Railway says it can't pay for Lac-Megantic disaster cleanup

Surete du Quebec investigators work at the Montreal, Maine and Atlantic Railway Inc. office in Farnham, Que., on July 25, 2013. (Ryan Remiorz / THE CANADIAN PRESS)

A railway involved in Quebec's fatal derailment doesn't have the cash to pay for the torrent of post-disaster expenses headed its way.

The chairman of Montreal, Maine & Atlantic Railway says the company is now depending on its insurers to start cutting cheques and he has raised doubts publicly on whether the company will even survive.

In the end, says one expert in civil responsibility, taxpayers could be stuck with a bill in the hundreds of millions of dollars.

Quebec law professor Daniel Gardner says he highly doubts MMA has enough coverage to absorb the massive, combined financial liabilities of damages like environmental cleanup, emergency-crew salaries and lawsuits.

In fact, he believes the Lac-Megantic derailment could have more financial consequences than any other land disaster in North American history.

"The whole cost of this will be far closer to $1 billion than to $500 million," said the Universite Laval academic, adding he would be surprised if the railway had a total of $500 million in coverage.

"What will probably happen? ...The company will go bankrupt, insurance coverage won't be enough."

Gardner expects governments will wind up covering the difference.

The mayor of Lac-Megantic, the town obliterated by the tanker train, said Tuesday that her municipality has already sent its second lawyer's letter to MMA, telling the railway it must shell out for mop-up costs that have nearly doubled in just a few days -- from about $4 million to almost $8 million.

Ed Burkhardt, MMA's chairman, has told a New York radio station that he's trying to get the railway's insurance company to start dispersing cash for Lac-Megantic's cleanup effort.

He said in an interview with North Country Public Radio that the insurer has agreed MMA is liable for the accident, but that technical legal reasons have held up the process.

"We're unable to fund that out of our own cash," Burkhardt said of the $4-million bill from Lac-Megantic, which has since climbed to $7.8 million.

"The company would like to get the cash flowing under our insurance policy and continue to address the cleanup following the derailment, the environmental issues, and then to start addressing claims made by local residents, businesses and so on."

Asked if he thought MMA could weather the financial storm, Burkhardt replied: "Well, that's very much under consideration right now."

The railway has already been laying off workers as the legal threats and financial demands pile up.

Concerns over MMA's potential bankruptcy were also expressed Tuesday in Lac-Megantic, as Mayor Colette Roy-Laroche fielded a query from a reporter.

"It's a hypothesis that everyone is considering," said Roy-Laroche, who indicated that without help from the province, her town of 6,000 people would be stuck.

She said her town has sent a second legal notice to the MMA demanding payment for $7.8 million in cleanup costs.

The municipality wants a response within 24 hours, which comes after the railway missed a deadline last week to respond to the first legal letter. The town, Roy-Laroche added, is now speaking to lawyers about the possibility of suing the Maine-based railway.

Several lawsuits are already being organized in the wake of the disaster, and Burkhardt has hinted in another media interview that the MMA might have to shut down.

Burkhardt did not respond Tuesday to a message left at his office and MMA president Robert Grindrod was unavailable for comment.

Meanwhile, another U.S. company says it has serious objections to a legal request that it help pay for the cleanup.

World Fuel Services Corp. is one of three companies that received a Quebec government legal notice Monday demanding that they pick up the tab for the devastating July 6 derailment, which released millions of litres of crude oil into the surrounding environment.

The petroleum-logistics firm was named in the order alongside its subsidiary, Western Petroleum Company, and the MMA Railway, which operated the train that slammed into the community, killing an estimated 47 people.

"We have serious objections to the legality of the order," World Fuel Services said in a statement Tuesday.

"We intend to promptly discuss these issues with the relevant authorities."

World Fuel Services, which is based in Miami, said it did not expect to be named in the legal notice, or in any similar government action related to the crash involving a crude-oil-filled train. The company added it has sent its own environmental experts to monitor the progress of the cleanup efforts as much as possible, but says the site remains under control of MMA and local officials.

It said Monday's order is the first time the Quebec government has stated that World Fuel Services has any responsibility to pay for or supervise cleanup activities by crews it maintains are under control of MMA and local authorities.

"World Fuel Services will continue to meet any and all obligations it may have with respect to the accident," the statement said.

"We realize this has been a great tragedy for the local community, and we want to again express our deepest sympathies and condolences to the victims, the families, and all those who have been affected by this tragic accident."

The Quebec legal order is one element on the growing stack of threats facing companies connected to the derailment.

World Fuel Services, Western Petroleum Company and MMA are among 10 defendants listed in several wrongful-death lawsuits filed last week in an Illinois court. Both World Fuel Services and MMA have also been named in a proposed class-action suit in Quebec.

The railway declined to comment Tuesday on the Quebec government's legal order or any other legal questions.

But it apparently did take a cost-cutting step Tuesday: MMA was said to have laid off five more employees.

The United Steelworkers, which represents MMA workers in Quebec, indicated the company has now cut nearly one-third of its workforce in the province since the derailment. It said Tuesday's layoffs of five Farnham-based MMA employees means 24 of the railway's 75 workers in Quebec have lost their jobs.

The railway let go 19 Quebec workers earlier this month, citing the disaster's impact on the business.