‘Controversy’ over what costs Montreal, Maine & Atlantic’s insurer covers in wake of Lac-Megantic explosion

Montreal, Maine and Atlantic, the company whose train derailed and exploded in a fiery, fatal inferno in Lac Megantic last month, is in a “controversy” with its insurer on what, exactly, the company can claim in the wake of that crash.

The July explosion killed 47 people and devastated the small Quebec town. It will likely cost hundreds of millions to pick up the pieces. Montreal, Maine and Atlantic declared bankruptcy earlier this month, faced with a flood of claims for costs or compensation.

In depth: Lac-Megantic explosion

Travelers Property and Casualty Company, a U.S.-based insurance company, filed a motion this week asking a Canadian court to lift a stay of proceedings in MMA’s case so Travelers can try and settle the insurance issue in a U.S. court.

The stay of proceedings essentially freezes all legal actions against MMA while the railway company goes through bankruptcy. In Canada, it automatically expires next week; the company plans to request an extension.

But Travelers wants an exemption so it can get a U.S. judge to settle the coverage issue. It has also asked for a stay of proceedings to be lifted south of the border, where MMA’s U.S. parent is going through a parallel bankruptcy process.

According to the motion Travelers filed Tuesday, MMA bought an insurance policy in April meant to cover certain expenses related to “railroad rolling stock.”

Both companies “intended the Policy to provide only Extra Expense coverage with respect to the rolling stock,” Traveler’s statement reads, “and did not intend the Policy to provide any coverage for loss of Business Income caused by damage to the rolling stock.”

But a “mistake and inadvertence” included both in the text of the agreement, according to Travelers.

After the July 6 explosion in Lac Megantic, Travelers’ statement reads, the railway company claimed damages to the locomotive, rail cars, railroad track and road bed.

But Travelers claims it isn’t responsible for certain losses related to the rail cars, railroad tracks or the crude oil the rail cars were carrying.

Travelers says it has visited the crash site but hasn’t yet finished its investigation.

Travelers wants a U.S. court to declare the insurer off the hook for certain damages to rail cars or property inside the rail cars, or extra expenses incurred as a result. It also wants the court to agree the policy should never have included Business Income coverage, and delete it.

But first it needs to squeeze by the stay of proceedings on both sides of the border.

Failing to fix this quickly, the insurance company warns, could lead to “a multiplicity of litigations raising similar coverage issues in multiple civil actions.” A similar statement filed in a Maine bankruptcy court argues that “the hardship to Travelers by the continuation of the automatic stay outweighs the hardship to the debtor if the requested relief is granted.”

“In fact,” the U.S. statement argues, “from a purely economic perspective it would be more efficient for the Debtor to determine its rights under the Policy in one proceeding” rather than wait for this to come up later.

There’s no time frame for Justice Martin Castonguay’s decision on Tuesday’s request. And while MMA plans to request an extension to the stay next week, it hasn’t expressed an opinion on this motion, said Andrew Adessky, a lawyer with Richter, a firm acting as monitor for MMA’s Canadian bankruptcy proceedings.

“We’re still reviewing it and talking to the company about it, and at this stage it’s premature for us to comment on the motion itself,” he said.

Adessky wouldn’t comment on specifics of the insurance policy – “All I can tell you is there is a policy in place and they are in communications with Travelers.”

Pierre Legault, a Montreal-based lawyer representing MMA, did not immediately return emails or voicemails Tuesday.

Eric Vallieres, a Montreal-based lawyer acting for Travelers, declined to comment. A U.S. spokesperson for Travelers did not respond to queries by deadline.