The town of 4,700 residents was rocked the evening of February 3rd when a Norfolk Southern train derailed as it passed through. Thirty-eight of the train’s 151 cars derailed. Another 12 cars were damaged. Twenty of the train cars were carrying hazardous chemicals, and 11 of those left the tracks.¹ The hazardous chemicals on board included vinyl chloride and butyl acrylate, both of which can be toxic. While there were no immediate deaths or injuries due to the derailment, concerns linger about long-term health risks associated with chemicals leaching into the soil, surface water, groundwater, and the atmosphere.²

Initial reports from the Environmental Protection Agency (EPA) and Norfolk Southern indicated the levels of chemicals in the air and water in East Palestine are low and safe. However, many residents were dissatisfied with that answer after reporting headaches, difficulty breathing, skin irritation, and foul odors in the area. A team of Texas A&M and Carnegie Mellon researchers recently conducted independent tests indicating the air in East Palestine had acrolein levels that were three times higher than those in downtown Pittsburgh, roughly 40 miles away. Acrolein is a pollutant that can irritate the eyes, nose, and skin. Typically, rural areas should have lower acrolein levels than more urban areas.²

Norfolk Southern, the NTSB, and the EPA are all investigating the derailment to determine the cause and evaluate any long-term risks to the area. When initially questioned, railroad employees indicated there were concerns among those working on the train over what they believed was the train's excessive length and weight - 151 cars, totaling 9,300 feet in length, weighing 18,000 tons.⁷ The initial investigation suggests a bearing in an axle overheated. The railway maintains wayside defect detectors to identify issues like overheated bearings; however, the train passed safely through two detectors without any indication that something was wrong.³ As the investigation continues, unanswered questions remain about what went wrong, the long-term consequences, and who is liable for the derailment.

DERAILMENT LIABILITY CONCERNS

Norfolk Southern CEO Alan Shaw joined Congress on March 22nd for hearings about the derailment and discussion around proposed legislation to improve railroad safety measures. Ohio Senators Sherrod Brown and JD Vance have cosponsored a bill that would strengthen safety requirements, provide training for first responders, and phase out older tank cars.⁴

While the spotlight is currently fixed on Norfolk Southern, they’re not the only party that could be held liable for damages. As the investigation expands and lawsuits are filed, fingers could point at additional parties. For example, the lessors and lessees of the cars could be named defendants in lawsuits. The owners of cargo could also be named as well as any railway service company that performed maintenance on the bearing in question or any other railcar.

The NTSB is also focusing attention on pressure relief devices on some of the tank cars that were carrying vinyl chloride. The relief devices are meant to relieve tank pressure but may have actually released burning fuel, which could have increased the temperature and pressure inside the tanks. Increased pressure may have caused a breach, which in turn may have led to the overheated bearing and axle. This means the manufacturers of the tank cars and the relief devices as well as the service and inspection companies could be pulled into the courtroom and held liable for damages.⁵

There’s no way to know who is liable until the investigations are complete, but lawsuits could expand the field of liable parties and damages. According to Robert Hartwig, clinical associate professor of finance and director of the Risk and Uncertainty Management Center at the University of South Carolina, the insured loss will likely exceed $50 million and could shoot above $100 million.⁶ There’s also a question about how potential damages would be paid. Class I railroads often carry upwards of $1 billion in insurance limits between SIR and insurance, so most anticipate sufficient insurance limits are in place to address the catastrophe. Norfolk Southern’s CFO confirmed the company’s liability policy attaches for losses above $75 million and up to $800 million. The rail company self-insures for losses up to $75 million.⁶

Aside from cleanup costs, there is the potential for third-party claims of bodily injury or property damage resulting from such a pollution incident, along with associated defense costs. Standard Commercial General Liability, Railcar/Railroad General Liability (RGL), and Excess Liability policies often contain pollution exclusions that could restrict, or entirely eliminate, coverage in these instances. While Norfolk Southern’s insurance policy will likely cover property damages,

the company may be self-insured for a portion of the environmental and pollution damages. According to its financial documents, Norfolk Southern has paid hundreds of millions of dollars for environmental repair and remediation over the years.⁶ However, other parties like railcar lessees or service companies, may not have the insurance limits in place or the resources available to fully cover damages.

WHAT DOES THE DERAILMENT MEAN FOR THE INSURANCE MARKETPLACE?

The fact that the EPA and other U.S. governmental entities have weighed in and are holding the railroad accountable for immediate cleanup and remediation would suggest that Norfolk Southern is going to have a harder time negating negligence for this accident, but only time will tell. It's also too early to know exactly how the Norfolk Southern derailment will impact the environmental liability market. The investigation into the cause of the accident could take months, and while several class action lawsuits have been filed against the railroad by constituents, it may be years before lawsuits make it into court. Pollution liability claims are often latent in nature, and it could be years before the full environmental impact is clear, particularly for the manifestation of bodily injury claims. That means the environmental damages will likely play out over the next several years.

