t is no mystery why, one spring day two years ago, an Amtrak passenger train
jumped the tracks near Crescent City, Fla., and skidded to a stop on its
side, killing 4 people and injuring 142.
Investigators concluded that the track, owned by the big freight railroad
CSX, had not been properly stabilized and that management's oversight of
maintenance had been lax. But when millions of dollars in damage claims arose
from the crash, it was not CSX, a multibillion-dollar corporation, that paid
them. It was Amtrak, the perennial money loser that survives only with regular
infusions of cash from American taxpayers.
Three months later, it happened again. Poor track maintenance by CSX caused
an Amtrak train to derail in Maryland, investigators said, injuring nearly
100 people. Again, Amtrak covered claims against CSX.
In accident after accident, in derailments and grade-crossing collisions,
CSX and other major freight railroads have used Amtrak to shield themselves
from tens of millions of dollars in liability, an examination by The New
York Times has found.
For three decades, Amtrak has been paying these liability claims, regardless
of fault, as a condition for using the freight lines' tracks. Not only do
these payments shift the burden of paying for negligence from profitable
corporations to taxpayers, they remove an incentive for railroads to keep
their tracks safe.
There has never been a full accounting of these payments. Even Amtrak officials
could not say how much the arrangement, known as indemnification, has cost
the railroad, which needed $1.2 billion in government subsidies this year
to stay afloat.
But an analysis by The Times of records obtained through the federal Freedom
of Information Act found that Amtrak has paid more than $186 million since
1984 for accidents blamed entirely or mostly on others. In each instance,
freight railroads were accused of playing the major or a contributing role
in causing those accidents, which killed 53 people and injured nearly 1,300,
according to court records, government investigators and lawyers for crash
victims.
Most of those accidents were not covered by Amtrak's insurance, an Amtrak
spokesman said. And the $186 million reflects only part of Amtrak's costs
stemming from accidents. The figure does not include payments made before
1984, outstanding claims from recent accidents, settlements of less than
$100,000, the cost of repairing damaged Amtrak equipment and legal bills
for defending the freight railroads in court.
These indemnity agreements represent another way in which some of the nation's
freight railroads side-step responsibility in accidents. In July, The Times
reported that railroads had destroyed, mishandled or simply lost evidence
in grade-crossing accidents and had also failed to properly report hundreds
of accidents to federal authorities.
Freight railroads have long had the political muscle to insist that Amtrak,
which is beholden to Congress for its survival, indemnify them for accident
claims. In 1997, after a federal judge questioned the legality of granting
railroads blanket immunity, Congress rose to the defense of the freight
railroads, passing a bill that, among other things, reaffirmed Amtrak's legal
right to indemnify the freight lines.
Two years later, Amtrak officials said they had no choice but to cover $63.8
million in punitive damages, including interest, after CSX was found to have
caused a fatal Amtrak crash in Lugoff, S.C. A judge called CSX's negligence
"borderline criminal."
"It's a bitter pill to swallow," said an Amtrak spokesman, Cliff Black. "It
hurts our bottom line. It hurts our treasury."
Amtrak says it has received about $8 billion in government support over the
last decade, and last year alone paid about $100 million to use their tracks.
The freight railroads say indemnification merely protects them from risks
they would not face if Congress had not insisted that Amtrak, which owns
little track of its own, use their rails. Congress, CSX said in a statement,
"balanced that demand on private property by calling upon passenger railroads
to bear the costs of insuring against potential liabilities."
The freight lines also pointed out that indemnity agreements are common in
the rail industry, since companies sometimes run their trains on another's
tracks. And they dismiss the idea that such agreements discourage attention
to safety. "We suffer great economic harm when our freight trains have accidents,
and we go to great lengths to prevent accidents of all types," said Kathryn
Blackwell, a spokeswoman for Union Pacific.
But those arguments do not sway Angelica Palank, who received the $63.8 million
payment after her husband, Paul, a police officer, was among eight people
killed in the South Carolina crash in 1991. A faulty CSX track switch caused
the accident.
