Battle Over Hazmat Liability

The railroad industry is asking federal regulators to allow the nation's freight carriers to require chemical companies and other shippers of highly hazardous materials to assume much of the financial risk of transporting these dangerous
commodities.

"Nothing is more important than the safety of our employees and the communities through which we operate," Edward R. Hamberger, president and chief executive officer of the Association of American Railroads (AAR), told the Surface Transportation Board (STB) at a hearing last month. "It's only reasonable that those who make extremely hazardous materials demonstrate that they also have the same public safety commitment."

STB, an independent regulatory agency created by Congress in 1995 to resolve disputes between shippers and railroads, has held several meetings this year to examine the rail industry's common carrier obligation to transport hazardous materials, particularly toxic inhalation hazards (TIH).

Chlorine, a powerful oxidant used in bleaching and disinfectants, and anhydrous ammonia, the basic building block of all nitrogen fertilizers, account for more than 80% of the TIH materials transported by rail. Shipments of these chemicals represent approximately 0.3% of the total rail cargo moved throughout the country each year. But that still amounts to an estimated 100,000 carloads.

The common carrier obligation, codified by Congress in the Interstate Commerce Act, requires railroads to provide "transportation or service upon reasonable request." Consequently, freight carriers cannot pick and choose which shippers to serve and which commodities to transport purely on the basis of their self-interest. But the railroad industry contends that this obligation has created an "untenable" situation, where carriers risk multi-billion-dollar lawsuits in the event of an accident involving a highly hazardous chemical.

"Accidents can and, unfortunately even though the odds are extremely minimal, will occur, even when the railroads are not at fault," Hamberger remarked in his recent testimony. "Every time a railroad moves one of these shipments, it faces potentially ruinous liability."

The seven largest railroads each purchase about $1 billion in liability insurance to help cover potential losses if an accident were to occur and a highly toxic chemical were to be released. But rail carriers say the insurance industry is unwilling to provide additional coverage. "We do not have, and cannot get, insurance coverage that would protect us against a major TIH incident," Union Pacific Railroad spokesman Mark Davis tells C&EN.

At the STB hearing in July, representatives of Union Pacific, Norfolk Southern, CSX Transportation, and Burlington Northern Santa Fe warned that a single accident involving the release of a TIH material has the potential to put a railroad company out of business. A jury award following such an accident could rise into the billions of dollars, they claimed.

The worst rail accident in recent decades occurred in the early morning hours of Jan. 6, 2005, in the small mill town of Graniteville, S.C. After two Norfolk Southern freight trains collided, a pressurized tank car ruptured and spilled more than 9,200 gal of chlorine. When liquid chlorine is released, it quickly turns into a deadly gas that stays close to the ground and spreads rapidly. Nine people died and approximately 550 others were treated for exposure. Publicly available information indicates that claims of all parties affected by the accident will amount to at least $500 million.

Had the accident occurred in a more densely populated area or later in the day, the ultimate financial loss likely would have exceeded the available insurance coverage. In fact, a 2004 study by Risk Management Solutions, based in Newark, Calif., concluded that a rush hour rail accident in Chicago involving a chlorine release from a single tank car could result in more than 10,000 fatalities, 32,600 other casualties, and more than $7 billion in claims.

The railroad industry, Hamberger emphasized, is not seeking to eliminate its common carrier obligation to carry TIH materials. "Rail is the safest and most secure mode of transporting TIH, many of which play an important role in the national economy," he told the three-member STB panel. But because federal law forces railroads to take a "bet-the-company" type of risk, the AAR president said companies that ship highly toxic chemicals should share in the liability if an accident occurs.

"Railroads spend billions of dollars every year to ensure the safety of our rail network," Hamberger noted. "We train thousands of local emergency responders and have implemented special operating procedures on trains carrying TIH. It's only right that those who make and ship these dangerous chemicals both share in the risks we face to transport their hazardous materials and have the same incentive to eliminate those risks."

Hamberger called on the board to issue a formal policy statement recognizing the right of a rail carrier to establish liability-sharing arrangements with shippers as conditions of transport. Under AAR's proposal, large "Class 1" railroads would continue to purchase at least $500 million in primary insurance to cover the risks that are normally associated with the rail transport of any commodity. Shippers, however, could be required to "indemnify" or compensate the railroads for the full amount of any excess liability that results from the release of TIH materials beyond the threshold level.

"This shared liability would not only provide protection for the rail network against catastrophic exposure, but also act as an incentive for all stakeholders to seek to further reduce the risks associated with TIH material transport through operational changes in their respective industries," Hamberger said.

However, chemical manufacturers told the board that rail carriers should not be allowed to use a liability argument to refuse requests for service by TIH shippers. "Railroads have an obligation to serve the transportation needs of the country," said Jack N. Gerard, president and CEO of the American Chemistry Council (ACC), which represents 134 of the nation's largest chemical companies. "They are required to operate in the public interest because the public depends on safe and reliable service in the delivery of a wide range of products."

The chemical industry relies on railroads to deliver approximately 170 million tons of products each year, making chemicals the second-largest railroad commodity behind coal in terms of volume.

Gerard pointed out that since Congress largely deregulated the railroad industry in 1980, massive consolidation through mergers and acquisitions has allowed a handful of companies to control 90% of all rail freight traffic in the U.S. "This newfound market power has doubled industry-wide profits since 2003 and sent rail stock prices soaring," he said. "To even consider reducing the common carrier obligation instead of addressing the current barriers to competition in the freight rail system would only serve to extend the monopoly power the railroads currently enjoy over their customers."