Environmental insurance has always been difficult for railway companies to obtain because the damages associated with a rail accident can be significant. However, environmental insurance has typically been readily available for railcar lessees, lessors, and railcar service companies. Regardless, insurers may start to review their underwriting and coverage standards after the East Palestine derailment. Railcar and railroad stakeholders can still seek to place Transportation Pollution Liability, RGL, and Pollution coverage. Depending on the carrier, this could be available as a standalone coverage form or by endorsement to an RGL, GL, Contractors Pollution Liability, or Pollution Legal Liability (alternatively referred to as Premises Pollution or Environmental Impairment Liability) coverage form. In most cases, coverage can be provided for both first-party and third-party transportation. It often includes coverage for bodily injury, property damage, cleanup costs, and evacuation costs, including losses from derailment and loading or unloading.

It’s worth noting that while most environmental markets are able to provide Transportation Pollution Liability for transport by auto, they may not necessarily have an appetite for rail transport risks because of the challenges in determining liability when a major accident occurs. This is due to the co-mingling of contaminants when products or wastes from multiple companies are being transported together.

While the incident in Ohio has made headlines, it’s still true that railroads are one of the safest ways to transport goods, including hazardous materials. According to the Association of American Railroads, 99.9% of all hazardous materials transported by train reach their destination safely.⁶ Overall, the North American railroad industry has done a formidable job maintaining a positive safety record, bolstered by the implementation of Positive Train Control (PTC) across the ranks of Class I railroads and Railroad Transit Systems.

BOTTOM LINE

The good news in the East Palestine derailment is that there were no immediate deaths or injuries. However, there was significant property damage, and the full extent of environmental damage is not yet known. Due to the latency of environmental impacts, it may be years before we know the complete scope of damage from the accident or how it impacts the insurance market. Norfolk Southern will likely face tens of millions, maybe hundreds of millions of dollars in damages. Other parties could also be held liable for damages, including the lessees of the railcars, parts manufacturers, railcar service companies, and even the manufacturers of dangerous chemicals.

Either way, it’s an important reminder that businesses can be liable for environmental damage even if they are only peripherally involved in the accident. Given the risk involved and the potential scope of environmental damages, it’s important to have a risk transfer plan in place, especially if the company is transporting goods. Reach out to your local CRC Group producer today to learn how we can help make sure your clients are appropriately covered should the unexpected occur.

CONTRIBUTORS

• Jim Hamilton is the Environmental Practice Group Leader and Senior Broker with CRC Group’s Denver, CO office.
• Sean McLaughlin is an Associate Broker with CRC Group’s Philadelphia office.

END NOTES

1. NTSB Issues Investigative Update on Train Derailment, National Transportation Safety Board, February 14, 2023. https://www.ntsb.gov/news/press-releases/Pages/NR20230214.aspx
2. Ohio train derailment: Scientists scan for lingering toxics, Nature, March 20, 2023. https://www.nature.com/articles/d41586-023-00820-9
3. The Ohio train wreck was ‘100% preventable’ – but there’s no evidence the crew did anything wrong, investigators say, CNN, February 23, 2023. https://www.cnn.com/2023/02/23/us/ohio-train-derailment-east-palestine-thursday/index.html
4. Norfolk Southern CEO testifies on East Palestine derailment at Senate hearings, PBS, March 22, 2023. https://www.pbs.org/newshour/politics/watch-live-norfolk-southern-ceo-testifies-on-east-palestine-derailment-at-senate-hearing
5. NTSB Examining Rail Car Component in East Palestine Derailment, National Transportation Safety Board, March 2, 2023. https://www.ntsb.gov/news/press-releases/Pages/NR20230302A.aspx
6. Ohio derailment puts focus on railroad insurance, risk management, Business Insurance, February 28, 2023. https://www.businessinsurance.com/article/20230228/NEWS06/912355847/Ohio-derailment-puts-focus-on-railroad-insurance,-risk-management
7. Excess Size Caused Train to Break Down in Days Before it Derailed in Ohio, Employees Say, CBS News, February 15, 2023. https://www.cbsnews.com/news/ohio-train-derailment-east-palestine-norfolk-southern-excess-size/
8. There Are About 3 U.S. Train Derailments Per Day. NPR, March 9, 2023. https://www.npr.org/2023/03/09/1161921856/there-are-about-3-u-s-train-derailments-per-day-they-arent-usually-major-disaste#:~:text=In%202022%2C%20there%20were%20more,roughly%20three%20derailments%20per%20day