?

[Bob Bleaney]

You are asking where the additional funding comes from?

[Isabelle Morin, NDP, Notre-Dame-de-Grâce—Lachine, QC]

Yes.

[Bob Bleaney]

Greg can answer in that regard.

[Greg Stringham]

I would just add that when we're looking at this, the insurance model on the main lines and the hybrid model of having a pooled fund for the small lines are designed specifically to address the question you just raised. The funds for the pooled funds that would be there would come from the shippers that are shipping oil on those smaller lines. It would be very similar to the best attributes of the pipeline model for the main lines and the best attributes of the marine model that would allow funds to be there for the smaller lines in cases when there has been an incident and the insurance model itself is insufficient.

That's exactly why we designed it that way, and it would be paid for by the shippers of oil on those lines.

[Isabelle Morin, NDP, Notre-Dame-de-Grâce—Lachine, QC]

So, according to that model, the owners…

[The Chair, Conservative, Larry Miller]

Your time has expired, Ms. Morin.

Ms. Young, go ahead for five minutes.

[Wai Young, Conservative, Vancouver South, BC]

Witnesses, thank you for being here today.

Just to follow up on Ms. Morin's question and to be absolutely clear, unless I missed something, it's not CAPP or your group of association members that are going to be responsible for pitching in to this pooled fund, but primarily you are looking at the shippers or the transporters to do that. Is that correct?

[Bob Bleaney]

The answer is that the shippers are members in many cases, so shippers who are our members would be participating in this pooled fund arrangement.

[Wai Young, Conservative, Vancouver South, BC]

Okay. Just to be clear, it's not just the owners.... There is confusion, for me anyway, because we have the Canadian association and all of you good people, but then there are the people who own the trains like CN, CP, etc.

Who is going to pay into this fund? Could you be very, very clear about that?

[Bob Bleaney]

Again, as I understand the model, in the case where pooled funds were needed in excess of the liability coverage that would otherwise be available to the rail carrier, that funding would be supported by the shippers. In the case of our industry, the shippers tend to be our producing companies, so our members would be involved in supporting that pool. There may be other parties involved in the shipping of crude oil as well, and they'd have the same responsibility.