Ms. Palank said she gave eight years of her life to legal warfare against
CSX. After raising her two children alone, suffering depression and enrolling
in law school so she could better understand the case, she believed that
justice had finally been done after the judge in her case upheld the jury
verdict, calling CSX's carelessness and greed "the functional equivalent
of manslaughter." She believed that CSX, chastened, might not misbehave in
the future.
But several weeks ago, a Times reporter told her, for the first time, that
the money she received by wire transfer had not come from CSX, but rather
from Amtrak.
First came disbelief, then anger, and finally tears. "I'm mortified," she
said. "Everything I've been living under is a lie. I was feeling on a personal
level at least I did my part, and now I find out I didn't."
Origins of an Obligation
Amtrak's obligation to pay for the mistakes of others dates back to its first
days. Created by Congress in 1970, Amtrak preserved passenger travel by allowing
railroads to unload this money-losing service - which the railroads had been
threatening to drop - onto a semipublic corporation.
But Amtrak still had to negotiate the terms for using tracks it did not own.
The American Association of Railroads, the freight lines' trade group, made
it clear that its members wanted no liability for passenger deaths and injuries
even if they caused them. Amtrak, on the other hand, worried that such an
agreement might be fiscally unsound and potentially unsafe for passengers,
records show. It wanted liability assigned on the basis of fault.
Neither side appeared willing to budge. Then, just before the matter was
to be turned over to arbitration, Amtrak tried negotiating with just one
railroad, Burlington Northern, rather than the association, records show.
Soon, Amtrak relented and signed an indemnity agreement that became a model
for the industry.
Amtrak backed down, records show, after Burlington Northern argued that its
tracks were safe and that disputes over fault might inflate the cost of settling
claims. Ultimately, Amtrak agreed to cover accident claims from its own
passengers and employees. The freight railroads were responsible for their
own employees should they be injured by an Amtrak train.
How vigorously Amtrak pressed its case is open to question. Records show
that when negotiations began, Burlington Northern was in a position to exert
influence over Amtrak's affairs. Not only did its chairman, Louis W. Menk,
sit on Amtrak's board, along with two executives from other freight railroads,
but Burlington Northern also owned about 3.3 million shares of Amtrak's common
stock, which it obtained in exchange for giving Amtrak rail equipment. Other
railroads were also given shares.
Although the government owned the controlling shares in the corporation,
the railroads did initially have a say in picking three of Amtrak's directors,
with the government picking most of them.
"Was the fox in the hen house?'' said Thomas M. Downs, who served as Amtrak's
chief executive two decades later, from 1993 to December 1997. "Of course."
The negotiations over indemnity, Mr. Downs said he believed, were not conducted
at arms-length among equals. "There was barely a railroad to negotiate with
on the Amtrak side," he said, adding that Amtrak was dependent on the freight
railroads to keep its passenger trains on schedule. "Freight railroads had
all the marbles."
At the time, Mr. Black said some members of Congress believed that Amtrak
would merely be a stepping stone to getting rid of passenger service. "Many
observers thought it would just go away," he said.
But it did not, and indemnity agreements has haunted Amtrak for years, said
Mr. Downs, who now runs the Eno Transportation Foundation, which seeks to
improve different modes of transportation. "It was one of the things that
always gave me heartburn in my dealings with the freight railroads, because
there was no accountability."
Questions of Costs
Amtrak's indemnity payments stemmed not just from derailments but also from
accidents at grade crossings.
Such was the case on Sept. 26, 1999, when an Amtrak train came barreling
through tiny McLean, Ill. Two high school honor students, Stuart A. Curtis
and C. Dannen Latherow, did not realize a train was approaching because an
employee for Union Pacific, which owned the tracks, had accidentally disconnected
the warning lights and gates, according to an investigation by the National
Transportation Safety Board.
Both boys were killed. Amtrak paid $4 million to their families.
Amtrak paid considerably more - $32 million - after a jury concluded that
Union Pacific bore prime responsibility for an August 1997 grade-crossing
accident in Missouri. The jury said Amtrak played a minor role in that accident.
