Rail lockout: What can the industry expect?

Despite Canada-wide disruption from shuttered rail lines, the rail lockout will have no direct impact on the P&C insurance industry, experts tell Canadian Underwriter.

“Strikes, lockouts, etc., are all excluded from property and business interruption (BI) policies,” says Bernard McNulty, chief agent and head of claims for Canada at Allianz Commercial. “And because the direct coverage is not afforded, contingent business interruption (CBI) is not covered either.”

But while strikes and lockouts are not insurance perils, there will be “an increased cost of working” for members of the public and contractors, adds Gary Hirst, president and CEO of CHES Special Risk.

The labour dispute began Thursday when Canadian National Railway Company (CN) and Canadian Pacific Kansas City (CPKC) locked out employees after nearly a year of negotiations failed.

The Teamsters Canada Rail Conference union, which represents close to 10,000 workers at both CN and CPKC, highlighted concerns in a statement related to rest periods and scheduling as well as a “forced relocation scheme” that could move workers across the country.

CN said their last offer to the union before the work stoppage received no response and included improved wages, improved rest times and more predictable schedules. “Without an agreement or binding arbitration, CN had no choice but to finalize a safe and orderly shutdown and proceed with a lockout.”

Feds impose arbitration

Late Thursday, federal Labour Minister Steven MacKinnon ordered the Canada Industrial Relations Board to impose binding arbitration on the parties.

Despite the order, disruptions to major commuter rail lines continued as of Friday press time. And rail workers pushed back hard against the federal government’s move to get them back on the job, the Canadian Press reported. CN trains began to move again Friday morning as workers returned to the job, even as the Teamsters union issued a 72-hour strike notice against CN.

In Canada, BI insurance covers named perils and requires certain triggers such as a direct or physical loss or damage to insured property, explains B.C. brokerage Park Insurance. Certain exclusions may apply, such as undocumented income, utilities, pandemics and labour disputes.

“Ultimately, most insurance policies do not cover business interruption outside of their property area,” Hirst says. “Some of the more sophisticated insurance policies, they may have an off-premises business interruption extension, but that tends to cover utilities…water, electricity, telephones and other communication. Obviously, this isn’t part of that.”

But the lockout could derail supply chains and has already disrupted thousands of commuters in Toronto, Montreal and Vancouver, CP reported.

And deliveries are still coming in on trains, whether it’s livestock or rail cars coming up from the U.S. or livestock, for example. “What that tends to mean is that there is then an increased cost of working,” in the event of a strike, Hirst says.

“So instead of livestock going on a train, now all of a sudden, that farmer…needs to find some trucks and the trucks know that there’s a rail strike, so they may well take the opportunity to increase the cost of transportation,” he says. “A train strike is not an insurance peril, but it definitely has an impact on members of the public as well as contractors that are trying to deliver.

“It’s an increased cost of working because obviously they’ve got contracts that require a scheduled delivery date and then all of a sudden, they can’t get it on time and they’ve got to find a way of getting whatever it is direct to their customers.”

So, there is a knock-on effect to supply chains, Hirst says. “A lot of corporations are either having to pay for increased cost of working and not being able to recoup it, or just the…end customer ends up paying more.”

Feature image: Teamsters Canada Rail Conference members walk a picket line at the CPKC headquarters in Calgary, Alta., Thursday, Aug. 22, 2024.THE CANADIAN PRESS/Jeff McIntosh