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Norfolk Southern Rescinds Legal Indemnity Demand on Tank Car Shippers

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Norfolk-SouthernThough large companies like Norfolk Southern must manage the railways they own all along the east coast, they do not own the vast majority of the tank-car fleet that travels along their rails. This includes tanker cars carrying crude oil, the safety of which has been questioned in the national media, especially after several major derailments causing massive property damages, deaths and injuries.

So when Norfolk Southern attempted to require its shipping customers to indemnify Norfolk Southern against legal liability for any disaster arising out of use of DOT-111 tanker cars, it hoped to create a built-in measure to protect Norfolk Southern, and only secondarily to potentially provide additional insurance from the shippers to any of those affected by fires, explosions, deaths, etc. for toxic spills, derailments and for the release of hazardous materials into the environment.

Unfortunately, backlash from shippers caused Norfolk Southern to rescind their new requirement, which was to be effective July 15, 2014. The National Transportation Safety Board (NTSB) has noted the shortcomings of DOT-111 cars since 1991. A Safety Recommendation from the NTSB issued in 1991 states that “improvements are still needed in the protection provided by some tank cars for certain products transported in them.

DOT-111 cars were specified in the report, stating which noted that they are “used to carry hazardous materials that can pose a substantial danger to life, property, and the environment.” The exteriors of the DOT-111 cars are thinner than other train models, vulnerable to puncturing or leaking oil or other hazardous materials. The DOT-111 cars that would have been affected by Norfolk Southern’s mandate comprise 78% of the 102,760 tanker fleet.

Shipper discontent, however, comes as no surprise. It is no secret that estimates for the costs of the changes in worst case oil spill fire disaster scenarios could run $1 billion, and investors and shippers are not willing to indemnify Norfolk Southern, when DOT-111 cars are currently transporting oil across the country daily, no matter how susceptible to disaster. Perhaps the shippers threatened to simply pull their business from Norfolk Southern, and go to CSX or other competitor railroads.

Underneath all this, let’s understand something: Norfolk Southern was not acting out of concern for the public. NS was attempting to protect its own bottom line since the transporter of hazardous materials is often liable for the spill, derailment or disastrous consequences, and here NS was demanding that shippers indemnify or hold harmless the railroad and provide evidence of further insurance (besides that the transporting railroad already has). With this type backlash, it will hopefully speed up replacement tanker cars, or cause the Federal Railroad Administration to require minimum insurance on cars transporting hazardous materials, and/or add crude oil to a designation requiring adequate insurance. Its great news we are domestically providing vital energy in the United States, but we need to allocate risk and responsibility in a fair way for that increased business being generated.