Local residents had complained about the difficulty in seeing approaching
trains, partly because of overgrown vegetation. A state judge concluded that
Union Pacific knew or should have known that the crossing was dangerous.
In fact, another Amtrak train had killed a motorist there just four months
earlier. And Amtrak paid for that accident, too - $1.7 million.
Mr. Downs said he had been concerned enough about having to pay for the mistakes
of others that he called Union Pacific's chairman, Dick Davidson. As Mr.
Downs recalls the conversation, "He said, 'That's not our job, that's yours.
That's the price for carrying passengers on our railroad.' "
A spokeswoman for Union Pacific said that Mr. Davidson did not recall that
conversation, and that it "would be inaccurate to quote him in this manner."
Last year, Amtrak paid the freight lines about $100 million for using their
tracks. That figure is so low, according to the Association of American
Railroads, that its members should be upset with Amtrak, not the other way
around. The association sent The Times a copy of its own study for 2001 that
said that the freight railroads actually gave Amtrak about $243 million in
indirect subsidies by discounting the cost of using their tracks.
But Harvey Levine, a former economist for the railroad association - who
now testifies on behalf of accident victims - said the association study
ignored the fact that Amtrak was already shouldering nearly $1 billion in
losses each year, losses that the railroads themselves would have faced had
Amtrak not stepped in and assumed the burden of carrying passengers.
An Amtrak official said it was "completely bogus" for the association to
suggest that Amtrak was not paying its fair and agreed-upon share. If the
freight railroads could prove Amtrak was underpaying them, the official said,
they would make an issue of it. But they have not, he added.
In fact, the inspector general for Amtrak, Fred E. Weiderhold Jr., said that
over the last 10 years he had questioned about $54 million in billings that
the freight railroads submitted to Amtrak. Those billings relating to track
use were either unjustified or unsupported by records, Mr. Weiderhold said.
Amtrak, he added, negotiated settlements with the railroads for about 30
percent to 40 percent of the disputed amount.
Most of Amtrak's accidents are not covered by insurance. Since 1995, Amtrak
itself has had to pay all claims of up to $10 million for a single accident;
before that, its deductible was $25 million for collisions and derailments,
an Amtrak spokesman said.
Told of the size of some of Amtrak's indemnification payments, Frank Clemente,
who runs the consumer group Public Citizens Congress Watch, said, "I think
if the public knew this it would be up in arms."
Questions of Safety
Government officials in recent years have expressed concern about the safety
of America's 200,000 miles of railroad track. Federal statistics show that
in 2003 there were slightly more derailments than a decade ago, though train
accidents over all have been dropping.
The effect on Amtrak has been a particular concern. In October 2002, worried
about CSX's track-related accidents, particularly those involving passenger
trains, an official of the federal Department of Transportation wrote a
memorandum urging regulators to form a special task force to monitor CSX's
track-safety programs, records show. That memorandum, from the department's
inspector general's office, cited repeated attempts by the Federal Railroad
Administration, dating back to the mid 1990's, to bring CSX's tracks up to
standard.
In its statement, CSX said it had "invested more than $5 billion in track,
signals, training and inspection programs over the last five years to make
a safe railroad even safer." At the same time, CSX said that "it is not only
false, it defies logic" to suggest any relationship between indemnity and
CSX's, or the entire industry's, attention to safety. "The industry has
dramatically improved safety since the type of Amtrak agreements you question
were put in place in the 1970's," the statement said.
Still, the question of such a relationship was at the center of the most
serious challenge to Amtrak's indemnity agreements.
On Jan. 4, 1987, an Amtrak train crashed into a Conrail train in Chase, Md.
Sixteen people were killed and more than 174 were injured. Just before the
crash, the Conrail engineer had used marijuana and had intentionally disabled
an audible warning device in his cab. The engineer later pleaded guilty to
manslaughter and was sent to jail.
