OTTAWA, April 3 (Reuters) - Governments should require companies shipping crude oil by rail to carry enough liability insurance to make up for shortfalls in coverage carried by railways, the president of Canada's second-largest rail operator said on Thursday.
Currently, there are no requirements in Canada for shippers of oil and other dangerous cargo to carry liability insurance against accidents, Keith Creel, president and chief operating officer of Canadian Pacific Railway Ltd , said after testifying to the House of Commons' transport committee.
The panel was examining the adequacy of Canada's transportation safety regime after a series of North American rail derailments and crashes involving shipments of crude oil, including a horrific accident last July that destroyed the center of Lac-Megantic, Quebec, killing 47 people.
The accident also exhausted the insurance of Montreal, Maine & Atlantic, the small railway responsible, which threw it into bankruptcy protection, leaving federal and provincial governments to cover the rest of the recovery costs.
"I know for a fact there are certain events that could happen that could be so catastrophic that you'd not have enough liability to protect the company," Creel said. "It would be a going-out-of-business issue for the company. We call it a bet-the-company case."
As part of its inquiry, the committee is also looking at the phasing-out of the older version of the DOT-111 tanker cars that were involved in the Lac-Megantic accident. Experts think the process could take years to complete despite the heightened risks presented by rising oil-by-rail shipments.
But Creel told the committee that railroad companies have reached the limits of the amount of liability coverage they are able to buy.
"The only other people that can buy additional insurance would be the shippers of the products. They've not been mandated to do that. It's not a regulatory requirement," Creel said. "It needs to happen. This should be a collaborative effort."
He said he had no expectations that such a catastrophe involving Canadian Pacific was likely, adding it was the safest railway in North America. Even so, he wanted to be prepared.
Canadian National Railway Co, CP's larger rival, told the committee it was confident it had enough insurance.
CN has never had any damages anywhere that exhausted the level of insurance it carries, said Chief Operating Officer Jim Vena. Pressed about the possibility of a future worst-case scenario, he said: "We're very comfortable that we're carrying enough insurance."
The Liberals, one of the opposition parties in Parliament, said they have long advocated for a requirement that shippers carry insurance, and the opposition New Democratic Party also said it was worth looking into the issue.
Transport Minister Lisa Raitt said in an emailed statement that the Conservative government had promised in their policy speech last October that it would require additional insurance of the railways as well as the shippers.
"The taxpayer should not have to fund the cost of damages after an incident," she said, without indicating when she might act on this.
Creel said that under common carrier rules, railways are legally required to carry products they might not want to carry, as long as the containers conformed with government regulations.
He said CP had tried to require adequate shipper insurance on its own, but was rebuffed.
"You can't do it in the States and you can't do it in Canada. It's just the regulatory regimes on both sides won't allow it," Creel said.
CP has started charging a $325-per-car surcharge for hauling the older DOT-111 tank cars. But Creel said it would lose in arbitration in Canada if it charged prohibitive rates to force the DOT-111s out.
The safety issue is only expected to become more urgent as shipments of oil by rail rapidly expand to keep up with burgeoning production in Alberta, Saskatchewan and North Dakota without matching growth in pipeline capacity.
Many in the rail industry are calling for a retrofit or an aggressive phase-out of these legacy tank cars - mostly owned by shippers or lessors and not the railways - and estimate the process could take years to finish.
But some argue regulators could immediately order dangerous cargo, such as the highly flammable crude that comes out of the Bakken oil fields, to only be carried in safer tank cars.
Canadian and U.S. officials have been meeting to hammer out rail safety laws, and Raitt said on Tuesday those discussions were currently centered around what the next-generation tank car will look like.
Creel said he guessed it could take the United States 12 to 18 months to come out with new standards, and declined to estimate when the two sides would mandate a phase-out of the older cars.
CN and CP own only a tiny handful of the older rail tank cars, or less than 1 percent combined of the approximately 92,000 used in North America to transport flammable liquids.
Both CN and CP said their DOT-111 fleet are used to carry diesel fuel for their own locomotives and not for moving other products, and said they were working to phase out the cars. CN has said it is looking at a four-year phase-out plan.
Federal railways carry more than 50 percent of goods transported by land in Canada, the world's second largest country by area. The network has 44,000 km (27,300 miles) of track. (Additional reporting by Solarina Ho; editing by Frank McGurty and G Crosse)