Mass Transit Admin. v. CSX Transp., Inc.

• Court: Maryland Supreme Court
• Writing for the Court: Argued before BELL, C.J., ELDRIDGE, RODOWSKY, CHASANOW, RAKER and WILNER, JJ., and ROBERT A. KARWACKI; RODOWSKY; Dissenting opinion by ELDRIDGE; ELDRIDGE
• Citation: Mass Transit Admin. v. CSX Transp., Inc., 349 Md. 299, 708 A.2d 298 (Md. 1996)
• Decision Date: 01 September 1996
• Docket Number: No. 121,121
• Parties: MASS TRANSIT ADMINISTRATION v. CSX TRANSPORTATION, INC. ,

Page 299

349 Md. 299

708 A.2d 298

MASS TRANSIT ADMINISTRATION v. CSX TRANSPORTATION, INC.

No. 121, Sept. Term, 1996.

Court of Appeals of Maryland.

April 15, 1998.

William A. Kahn, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., on brief), Baltimore, for petitioner.

M. Natalie McSherry (Stephen B. Caplis, Whiteford, Taylor & Preston, L.L.P., on brief), Baltimore, for respondent.

Argued before BELL, C.J., ELDRIDGE, RODOWSKY, CHASANOW, RAKER and WILNER, JJ., and ROBERT A. KARWACKI, Judge (retired and Specially Assigned).

RODOWSKY, Judge.

This action is one for judicial review of a decision of the Maryland State Board of Contract Appeals (BCA). Since 1979 the State has arranged for Maryland Rail Commuter (MARC) service under a series of contracts with the Baltimore and Ohio Railroad Company (B & O) and its successor. The contract in issue here provides that the State will hold the railroad harmless from "liability of every kind arising out of the Contract Service," a defined term under the contract. In the instant matter we interpret this indemnification provision and apply it to a grade-crossing collision that occurred without any fault on the part of the crew of the MARC train involved.

I

On October 1, 1990, B & O's successor, CSX Transportation, Inc. (CSXT), a Virginia corporation, and the Mass Transit Administration (MTA), a unit of the Maryland Department of Transportation, executed the Commuter Rail Passenger Service Agreement (the Contract) that is the subject of this action. Article I, Section 1 of the document summarizes CSXT's primary obligations under the Contract:

"(a) CSXT will provide regularly scheduled daily commuter rail service on weekdays (Monday through Friday) on its Capitol Subdivision line between Baltimore, Maryland, and Washington, DC, and on its Metropolitan and Cumberland Subdivision lines between Martinsburg, West Virginia, and Washington, DC, in accordance with Section 2 of this Agreement. This train operation, plus the maintenance of equipment, access of and use of facilities, ticket sales, and other activities required to support the operation of the train service as provided in this Article I, shall be called the 'Contract Service.' CSXT will make available its rail facilities on the above stated lines to provide the Contract Service. CSXT will operate the Contract Service in a safe and efficient manner with use of appropriate facilities and staff for management, train operations, and maintenance. ..."

The provision of the Contract that ultimately gave rise to this appeal is Article I, Section 9(b), which provides:

"(b) Indemnification by [MTA]

"(1) [MTA] agrees to indemnify, save harmless, and defend CSXT from any and all casualty losses, claims, suits, damages or liability of every kind arising out of the Contract Service under this Agreement, up to a maximum amount of One Hundred Fifty Million Dollars ($150,000,000), per occurrence, during the term of this Agreement, as excepted or limited by the terms of subsections (a), (c), (d), and (e), infra.[ ¹] This maximum indemnification amount shall include any expenses for outside manpower, for legal representation and for other extraordinary expenses of handling individual claims for [MTA]....

"(2) CSXT will promptly advise [MTA] of pending claims for which [MTA] is responsible under subsection (b)(1) with estimates of settlement costs in each instance. Any proposed settlement or payment in excess of Ten Thousand Dollars ($10,000) will be submitted to [MTA] for prior approval."

(Emphasis added).

In subsection 9(d)(1) MTA "agrees to self-insure Five Million Dollars ($5,000,000) per occurrence of any casualty claim or loss for which it is responsible" under the Contract. In subsection 9(d)(2) MTA agrees, at its cost and expense, to procure and maintain "excess liability insurance coverage commonly provided by Railroad operations liability insurance" in the amount of $145 million in excess of the $5 million "self-insured retention." Subsection 9(d)(2) further provides:

"This insurance shall cover liability assumed by [MTA] under this [Contract] ... and shall name the State of Maryland and [MTA] as insured. Such insurance policies shall name CSXT as an additional insured for CSXT's operation of the Contract Service...." ²

On November 4, 1992, CSXT contracted with Melvin Benhoff Sons, Inc. (Benhoff) to pave four, at-grade, public road crossings over CSXT's Baltimore-Washington tracks, including the Hanover Road crossing in Howard County. MTA was neither notified of the work to be done, nor was it asked to help defray the cost of the work.

