Daniel Boguslaw, Lee Fang
February 23 2023
NORFOLK SOUTHERN ARGUED AGAINST “EMOTIONAL EVOCATIONS OF
‘DEADLY CHEMICALS’” AFTER 2005 DERAILMENT
"After East Palestine, as in 2005, harmful chemical releases are unlikely to
affect the rail company’s stock price or bottom line.
MORE THAN A decade before the train derailment that triggered a series of
events sending a mushroom cloud of carcinogenic vinyl chloride burnoff over
East Palestine, Ohio, the same rail company, Norfolk Southern, fought
responsibility for another large-scale accident in Graniteville, South Carolina.
The Graniteville crash released chlorine gas stored in derailed train cars,
resulting in the deaths of nine people and hospital admissions for over 500.
The crash, caused by two trains colliding from an improperly aligned railroad
switch, released 90 tons of chlorine gas. The accident, the largest rail
disaster of its type since 1978, resembled a chemical weapons attack. Many
of the casualties were local textile workers who were killed by asphyxia from
inhaling the gas, which hovered over a nearby plant owned by Avondale Mills.
In a court filing attached to a class-action lawsuit brought against Norfolk
Southern in the wake of the 2005 crash, attorneys for the defense wrote
“Plaintiffs emotional evocations of ‘deadly chemicals,’ ‘mangled metal,’ or
‘deadly liquid chlorine’ forming a gas that ‘crept through Graniteville’ and
‘killed those who could not outrun it’ can have no use other than to divert this
court from the issue at hand – whether certain of plaintiffs claims are
preempted by federal law.”
Norfolk Southern estimated the cost of the 2005 derailment at $41 million,
noting the marginal stock impact of the crash was just five cents a share.
Ultimately, it paid out $4 million in fines to the federal government and more
than $10 million in settlements.
After the case, a law firm representing Norfolk Southern in the litigation
issued a press release touting its role in diminishing the settlement paid to
the railroad’s victims. Avondale Mills, shortly after the disaster, closed all of
its plants, getting rid of approximately 4,000 jobs and citing the spill as one
of the primary reasons for the company’s demise.
Wall Street is now pointing to the relatively small financial cost of that
incident to suggest that Norfolk Southern stocks won’t be severely impacted
following the East Palestine derailment. Financial forecasting suggests that
the rail giant could emerge from the East Palestine disaster with a repeat
performance: paying out fines, compensation claims, and construction costs
that fail to seriously impact its bottom line.
Nine lawsuits have so far been filed against the company. In its first round of
financial outreach, Norfolk Southern offered residents with an East Palestine
ZIP code $1,000 “inconvenience fees” and a $25,000 donation to the Red
Cross. Norfolk Southern, which recorded $4.8 billion in income revenue in
2022, has since said that the company has committed $6.5 million in
remuneration to the town. But as local and statewide officials race to East
Palestine to drink local tap water and calm residents beset by mass animal
die-offs and widespread respiratory and skin ailments, the extent of the
impact is yet to be seen.
Ralph Nader, former presidential candidate and a long-standing champion of
consumer rights, said federal regulators captured by the rail industry are
largely to blame, and that it is unlikely those impacted will receive the
remuneration they deserved.
“They are afraid of the railroad lobby and that means working-class people
are never going to be actually protected.”
“There has to be a completely new legal structure going through Congress.
You see the members don’t ride trains, especially not freight trains,” Nader
told The Intercept. “So you have to find out who the champions are. Usually
something like this happens and a couple of senators jump up and get press
and credit. On the other hand, they are afraid of the railroad lobby and that
means working-class people are never going to be actually protected or
remunerated at all when something like this happens.”
In its annual 10-K report, filed the same day as the East Palestine crash,
Norfolk Southern acknowledged the potential for “catastrophic losses”
resulting from a rail accident involving hazardous materials. “A common
carrier by rail, we must offer to transport hazardous materials, regardless of
risk,” the filing warns investors. “Transportation of certain hazardous
materials could create catastrophic losses in terms of personal injury and
property (including environmental) damage and compromise critical parts of
our rail network. The costs of a catastrophic rail accident involving hazardous
materials could exceed our insurance coverage.”
