The February 3, 2022, derailment of a freight train and the resulting chemical spill and fire in East Palestine, Ohio, has been national news for a month. As widely publicized, 38 rail cars derailed, 11 carrying hazardous substances, including over 115,000 gallons of vinyl chloride. According to an April 6, 2022 publication by the United States Environmental Protection Agency (“EPA”), vinyl chloride has been “implicated as a causal agent of angiosarcoma and other serious disorders, both carcinogenic and noncarcinogenic.” Further, in a March 26, 2020 publication, the EPA explained that acute (short-term) exposure to high levels of vinyl chloride in the air has resulted in central nervous system (“CNS”) effects, such as dizziness, drowsiness, and headaches. Chronic (long-term) exposure through inhalation or oral exposure has been linked to CNS effects and liver damage, including an increased risk of developing angiosarcoma – a rare form of liver cancer.

The derailment has quickly become the subject of lawsuits and regulatory actions. For example, numerous lawsuits seeking class-action status have already been filed against Norfolk Southern Corp, the train operator, alleging negligence and seeking millions of dollars in damages. A class-action lawsuit filed on February 24, 2022, seeks to compel Norfolk Southern to establish new testing and cleaning protocols and to create a fund for medical monitoring, in addition to punitive damages to be paid to affected businesses and residents within a 30-mile radius of the derailment. As recently reported, the EPA recently ordered Norfolk Southern to conduct and pay for all cleanup actions associated with the derailment. The EPA also maintains the ability to charge Norfolk Southern $70,000 a day if the cleanup effort is insufficient. These lawsuits and regulatory actions are expected to trigger claims on several insurance policies – including most notably those held by Norfolk Southern.

The derailment has quickly become the subject of lawsuits and regulatory actions.

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The bodily injury, property damage, and environmental losses that will become the subject of insurance claims are estimated to be in the tens to hundreds of millions of dollars. Thus, while Norfolk Southern’s insurance is reported to have very large self-insurance retention (“SIR”) amounts, the losses will likely exceed the SIRs and implicate the insurance coverage amounts sitting above them. It is reported that Norfolk Southern has two separate insurance policies — one for third-party liabilities and another for first-party property losses. The third-party liability policy, which will be turned to for defense and indemnity in connection with the lawsuits and regulatory actions against Norfolk Southern, attaches for losses above the $75 million SIR and provides coverage of up to $800 million. The first-party property policy, intended to cover loss or damage to property that Norfolk Southern owns or has in its custody or control, also attaches for losses above a separate $75 million SIR and provides coverage of up to $275 million.

The claims Norfolk Southern will likely assert against its liability insurers will involve third-party bodily injury and property damage claims arising from the released hazardous substances during the derailment. While general liability policies typically have broad insuring agreements that cover amounts an insured “becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage,'” they also contain “pollution exclusions,” which will be front and center here. Indeed, starting in or about 1986, most insurers inserted “absolute” or “total” pollution exclusions in their liability policies. In the 37 years that have followed, a wealth of case law which varies from state to state, has developed on such issues as whether those forms of pollution exclusion are ambiguous or still allow for coverage for losses in limited circumstances.

While general liability policies typically have broad insuring agreements that cover amounts an insured “becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage,'” they also contain “pollution exclusions,” which will be front and center here.

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The cause of the derailment is still under investigation. Still, in a preliminary report issued on February 23, 2022, the National Transportation Safety Board (“NTSB”) pointed to an overheated wheel bearing, among other factors. According to the NTSB report, a defect detector built into the railway transmitted an alarm message to the train’s crew after it recorded that the temperature of a wheel bearing on the twenty-third car of the freight train was 253 degrees above the ambient temperature. According to Norfolk Southern’s policies, anything over 170 degrees requires the engineer to stop the train. It is reported that the train’s engineer hit the brakes. Still, before the train came to a full stop, the twenty-third car derailed, taking others with it, and an automatic emergency break kicked in. The NTSB preliminary report also described why Norfolk Southern opted to release and burn vinyl chloride; to wit, the temperature inside a tank car carrying the liquid was rising, suggesting a risk of explosion. The causation issue is likely to become even more scrutinized following a second derailment of a Norfolk Southern freight train this past weekend. Fortunately, it is reported that no hazardous materials were aboard the 212-car train that derailed in Springfield, Ohio, on March 4, 2023.

The causation issue is likely to become even more scrutinized following a second derailment of a Norfolk Southern freight train this past weekend.

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These and many other factors will play into whether there will be insurance coverage for the multitude of lawsuits being filed and the cleanup orders being issued against Norfolk Southern in connection with the February 3, 2022, train derailment. Indeed, there will be significant issues around whether insurance coverage will respond based on initial reports about causation for the derailment and whether pollution exclusions in the subject insurance policies preclude coverage. One thing is for sure, though, the potential liabilities — to Norfolk Southern and other players associated with the train, tracks, and chemicals released — are coming in waves and will continue for the foreseeable future. As they do, the inevitable insurance coverage battles will begin in earnest.

Indeed, there will be significant issues around whether insurance coverage will respond based on initial reports about causation for the derailment and whether pollution exclusions in the subject insurance policies preclude coverage.

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If you have insurance coverage or claim-related questions or needs, including anything relating to lawsuits, orders, or directives arising from contaminant releases or exposures, please feel free to contact us for a consultation.