Tank cars have been moving hazardous and flammable materials for more than a century, resulting in numerous significant accidents, lawsuits, and payouts over the past few decades. However, in the past few years, movement of crude oil by tank car has increased dramatically and so have crude oil spills, including the tragic July 2013 Lac-Mégantic derailment in Quebec. This presents the question of whether crude by rail (CBR) is different in terms of liability risks, and if so, how? Our approach to this article is not regulatory or academic. It is a trial lawyer’s approach about the liability risks of CBR in the world of U.S. lawsuits, judges, and juries.
Additional risks of CBR
Between 2005 and 2010, the average number of crude oil carloads transported by rail per year was only 7,400. However, starting in 2010, annual crude oil carloads have grown rapidly, with more than 400,000 carloads transported in 2013. With these increases in CBR transportation, there has also been an increase in CBR releases. From 1975 to 2012, 800,000 gallons were spilled. By comparison, in 2013 alone, 2.65 million gallons were spilled.
The current risk landscape for CBR presents additional risk when compared with the movement of other hazardous materials by tank car over the past few decades:
• Volume: One additional risk is simply the volume of CBR. It is not just that CBR is a higher percentage of overall hazardous materials shipments (crude is the most frequently shipped hazardous material), but we are now shipping much more hazardous material by tank car than ever before.
• Notoriety: Constant attention by the media and politicians on CBR, particularly after the Lac-Mégantic tragedy, has brought CBR to the public’s attention in a way that transportation of other hazardous materials by tank car never has. This notoriety has focused more of the plaintiffs’ bar on CBR derailments. Additionally, such notoriety may also have an effect on judges and juries who have to make decisions in CBR litigation.
• New target defendants: In serious tank car litigation over the past several decades, plaintiffs’ liability theories have tended to focus on maintenance of tank cars, train handling, and track conditions. As a result, the target defendants have been the railroads. However, shipment of CBR appears likely to broaden the preferred liability theories to include classification (materials carried in a tank car not properly classified); suitability (the tank car not proper for the materials); and routing (the chosen route for the tank car was inappropriate). This, in turn, is likely to result in increased targeting of shippers as key defendants in litigation related to CBR accidents.
• Bakken crude: A substantial amount of CBR comes from the Bakken Shield. There has been a lot of speculation and conflicting analysis about whether Bakken crude is more volatile than other crude, contains residues of fracking materials, and/or causes corrosion. Recently, the DOT released its updated investigation of Bakken crude, concluding that Bakken crude oil has a higher degree of volatility and therefore presents “an increased risk of significant incident.” This controversy surrounding Bakken crude is likely to increase the plaintiffs’ bar’s focus on classification and suitability over what exists for more uniformly understood hazardous material commodities.
• Erosion of preemption: Traditionally, preemption has been a very strong defense in tank car derailments. Simply stated, the defense is that if the tank car manufacturer/tank car owner/shipper/railroad is in full compliance with federal regulations (and “internal plans” implemented to comply with those regulations) relating to the movement of hazardous materials by tank car, a plaintiff cannot argue that entity should have done something more or different.
In the era of CBR, there have been new regulations (often on an emergency basis), new advisories and recommendations by federal agencies, and new industry recommendations such as CP-1232 for tank cars. A recent example is PHMSA/FRA’s July 23, 2014 Notice of Proposed Rulemaking regarding High-Hazard Flammable Trains (proposing to make new DOT Specification 117 mandatory for tank cars constructed after Oct. 1, 2015 and a phase-out of the Legacy DOT 111A tank cars during the next six years).
All of this activity related to CBR does not necessarily change preemption from a strictly academic point of view. Compliance with the regulations and with internal plans required by the regulations should still result in preemption. However, realistically, it is likely to be more difficult to convince judges that preemption prohibits certain types of claims (such as that the Legacy 111-A tank cars being phased out are substandard) from being presented to the jury. Additionally, it may also be more difficult to convince judges that voluntary conduct is not an “internal plan required by regulations” that the shipper, car manufacturer, car owner, or railroad must comply with in order to be granted preemption.
Mitigation of CBR risks
Given the increase in volume of CBR transport, a broader focus on theories of liability, and a broadening group of target defendants, it’s important for all entities involved in CBR to be proactive about mitigating litigation risk.
• Compliance, compliance, compliance: All entities involved in CBR should keep up with all of the new regulations and thoroughly document their compliance.
• Attention to internal plans: If regulations require a CBR player to implement an internal plan, that entity should develop an internal plan and document compliance with that plan. Similarly, the industry needs to be careful not to let the plaintiffs’ bar turn industry/railroad’s voluntary efforts/statements into “internal plans” that may require full compliance in order to use the preemption defense.
• Safety focus on new target areas: With the plaintiffs’ bar likely to focus more on classification, suitability, and routing of CBR, entities with potential exposure need to be sure they have the most robust safety programs in those areas.
New target defendants: Potential new targets such as shippers and car manufacturers should make sure that they have robust compliance programs and adequate insurance protection for the potential exposure of large derailments.
David B. Potter is an attorney at Oppenheimer Wolff & Donnelly LLP who has been handling and trying significant tank car derailment cases for 20 years, including the 2009 derailment of an ethanol train in Cherry Valley, Ill., which ended in a five-week jury trial in Cook County in late 2011. Marie L. van Uitert is also an attorney at Oppenheimer; she has worked on railroad litigation for the past seven years, including the Cherry Valley derailment.