Norfolk Southern has agreed to pay $600 million to resolve a consolidated class-action lawsuit relating to the February 2023 East Palestine train derailment that spilled hazardous chemicals that forced many town residents to evacuate for days.
The agreement includes a voluntary program to compensate individuals for past, present and future personal injuries resulting from exposure to the chemicals involved.
The agreement still needs approval by an Ohio federal court. If the court approves, the agreement will resolve all class-action claims within a 20-mile radius from the derailment and, for those residents who choose to participate, personal injury claims within a 10-mile radius from the derailment.
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Additionally, payments to class members under the settlement could begin by the end of this year, pending approval.
“We believe this is a fair, reasonable and adequate result for the community on a number of levels, not the least of which is the speed of the resolution, and the overall amount of the awards residents can expect, which will be significant for those most impacted by the derailment,” said the attorneys representing the plaintiffs in a joint statement.
An Associated Press report pointed out the possibility that the $600 million may not be enough, noting that the 20-mile radius around the derailment includes not just East Palestine and the people that had to evacuate but also larger nearby towns like East Liverpool and Columbiana, Ohio.
“[The settlement is] nowhere near my needs let alone what the health effects are going to be five or 10 years down the road,” said Eric Cozza, who had 47 family members living within one-mile of the derailment, the AP report said.
Individuals and businesses will be able to use settlement compensation “in any manner they see fit” to address potential adverse impacts from the derailment, Norfolk Southern said.
Some addressable areas include healthcare needs and medical monitoring, property restoration and diminution and compensation for any net business loss. In addition, individuals within 10-miles of the derailment may, at their discretion, choose to receive additional compensation for any past, current or future personal injury from the derailment.
The company said that the settlement doesn’t include or constitute any admission of liability, wrongdoing or fault.
Norfolk Southern has already spent more than $1.1 billion on its derailment response, including more than $104 million in direct aid to East Palestine and its residents. The $104 million includes $25 million for a regional safety training center, $25 million in planned improvements to East Palestine’s city park, $21 million in direct payments to residents and $9 million to local first responders.
Separate actions for the environmental cleanup brought by state and federal agencies are not resolved by this settlement and are still pending. The National Transportation Safety Board (NTSB) is still investigating the accident but is not expected to release its final report until June. The agency already concluded that an overheated wheel bearing likely caused the crash.
The suit settlement comes amid a backdrop of a board fight that could determine Norfolk Southern’s operating model in the future.
Activist investor Ancora Holdings is seeking to replace Norfolk Southern CEO Alan Shaw and more than half the company’s board of directors due to lagging margins compared to railroad competitors. In March, the hedge fund came up with its own three-year plan for Norfolk Southern, which includes the full implementation of precision scheduled railroading (PSR).
Last Friday, another minority shareholder, Neuberger Berman, said it would support Ancora’s full slate of director candidates. But dozens of transportation unions have thrown their support behind Shaw and the current regime, with Transportation Trades Department president Greg Regan calling it “a tremendous mistake and a detrimental step” to replace the CEO.
The proxy fight will conclude May 9, in which shareholders will vote on the CEO and board nominees at the railroad operator’s annual meeting.
Norfolk Southern unveiled the settlement agreement Tuesday, coinciding with the release of its preliminary first-quarter results, reporting a 4 percent dip to $3 billion in revenue despite a 4 percent increase in volume.
Adjusted earnings per share (EPS) is $2.49 after removing the East Palestine settlement and other one-time costs. Adjusted operating ratio was 69.9 percent.
“There is still work to be done to achieve industry-competitive margins and our target of a sub-60 percent adjusted operating ratio in three-to-four years and we are taking all the right steps to deliver on our promise,” Shaw said in a statement.
Aside from the settlement, Norfolk Southern said it also anticipates a $50 million to $100 million hit to second-quarter revenue from last month’s collapse of the Francis Scott Key Bridge in Baltimore, depending on the duration of the port outage.
