                                            Filed:   December 11, 1997


                   UNITED STATES COURT OF APPEALS

                       FOR THE FOURTH CIRCUIT



                             No. 96-1226
                           (CA-94-2543-Y)



National Union Fire Ins. Co., etc.,

                                                Plaintiff - Appellee,

          versus

CSX Corporation, et al,

                                             Defendants - Appellants.




                             O R D E R


     The Court amends its opinion filed April 14, 1997, as follows:

     On the cover sheet, section 2, line 1, and on page 2, first
paragraph of the opinion, line 3 -- the name "National Union Life

Insurance Company" is corrected to read "National Union Fire Insur-

ance Company."

                                      For the Court - By Direction



                                            /s/ Patricia S. Connor
                                                      Clerk
UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH,
PENNSYLVANIA,
Plaintiff-Appellee,

v.

CSX CORPORATION; CSX
INTERMODAL, INCORPORATED; CSX
INTERMODAL, INCORPORATED, Motor
                                                          No. 96-1226
Carrier Operations; CSX SERVICES,
INCORPORATED; O-O TRUCK SALES,
INCORPORATED; CSX/SEA-LAND
TERMINALS, INCORPORATED; BARONIAL
TRANSPORTATION CORPORATION;
CUSTOMIZED TRANSPORTATION,
INCORPORATED; CUSTOMIZED
TRANSPORTATION, LIMITED,
Defendants-Appellants.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Joseph H. Young, Senior District Judge.
(CA-94-2543-Y)

Argued: January 30, 1997

Decided: April 14, 1997

Before WILKINSON, Chief Judge, and HAMILTON and
MICHAEL, Circuit Judges.

_________________________________________________________________

Vacated and remanded by unpublished per curiam opinion.
COUNSEL

ARGUED: Kenneth C. Bass, III, VENABLE, BAETJER, HOWARD
& CIVILETTI, L.L.P., Washington, D.C., for Appellants. Mark
Andrew Dombroff, DOMBROFF & GILMORE, P.C., Washington,
D.C., for Appellee. ON BRIEF: James K. Archibald, VENABLE,
BAETJER, HOWARD & CIVILETTI, L.L.P., Washington, D.C., for
Appellants. Thomas B. Almy, Deborah S. Goldenberg, Mark E. Mc-
Kinnon, DOMBROFF & GILMORE, P.C., Washington, D.C., for
Appellee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

CSX Intermodal, Inc. and several related corporations (collectively
"CSXI") appeal the award of a declaratory judgment to National
Union Fire Insurance Company of Pittsburgh, Pennsylvania (National
Union) on National Union's claim that its insurance policy issued to
CSXI did not cover CSXI's liability related to a train wreck near
Selma, North Carolina. Because a further determination is necessary,
we vacate the judgment and remand for additional proceedings in
light of this opinion.

I.

CSXI, a wholly-owned subsidiary of CSX Corporation (CSX),
transports goods in truck trailers and then transfers the trailers onto
flatbed railway cars for shipment by rail. CSXI calls this "intermodal
transportation." On May 16, 1994, near Selma, North Carolina, a
southbound Amtrak passenger train wrecked when a trailer on a
northbound CSX train came loose and rotated into the path of the
oncoming Amtrak train. The Amtrak train rammed the loosened

                    2
trailer and derailed, killing the assistant engineer, injuring eleven pas-
sengers and crew, and causing considerable property damage. The
trailer that came loose had been loaded onto the railcar by CSXI.

When the accident occurred, CSXI held two excess liability insur-
ance policies issued by National Union. In anticipation of being
named as a defendant in lawsuits arising from the train wreck, CSXI
filed a notice of accident with National Union. In response, National
Union filed a declaratory judgment action against CSXI seeking a
declaration that it was not obligated to defend or indemnify CSXI for
this accident. National Union based its claim on the policies' railroad
liability exclusions.1 The lower layer policy's exclusion, which is the
focus of this appeal, reads as follows:

          It is understood and agreed that National Union Fire Insur-
          ance Company of Pittsburgh, Pa's policy number BE 308-
          90-34, shall not provide coverage for any claim(s), suits[ ],
          or liabilit(ies) involving the operation and maintenance of a
          railroad. All other terms and conditions of this policy remain
          unchanged.