Although accidents involving highly hazardous materials on railroads are rare, Gerard noted that the National Transportation Safety Board has determined that the cause of the three most recent fatal accidents involving chemicals were railroad maintenance and operational failures. "Now with increased traffic and perceived capacity constraints, the railroads wish to avoid their common carrier obligation for hazardous materials to focus on other traffic. This clearly has nothing to do with the public interest," the ACC president declared.

Gerard said statements by some railroad executives indicating that their companies would not carry TIH materials absent the federal mandate to do so raises several questions, including, "Which of the thousands of products made from chemicals, and the jobs of Americans who make these products, do the railroads wish to eliminate from U.S. commerce?

"These materials are critical for the production of life-saving medications and medical devices, body armor used by our military and law enforcement officers, deicing fluids for airplanes, energy-saving solar panels, and so much more," he said.

Gerard, who will leave ACC at the end of the month to become president of the American Petroleum Institute, the oil industry's trade group, also criticized an assertion by the railroads that the only way to completely eliminate the risks inherent in moving highly toxic chemicals by rail is to replace those materials with safer chemicals and technologies.

AAR has urged the chemical industry to devote more resources toward the development of substitutes for TIH materials and has endorsed legislation (H.R. 5577) the House Homeland Security Committee approved earlier this year that would require chemical companies to adopt, wherever feasible, inherently safer technologies (IST).

"We can no longer continue to risk the lives of millions of Americans by using, transporting, and storing highly toxic chemicals when there are safer alternatives commercially available," Hamberger told the committee at a hearing in February. "It is time for the nation's big chemical companies to stop making the dangerous chemicals that can be replaced by safer substitutes or new technologies currently in the marketplace. And if they won't do it, Congress should do it for them in the Chemical Facility Antiterrorism Act of 2008."

ACC opposes the bill's IST provisions, arguing they would place government officials, instead of industry experts, in the position of mandating changes to chemical processes and products. "The railroads," Gerard told the STB panel, "are trying to sell a fantasy that there are benign alternatives to all these crucial materials in order to avoid their responsibility and appropriate liability for the safe transportation of these products. Instead of taking irresponsible positions, railroads need to continue working with their customers on realistic solutions to improve safety and security."

Ford B. West, president of the Fertilizer Institute, whose members produce and ship ammonia and other fertilizer products, testified that there is a "critical need" for the railroads' common carrier obligation to be upheld. "There is no existing or economical substitute for anhydrous ammonia in the Corn Belt and in the production of phosphate fertilizer and no safer or more efficient mode of transportation for ammonia than by rail," West said. "As a result, it is imperative that STB recognize and maintain the obligation of the railroads to continue transporting this essential commodity."

In addition to its direct application as a fertilizer, anhydrous ammonia is the primary ingredient in all other nitrogen fertilizers, such as urea and urea ammonium nitrate solution, and is also used to produce phosphate fertilizers, such as diammonium phosphate and monoammonium phosphate. "Without fertilizer in general and in particular ammonia, our nation's food and energy supply would be adversely affected and the world would be without 40 to 60% of today's harvest," West maintained.

Although anhydrous ammonia is transported by several methods including pipeline, barge, truck, and ocean vessel, West said rail is the safest mode of transportation for all TIH materials. "One railroad tank car can transport as much ammonia as four trucks," he noted. "Rail transportation is not only more efficient than trucks, it takes a highly hazardous commodity off our nation's highways where the potential for accident and public release are many times greater."

Several shippers also asserted that the railroads have been trying to avoid their common carrier obligation by charging excessive rates. "Since 2004, rail rates for anhydrous ammonia have skyrocketed to unprecedented levels," said Robert Felgenhauer, vice president of transportation and distribution for PotashCorp. "Fertilizer Institute members report that their rail rates have nearly tripled over this time. By increasing rail rates to such high levels, railroads are able to discourage shipments of anhydrous ammonia without actually having to refuse to transport those shipments."

Robin A. Burns, vice president of supply chain for Occidental Chemical, cited a recent case in which she said the rate offered to move a chlorine car 112 miles was significantly higher than for a 421-mile trip. "Our request to get the railroad to lower its rates, allowing us to move the material a shorter distance, was denied," she said. "When we challenged them on their decision, they stated that they did not want the chlorine on their railroad."

Burns also insisted that if the railroad industry believes modifications to the common carrier obligation are needed, it must seek those changes from Congress, not STB. "If there is to be any limitation, monetary or otherwise, on liability, or a refusal to carry certain commodities, neither the board nor the railroads are empowered to take such actions," she said. "Rather, Congress is empowered to do so, because the existing statutes require the railroads to transport all commodities tendered to them, with only a few exceptions. None of the exceptions depend on the hazardous nature of the commodity."

Thomas E. Schick, ACC's senior director for distribution, tells C&EN he does not believe STB has the authority to allocate liability among different parties in the event of an accident, to require indemnification, or to interfere with state tort law. "Allocating liability from one party to another goes far beyond the scope of what STB is supposed to be dealing with," he remarks.

Schick also maintains that the current system appropriately places legal liability on the parties that are responsible for an incident. "The soundest policy is to have the liability rest on the party that controls whichever aspect of the operations that may have gone wrong," he says.

The railroads' risk-sharing proposal, Schick adds, "looks like it would be a shift of liability regardless of fault, regardless of negligence, or even gross negligence by the railroads. We don't think that taking all of that off the table is the appropriate way to enhance public safety."