Amtrak argued in federal court that Conrail's wrongdoing was so egregious
that any indemnity payments would violate public policy. The judge, Oliver
Gasch of Federal District Court in Washington, agreed - in part. He wrote
that Amtrak officials who negotiated the original indemnity agreement "were
deeply concerned about the maintenance of safety" and did not intend for
the agreement to "deprive the traveling public of its reasonable expectation"
that Conrail would operate safely. To insulate Conrail from punitive damages,
he concluded, "would render meaningless" the obligation of Conrail to meet
safety standards.
Even so, Amtrak ended up paying compensatory damages of $9.3 million.
Judge Gasch's decision caused considerable unease among the freight railroads,
said government officials. Concerned that their liability protection was
being chipped away, the freight railroads turned to Congress for help. In
1996 and 1997 alone, records show, the freight railroads spent $35 million
lobbying Congress on different issues, including indemnity. And eventually,
Congress put its weight behind the indemnity agreements, passing the Amtrak
Reform and Accountability Act of 1997.
Biggest Payout Yet
Two years after enactment of the 1997 law, CSX used the indemnity agreement
as a shield against the biggest payout yet - the $63.8 million in punitive
damages, including interest, paid to Mrs. Palank.
Arthur J. Franza, the judge in her case, was harshly critical of CSX for
eliminating too many maintenance workers. "Although cost-cutting measures
may have saved defendant over $2 billion, society paid the cost with eight
human lives," Judge Franza said.
Mrs. Palank said she had pursued the punitive damages with the understanding
that CSX, not Amtrak, would pay it. And for years, she said, she believed
that CSX indeed had. For good reason, according to one of her lawyers, F.
Gregory Barnhart, who said records show that Mrs. Palank's money was sent
to her by CSX.
Her other lawyer, Christian D. Searcy, said he had even asked Amtrak officials
to state in writing whether they had reimbursed CSX. "They said no letter
will be forthcoming," Mr. Searcy said.
Mrs. Palank said the jury was never told that CSX would escape the sting
of its verdict. "It's so secretive, so manipulative," she said. "Someone
in the federal government needs to answer for this, because there was no
legal justification for them to be paying for somebody else's wrongdoing."
Mark Geistfeld, a law professor at New York University, said indemnification,
a form of insurance, has its limits. "Certainly, you cannot get insurance
for criminal fines, for example," Professor Geistfeld said. "It's against
public policy. No court would enforce it." But, whether Amtrak should have
paid in this case depends on what kind of behavior you are talking about,
he added.
Mr. Downs, the former Amtrak chief, said that after the railroad's lawyers
told him Amtrak could not escape paying the punitive verdict, he called John
Snow, then CSX's chief executive, to complain. Mr. Snow, now
President Bush's treasury
secretary, said in essence that a deal was a deal, Mr. Downs recalls. Mr.
Snow declined to discuss the conversation or the case. CSX also declined
to comment specifically on Amtrak's payment of punitive damages.
Amtrak's obligation did not end with the $63.8 million payment to Mrs. Palank,
though. It was also responsible for $24 million in compensatory damages to
her and other crash victims, for a total of $88 million. For causing the
accident, CSX paid the Federal Railroad Administration the maximum fine -
$20,000.
"It's very difficult to convince railroads that the carrying of people has
a higher standard of operating discipline and safety than, say, coal," Mr.
Downs said. "And the reason I think that is, is that they are immune from
any cost."
At about the same time that the Palank case was working its way through the
courts, in fact, CSX was working on a different front to soften its litigation
costs. It played a prominent role in a business coalition that helped persuade
the Florida Legislature in 1999 to change liability laws in the state, imposing
limits on punitive damages, for example.
"We, like many other companies across the country, support a civil justice
system that is fair and balanced," said Adam Hollingsworth, a CSX spokesman.
CSX, said Mr. Hollingsworth, who has since left the company, wants to make
sure "that those responsible for injury pay their portion of fault."
Claire Hoffman, Eric Koli and Jenny Nordberg contributed reporting for
this article.
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