JA 499.

National Union's principal argument was that the claims against
CSXI were for injuries sustained in a rail collision, and therefore the
claims involved the operation of a railroad. In response CSXI con-
tended that any liability on its part stemmed from its loading of the
trailer onto the railcar, which was not a railroad operation and there-
fore coverage was not precluded by the policy's railroad exclusion.
After a two-day bench trial, the district court granted National Union
declaratory relief. The district court did not make any determination
as to whether CSXI's activities involved railroad operations. Instead,
the district court determined that "[t]he role of [CSXI] in the underly-
_________________________________________________________________

1 The railroad liability exclusion in the upper layer policy excluded
coverage for "any damages arising of [sic] the ownership, maintenance,
operations, use, loading or unloading of any locomotive, railcar or rail-
road operations." The district court concluded that the upper layer poli-
cy's exclusion clause barred coverage under that policy. CSXI does not
appeal this determination, so we consider only the lower layer policy.

                      3
ing claim is irrelevant to the blanket railroad liability exclusion."
Because the train accident itself involved the operation of a railroad,
the district court held that the claims arising out of the accident were
within the exclusion. JA 50. CSXI appeals.

II.

Both parties agree that Maryland law applies. In a declaratory judg-
ment action that presents an issue of coverage "it is the function of
the court to interpret the policy and decide whether or not there is
coverage." Lloyd E. Mitchell, Inc. v. Maryland Casualty Co., 595
A.2d 469, 475 (Md. 1991) (citations omitted). "Maryland insurance
policies ordinarily are construed in the same manner as contracts gen-
erally." Collier v. MD-Individual Practice Assoc., Inc., 607 A.2d 537,
539 (Md. 1992). Thus, Maryland does not follow the rule adopted in
many states "that an insurance policy is to be construed most strongly
against the insurer." Cheney v. Bell Nat'l Life Ins. Co., 556 A.2d
1135, 1138 (Md. 1989). When the language of the contract is plain
and unambiguous the test is not what the parties intended it to mean,
but what a reasonable person in the position of the parties would have
thought it meant. American Casualty Co. v. Resolution Trust Corp.,
845 F. Supp. 318, 325 (D. Md. 1993). Finally,

        If the language is ambiguous, extrinsic evidence may be
        consulted. If the extrinsic evidence presents disputed factual
        issues, construction of the ambiguous contract is for the jury
        [or factfinder]. The court may construe an ambiguous con-
        tract if there is no factual dispute in the evidence. If after
        considering extrinsic evidence, the ambiguity remains, it
        will ordinarily be resolved against the party who drafted the
        contract.

Collier, 607 A.2d at 539 (citation omitted).

Under Maryland law there is a two-part inquiry for determining
whether the insurance company has a duty to defend or indemnify its
insured under a liability policy. The test is set forth in St. Paul Fire
& Marine Ins. Co. v. Pryseski, 438 A.2d 282, 285 (Md. 1981):

                    4
        In determining whether a liability insurer has a duty to pro-
        vide its insured with a defense in a tort suit, two types of
        questions ordinarily must be answered: (1) what is the cov-
        erage and what are the defenses under the terms and require-
        ments of the insurance policy? (2) do the allegations in the
        tort action potentially bring the tort claim within the policy's
        coverage? The first question focuses upon the language and
        the requirements of the policy, and the second question
        focuses upon the allegations of the tort suit.

For purposes of this case we emphasize that "the `facts' relevant to
coverage are those alleged in the [plaintiff]'s complaint in the under-
lying action." Home Exterminating Co. v. Zurich-American Ins.
Group, 921 F. Supp. 318, 319-20 (D. Md. 1996) (interpreting Mary-
land law).

We believe the district court, in deciding the coverage question,
erred by ignoring the facts alleged to support the claims made against
CSXI in the underlying action. In other words, the court should have
decided whether the allegations against CSXI in the tort action
brought the claim within the policy's coverage, after taking into
account the exclusion.