On December 18, 1992, Benhoff commenced work on the Hanover Road crossing. The work included a Benhoff employee's operation of a backhoe on the tracks. A CSXT foreman was supervising, in accordance with certain rules promulgated by CSXT. ³ At approximately 9:10 a.m. that same day, MARC passenger train No. 244 was bound toward Baltimore. After rounding a bend just prior to the Hanover Road crossing, the MARC train struck Benhoff's backhoe and "totalled" it. No one was injured as a result of the collision. The backhoe operator left the machine on the tracks as the train approached. Whether the CSXT foreman warned the backhoe operator of the approaching train in sufficient time to move the machine off the tracks was disputed between CSXT and Benhoff. BCA, however, found that "apparently the central train dispatcher was not informed of Benhoff's presence and work plans pursuant to Rule 704. Thus, there was no notice to any train engineers or any notice to the dispatcher so that he might alert any oncoming trains of the obstruction on the track."

Benhoff sued CSXT in the Circuit Court for Howard County seeking $40,420.25 as the value of the backhoe. Benhoff's complaint alleged CSXT's negligence to be the failure of the track foreman to warn the backhoe operator of the approaching MARC train. CSXT denied liability and asserted contributory negligence. Prior to trial, CSXT settled with Benhoff for $23,350. In the action now before us, MTA concurred that the amount of the Benhoff settlement was "reasonable."

In its claim for indemnification from MTA for the amount paid to Benhoff, CSXT asserted two grounds for indemnification. As described by MTA:

"1. The maintenance and repair work performed on the Hanover Road track crossing 'was necessary to support the operation of the train service.'

"2. The train involved in the collision was a MARC train that was engaged in Contract Service."

MTA denied CSXT's claim on three grounds: (1) the work performed by Benhoff was not part of Contract Service; (2) although a MARC train was the instrumentality that actually struck Benhoff's backhoe, there was no negligence in the rendering of that Contract Service; and (3) "to interpret Contract Section 9(b)(1) to prescribe indemnification under the circumstances presented here would be violative of a strong Maryland public policy articulated in § 5-305, Md.Cts. & Jud.Proc.Ann.Code." ⁴

In accordance with Md.Regs.Code tit. 21, § 10.04.06 (1989) (COMAR), CSXT appealed MTA's decision to BCA which ruled in favor of MTA on summary disposition. BCA determined that, (1) the grade crossing repair undertaken by Benhoff "represented a necessary and recurring maintenance activity required of CSXT notwithstanding the existence of the instant commuter rail Contract," and, as such, was "outside the scope of the Contract with the State, provided no direct benefit to the State, and was performed without its knowledge"; and (2) "[t]he mere fact that a MARC train was innocently and fortuitously involved in the incident does not bring the incident within the ambit of the definition of '[C]ontract [S]ervice' under the Contract." BCA concluded that it need not consider whether the incident arose out of a construction contract to which CJ § 5-305 applied.

CSXT petitioned the Circuit Court for Howard County for judicial review. That court affirmed, concluding that the reasons given by BCA were supported by substantial evidence.

CSXT appealed to the Court of Special Appeals, which reversed and directed the circuit court to instruct BCA to order MTA to pay $23,350 to CSXT. CSX Transp., Inc. v. Mass Transit Admin., 111 Md.App. 634, 647-48, 683 A.2d 1127, 1133 (1996). The court agreed with CSXT's contention that, notwithstanding the absence of negligence in the operation of the MARC train, "the December 18, 1992, collision arose out of 'Contract Service' because the collision involved a MARC train and 'Contract Service' specifically includes 'train operations.' " Id. at 640, 683 A.2d at 1129. The court also held that CJ § 5-305 was no bar because the indemnification agreement is "neither 'in, or in connection with, or collateral to, a contract or agreement relating to' construction." Id. at 645, 683 A.2d at 1132. ⁵

This Court granted MTA's petition for certiorari. The petition presents the following questions:

"1. Does contractual indemnity for liability 'arising out of ' work under a contract extend to liability caused solely by the negligence of the indemnitee (or its contractor) in work that is not work under the contract?

"2. Is an indemnitor's promise to indemnify for liability that was caused only by the indemnitee or its agent rendered unenforceable by [CJ] § 5-305, which voids a promise in, in connection with, or collateral to a construction agreement that purports to indemnify the promisee for its own negligence or the negligence of its agents?"

II

On the first issue MTA's premise is that the Hanover Road work is not Contract Service, in whole or in part, and that the only Contract Service involved in the collision was the operation of the MARC train. MTA argues that the Court of Special Appeals erred in holding that the mere fact that the MARC train collided with the backhoe satisfies the "arising out of" requirement. MTA submits that more than mere "but for" causation is required to create "arising out of...