The railway whose train crashed in Lac-Mégantic last month had its insurance coverage approved by a federal agency earlier this year.
Montreal, Maine & Atlantic filed for creditor protection in Canada and the United States on Wednesday, saying it is unable to deal with growing environmental cleanup bills and other claims related to the disastrous derailment.
Court documents filed by the company show that its insurance policy covers it for third-party liabilities of up to $25-million.
Faced with a cleanup bill the company estimates will exceed $200-million, as well as additional lawsuits from those affected by the crash, court documents make it clear that the insurance policy will scarcely begin to cover the fallout from the derailment.
In a quarterly report in the first week of August, MM&A's insurance company revealed that the average short-line railroad in North America holds $32-million in insurance.
Insurer XL Group has so far declined to pay for cleanup costs because it says it wants to prioritize victims' claims, leaving the province of Quebec to foot the bill.
An estimated 47 people were killed when an MM&A oil train jumped the tracks in the centre of Lac-Mégantic on July 6. One-third of the village was evacuated as downtown smouldered for several days.
MM&A's insurance coverage was approved by the federal Canadian Transportation Agency when MM&A first began to operate in Canada in 2002. The company has provided the CTA with certificates of insurance every following year, including in 2013.
The CTA is an independent, quasi-judicial tribunal and economic regulator for the transportation industry that is governed by federal legislation. It determines railway costs, approves railway construction and handles rail-related complaints.
The agency issued a certificate of fitness for MM&A in 2002 that allowed the company to begin operations in Canada. The certificate indicated that the agency was satisfied the company had adequate third-party liability insurance for its operations, a spokeswoman said.
Jacqueline Bannister said this week that the CTA was aware of MM&A's decision to file for creditor protection. She said the agency is currently looking at the adequacy of MM&A's insurance coverage for its continuing operations.
MM&A indicated in its creditor protection filing that it wants to continue operations while the courts determine what its creditors will receive.
"The Agency may suspend or cancel [MM&A's] certificate of fitness if it determines that the railway's insurance coverage is no longer adequate," Ms. Bannister wrote in an e-mail.