STB hears AAR proposal on Hazmat Liability

NITL (The National Industrial Transportation League) -- Logistics Management, 7/29/2008 12:24:00 PM

The U.S. Surface Transportation Board (STB) on July 22 conducted a hearing regarding the railroads’ common carrier obligation with regard to handling hazardous cargoes, “toxic inhalation hazards” (TIH).

However a debate quickly centered over a controversial proposal from the Association of American Railroads (AAR). The AAR asked the Board to issue a “policy statement” that would allow a railroad to “require the shipper of TIH materials to indemnify the carrier for the full amount of any liability or exposure resulting from a release of TIH materials” for amounts above $500 million in the case of a Class I railroad. In order for a railroad to accept a TIH for shipment, shipper would be required to demonstrate its ability to support that level of indemnification through insurance or other means. The AAR and several Class I railroad witnesses argued  forcefully that they were subject to “ruinous exposure” every time they booked TIH cargoes, and that they were “betting their balance sheets” by doing so.

League President Bruce Carlton flatly rejected the AAR proposal, noting not only that the Board lacked authority to issue such a “policy statement”, but that the Congress had recently expanded the railroads’ liability for negligence by clarifying that state tort laws were not preempted by the Federal Rail Safety Act. Although the League stressed to the Commissioners that only Congress has the authority to rewrite the rules governing tort law, they were also told that the Board could encourage dialogue between the private parties to see if commercial, arms length negotiation could resolve this controversy. The Board was cautioned, however, that such discussions must assure that safe transportation of these commodities remains the core goal where all parties are given incentives to perform in the national interest to protect citizens, property and the environment.

As expected, the several government witnesses, including FRA Deputy Administrator Clifford Eby, argued strongly that the Board should take no action that would have a negative effect on safe operations of the railroads. While Eby highlighted the extensive regulatory work underway at US DOT to carry out the safety and security mandates of a recently enacted law that implements the final recommendations of the “9/11 Commission”, hazmat shippers were quick to seize on the negative implications for rail safety in the AAR proposal. Witnesses for the League, the Chlorine Institute, The Fertilizer Institute and others pointed out to the Board’s three Commissioners that in our legal system, the entity that is at fault in an accident is responsible for paying the cost of damages they have caused. Allowing the railroads to shift this financial responsibility to parties who have no control over rail operations—the shippers—would only lessen the carrier's incentives to operate at the highest level of safety.

Shipper witnesses also catalogued a host of legal and policy reasons why the Board should reject the AAR petition, including both the absence of any factual record that would support such a move as well as decades of ICC and federal court precedents which clearly run contrary to supporting a unilateral transfer of financial liability. The Board’s docket on this matter (Ex Parte 677 Sub-No. 1) will remain open for comment for 30 days.