The filing also states that “insurance is available from a limited number of
insurers and may not continue to be available or, if available, may not be
obtainable on terms acceptable to us.” Norfolk Southern noted that it had
liability insurance for certain situations that would cover up to $800 million
(or $1.1 billion for “specific perils”).
Despite the risks disclosed in its 10-K, Norfolk Southern did not believe there
was an immediate likelihood of a catastrophic incident impacting its finances.
“Based on our assessment of the facts and circumstances now known, we
believe we have recorded the probable and reasonably estimable costs for
dealing with those environmental matters of which we are aware. Further, we
believe that it is unlikely that any known matters, either individually or in the
aggregate, will have a material adverse effect on our financial position,
results of operations, or liquidity.”
Rail companies and Norfolk Southern in particular have never paid out sums
approaching their insurance limits. In 2022, the combined cost of 18 train
derailments involving hazardous materials was a mere $41.6 million.
“They are so weak, if they were any weaker the insurance industry wouldn’t
cover railroads.”
“The federal railroad administration is the most captured regulatory agency
in the U.S. government,” Nader said. “It is owned and staffed by the railroad
industry. They have anesthetized it, and created the weakest regulations and
standards imaginable. They are so weak, if they were any weaker the
insurance industry wouldn’t cover railroads.”
Nader also laid blame for the crash and what he described as an inadequate
response at the feet of Secretary of Transportation Pete Buttigieg, who he
says failed to respond promptly, calling him a “ribbon-cutting coward.” “He
should have been there immediately,” said Nader. “Usually regulators love to
go because they get all kinds of national publicity. Well, how long did it take
them? They waited for the smoke to clear.”
On Tuesday, Norfolk Southern CEO Alan Shaw told CNBC, “This isn’t the time
nor is it the place to talk about the financial impact. My focus on this
community is helping with environmental remediation, reimbursing the
citizens of this community.” The EPA has already demanded Norfolk
Southern pay the full costs of any public health and environmental fallout
from the disaster.
“I would be skeptical that they will make these people who have suffered
from this disaster whole again because so many of the harms won’t be
apparent the right way and will most likely lead to serious health impacts like
cancers down the road,” Emily Jeffers, a senior attorney at the Center for
Biological Diversity told The Intercept.
“Soil, groundwater, and air are all going to be affected. I don’t think it’s any
surprise that there will be cancers as a result of this. When you burn vinyl
chloride, it transforms into a dioxin, which is a persistent organic pollutant
and enters the food chain and environment and is likely to be present for
decades to come. So while we’ve already seen fish die-offs, which have been
analogized to a canary in the coal mine, I think the true impact and cost is
years away from our understanding.”
A report published by HuffPost this week describes how the initial testing
used to justify the claim that East Palestine water supply was secure was
conducted by a third-party contractor hired by Norfolk Southern, in a way
that did not comport with the EPA’s own testing standards.
“Their results that claim there were no contaminants is not a reliable finding,”
Sam Bickley, an aquatic ecologist told HuffPost. “I find this extremely
concerning because these results would NOT be used in most scientific
applications because the samples were not preserved properly, and this is
the same data they are now relying on to say that the drinking water is not
contaminated.” Another expert described the testing as “sloppy” and
“amateur.”
Other impacted municipalities say they have failed to receive any
remuneration at all and have struggled to contact representatives from
Norfolk Southern to get answers.
Kayla Miller, who lives in the town of Negley three miles south of East
Palestine, told The Intercept she hasn’t heard anything about testing,
financial compensation, or air safety from the rail company. Dead aquatic life
in the creek behind her house and on her farm has also stoked her fears that
the full extent of damage to surrounding towns is yet unaccounted for.
“They keep saying the air is fine and everything, but I’ve had animals die, and
it was all within 24 hours,” Miller said. “They were all healthy before. My
stepdaughter has these reactions every time she goes outside. I have a farm.
So, you know, seeing dying animals is not good for us.”
Miller also was concerned that while the train derailment has gripped national
news media, in the coming months and years that attention may fade,
making it all the more important that as much aid is pushed into towns
surrounding East Palestine as soon as possible. “Maybe if they were to spend
the money now and do it the right way, then, you know, in five or 10 years,
we’re not as worried about our towns going bankrupt and our homes
becoming ghost towns. If they do as much as they can right now, there’s not
going to be as many repercussions down the road.”
Norfolk Southern did not respond to The Intercept’s request for comment."
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