Order No. 2013-R-266

Montreal, Maine & Atlantic Railway, Ltd. (MMA) and its wholly-owned subsidiary Montreal, Maine & Atlantic Canada Co. (MMAC) hold Certificate of Fitness No. 02004-3 issued by the Canadian Transportation Agency (Agency) pursuant to section 92 of the Canada Transportation Act, S.C., 1996, c. 10, as amended (CTA), which permits them to operate a railway in Canada as set out below.

MMA to operate a railway:

• between the Canada/United States border at mileage 32.63 of the Newport Subdivision and the Canada/United States border at mileage 43.32 of the Newport Subdivision;
• between the Canada/United States border near Saint-Léonard, New Brunswick and Saint-Léonard, New Brunswick;

MMAC to operate a railway:

• between Saint-Jean, Quebec and Lennoxville, Quebec; between Ste‑Rosalie, Quebec and Farnham, Quebec; between Farnham, Quebec and Stanbridge, Quebec; between Brookport at mileage 0.0 of the Newport Subdivision and the Canada/United States border at mileage 26.25 of the Newport Subdivision;
• between Lennoxville, Quebec and the Canada/United States border near Boundary, Quebec; and
• by virtue of an interchange agreement with the Canadian Pacific Railway Company, on the Canadian Pacific Railway Company’s Adirondack Subdivision between Saint-Jean, Quebec and Saint-Luc Junction, Quebec.

The Agency issued this certificate of fitness as it was satisfied that MMA and its wholly-owned subsidiary MMAC had adequate third party liability insurance coverage (including self-insurance) for the railway operations.

Subsection 94(2) of the CTA states that the Agency may suspend or cancel the certificate of fitness if it determines that the liability insurance coverage is no longer adequate.

Following the tragic derailment at Lac‑Mégantic, Quebec on July 6, 2013, the Agency undertook an investigation to determine whether MMA and MMAC, as holders of the said Certificate of Fitness, can satisfy the Agency that they continue to have adequate third party liability insurance coverage for their ongoing operations.

To this end, by letter dated July 10, 2013, the Agency requested insurance and financial information from MMA and MMAC. Upon receipt of a response, the Agency, by letter dated July 26, 2013, directed further questions to MMA and MMAC.

According to MMA’s and MMAC’s insurance broker, the Lac‑Megantic accident has resulted in the impairment of the aggregate limit by one half. Despite being asked to provide evidence of additional insurance to restore their insurance level to what existed prior to the Lac-Mégantic derailment, MMA and MMAC have failed to do so.

As indicated in its letter of July 26, 2013, the Agency is of the opinion that, in these exceptional circumstances, MMA and MMAC must maintain as a minimum the original level of coverage and restore the aggregate limit to its level before the Lac‑Mégantic derailment. To do otherwise would be untenable in the event that further occurrences materialize as one further occurrence may result in the full depletion of the coverage and the need for an instant cessation of service.

MMA and MMAC have filed a petition under the Companies’ Creditors Arrangement Act with the Superior Court of Quebec. The petition, which was granted on August 8, 2013, states that “While the Petitioner holds insurance covering certain of the Train Derailment Claims..., as the amount of said Train Derailment Claims is ever increasing, it has become evident that in the event of a determination that the Petitioner ...[is] liable and that the Train Derailment Claims are valid, the amount of insurance coverage will not be sufficient to cover all of the Train Derailment Claims.”

At the same time, MMA has filed with the United States of America Bankruptcy Court in the district of Maine for protection under Chapter 11 of the United States of America Bankruptcy Code and this, too, has been granted.

With respect to the self-insured retention amount, which is the amount for which an applicant takes financial responsibility outside of an insurance contract, the Agency performed an analysis of MMA’s parent company, Montreal, Maine & Atlantic Corporation (MMA Corp.) consolidated financial statements provided for the years 2009 to 2012.

The Agency needs to be satisfied that MMA and MMAC are able to pay the self-insurance portion for the claims related to the Lac-Mégantic derailment, as well as an additional amount equivalent to two further portions in the event of two further claims under the aggregate. Upon reviewing the financial capacity of MMA Corp., the Agency has concluded that MMA Corp. is not financially capable to absorb even the first self-insured retention amount.

In summary, having reviewed MMA’s and MMAC’s information on record with the Agency, as well as all the additional information supplied by MMA and MMAC, the Agency is not satisfied that MMA and MMAC currently have adequate third party liability insurance coverage at the same level as prior to the derailment at Lac-Mégantic or the financial capacity to pay the self-insured portion.

Based on the above findings, the Agency, pursuant to paragraph 28(1)(a) and subsection 94(2) of the CTA, suspends Certificate of Fitness No. 02004-3 effective August 20, 2013. This delay in coming into effect should permit MMA and MMAC time to arrange for the orderly cessation of their operations in Canada.

This Order shall be affixed to Certificate of Fitness No. 02004-3 and the suspension of the Certificate of Fitness shall remain in effect until further order of the Agency.

Due to the confidentiality of some of the information filed, a separate letter will be issued to Montreal, Maine & Atlantic Railway, Ltd. and its wholly-owned subsidiary Montreal, Maine & Atlantic Canada Co., in confidence, setting out the more detailed reasons for the determination that they no longer meet the liability insurance coverage requirements.