Five trade associations representing shippers of TIH (Toxic Inhalation Hazard) materials have written BNSF and the Surface Transportation Board (STB) about “grave concerns” they have with recent changes to BNSF’s tariff requirements, specifically, liability insurance.
In an Aug. 5, 2024 customer notice, BNSF announced changes to its General Rules (stated in BNSF 90096) that became effective Sept. 1, 2024 requiring TIH customers to maintain a minimum of $100 million of general liability insurance coverage; equally share liability for damages up to $1.8 billion “where the proximate cause is not an act or omission of either party or cannot be determined (e.g. third-party acts, Acts of God);” and “accept full responsibility for and indemnify BNSF against such liability above $1.8 billion.”
“This 10-fold increase over BNSF’s current insurance requirement is excessive,” wrote the American Chemistry Council, Alliance for Chemical Distribution, The Chlorine Institute, American Fuel & Petrochemical Manufacturers and The Fertilizer Institute on Aug. 28. “With a limited number of insurance carriers in the market, your customers face significant challenges in obtaining coverage for their full range of products. Moreover, the Sept. 1 deadline fails to provide customers with a reasonable amount of time to work through these challenges.”
“Presumably BNSF may reject shipments of TIH materials from customers who are not fully in compliance with the requirements starting Sept. 1,” the associations said. “If this happens, critical supply chains will be disrupted because some BNSF customers will have no transportation alternatives. TIH materials are the building blocks of chemistry and essential to nearly every aspect of our daily lives, including food production, water purification, energy production and countless manufacturing processes. Therefore, it is essential to our nation’s security, public health and economic well-being that TIH materials continue to move by rail without interruption.
“Liability should rest on the party with operational control over safety. Hazmat shippers are responsible for properly packaging materials and offering a secured railcar for transportation. Railroads, including BNSF, are the parties in the primary position to mitigate risks during transportation, including those associated with third-party actions and natural forces. Shifting liability to shippers could reduce incentives for railroads to mitigate such risks.
“A workable liability framework is crucial to the safe and efficient transportation of essential products throughout the economy. TIH customers share BNSF’s objective to manage transportation risks and are investing to convert their entire TIH fleet to the new, more robust design standards. However, BNSF’s unilateral rule changes impose unworkable insurance requirements and disproportionately shift greater liability to TIH customers. We urge you to further engage with your customers to achieve a constructive solution.”
BNSF Responds
“[TIH] commodities represent the most hazardous commodities moving via rail today, and an incident involving a TIH release could result in financial liability that compromises our ability to continue serving all the customers who rely on BNSF to move their goods across North America,” BNSF President and CEO Katie Farmer responded on Sept. 9, copying the STB. “In the absence of a comprehensive statutory liability regime addressing such catastrophic losses, we all have a responsibility to take reasonable measures to mitigate these risks. We believe that the updates we have made to our shipment terms are reasonable, workable, and promote the safe and efficient transportation of TIH commodities.”
Farmer went on to address the associations’ specific concerns:
Regarding insurance: “BNSF increased the minimum insurance requirement for TIH shipments from $10 million to $100 million. This was the first time we have increased the insurance requirement for these commodities in nearly 20 years, and updating this requirement was overdue as demonstrated by recent events in our industry. Additionally, it is our understanding that the updated requirement is consistent with insurance levels already in place for TIH shippers. For instance, Chubb Ltd.’s annual report benchmarking liability limits purchased by the industrial sector shows that in 2023, the median limit purchased by companies in the chemical industry was $350 million.”
An excerpt from that report was attached:
“We have heard from a small handful of customers who needed time to understand whether their existing coverage satisfied this requirement,” Farmer continued. “We are working in good faith with those customers, including by providing additional time beyond Sept. 1 for them to complete their analyses. We did not begin rejecting shipments on Sept. 1, and we will remain in close contact with our customers who requested more time.”
On joint liability, Farmer said BNSF “made an additional change to the provision governing situations where neither BNSF nor our customer has caused the liability. Liability sharing between BNSF and our customer in these situations has long been part of our shipment conditions, so that is not new. Our prior language allocated that liability on a 50/50 basis between BNSF and the customer from the first dollar to the last dollar. That remains the case for the first $1.8 billion in liability, but any liability in excess of $1.8 billion is now allocated to the customer.
“First, it is important to note that the types of losses to which this provision applies are beyond BNSF’s control to prevent. Customers are not required under this revised shipment condition to indemnify BNSF for BNSF’s own negligence. Second, BNSF’s share of the $1.8 billion represents the upper limit of the protection that is reasonably available in the current market to a common carrier railroad that is required to transport ultrahazardous commodities. An incident involving a TIH release could exhaust available coverage and jeopardize a railroad’s ability to operate. BNSF’s demonstrated record of safely moving hazardous materials shipments underscores that this risk is very small, but it is not zero; we must take reasonable measures to ensure those risks are prudently managed.
“I also want to address your comment that liability should be assumed by the party ‘with operational control over safety’ to avoid reducing incentives for railroads to mitigate those risks. BNSF’s safety vision is to operate free of incident or injury, and external incentives are not required to ensure that we continually pursue this core value. Regardless, the continuing framework of joint liability up to $1.8 billion certainly provides sufficient incentives. The operating decisions that your members independently make regarding which of different substitutable products to utilize and from where to procure them can substantially impact the risk profile associated with the supply chain for TIH commodities. A rational allocation of risk for losses outside of a railroad’s control would incentivize better risk mitigation choices from everyone involved in the manufacture, distribution, and transportation of these ultrahazardous commodities.”
Farmer concluded by saying that BNSF “remains committed to meeting our obligation as a common carrier to transport TIH commodities, and these updates to our shipment conditions do not change that. We have been deeply engaged with our customers on these changes thus far and will continue to be so going forward.”