The coverage clause of the policy obligates National Union to pay
that amount, within policy dollar limits, which CSXI would "become
legally obligated to pay as [damages] because of . . . liability imposed
upon [CSXI] by law . . . ." JA at 503. Of course, the issue in this case
is the proper interpretation of the railroad liability exclusion, which
states that the policy "shall not provide coverage for any claim(s),
suits[ ] or liabilit(ies) involving the operation . . . . of a railroad."

The district court interpreted the exclusion by focusing only on the
type of accident -- there was a train wreck. Thus, the court con-
cluded, "The role of the insured [CSXI] in the underlying claim is
irrelevant to the blanket railroad liability exclusion. Because the train
accident on May 16, 1994 involved the operation of a railroad, claims
arising out of the accident are included within the exclusion." JA 50.

The error in looking only at the type of accident rather than the
alleged wrongdoing of the insured is confirmed by a hypothetical

                    5
mentioned both at trial and at oral argument before us. Suppose that
a CSXI truck was negligently stopped on a railroad crossing, and a
passenger train, through no fault of its crew, struck the truck. Passen-
gers were injured in the collision and sued CSXI. Would the railroad
liability exclusion operate to deny coverage to CSXI for these claims
resulting from the collision? Both National Union's expert at trial and
its lawyer at oral argument conceded that the exclusion would not
apply to CSXI in the hypothetical. The expert said the exclusion
would not apply because in the crossing case "CSXI was engaged in
a trucking [not a railroad] activity." JA 151. Yet under the district
court's approach the railroad liability exclusion would apply to the
hypothetical because the claim against CSXI arose out of an accident
involving the operation of a railroad. The district court, it seems,
would never look to CSXI's activity, but we believe that approach is
contrary to Maryland law.

Under Maryland law the factual allegations in the underlying tort
action must be examined to determine if CSXI's allegedly negligent
acts are within the policy's coverage. See Pryseski, 438 A.2d at 285.
Here, the widow of the assistant engineer killed in the accident filed
a complaint alleging that CSXI negligently loaded the trailer onto the
railroad flat car, negligently fastened the trailer to the flat car, failed
to inspect or inadequately inspected the trailer to determine if it was
properly loaded and secured, and failed to have inspection procedures
to ensure that an improperly secured trailer would be detected. JA
187-88. According to the widow's complaint, these acts and omis-
sions of CSXI were the proximate cause of the train wreck that led
to her husband's death.

Because coverage must be determined by looking at the factual
allegations of wrongdoing in the underlying complaint, National
Union may deny coverage in this case only if CSXI was involved in
the operation of a railroad when it engaged in the acts and omissions
that allegedly caused the train wreck. We come, then, to what the
phrase "operation of a railroad" means under the facts and circum-
stances of this case. In other words, was CSXI involved in the opera-
tion of a railroad when it loaded and fastened the trailer onto the
flatcar for further transport? In this context, we believe the phrase
"operation of a railroad" is ambiguous.2 In light of this ambiguity,
_________________________________________________________________

2 The policy does not define "operation of a railroad."

                     6
extrinsic evidence must be considered. See Collier, 607 A.2d at 539.
Here the extrinsic evidence introduced at trial reveals that there is a
factual dispute about whether CSXI's activity in loading the trailer on
the railroad car involved the operation of a railroad.

National Union's evidence that CSXI's loading and unloading a
railcar involved the "operation of a railroad" included the following:
(1) CSXI engages in intermodal transportation, which CSXI has
described as "the shipment of goods in standard-sized containers via
two or more modes of transportation, usually rail and truck," JA 353;
(2) the railroad industry, its trade associations and railroad unions
consider loading semitrailers onto a railcar to be a railroad operation,
JA 202-320; and (3) some of CSXI's advertisements talk about where
its trains operate. JA 363.

CSXI's evidence that its activities did not involve the operation of
a railroad included the following: (1) CSXI's responsibilities do not
include any movement of the railcars containing the trailers; its
responsibilities are confined to transporting the trailers over public
highways by truck and placing the trailers onto railcars in originating
intermodal terminals and unloading the trailers off of the railcars in
destination terminals, JA 72-73, 114-17; and (2) once the trailers are
placed on the railcars, all responsibility for the rail transportation of
the trailers shifts to the railroad operating company, which is not
CSXI. JA 122-23.

There was also testimony about the negotiations that surrounded
the drafting of the insurance policy, and each side's representative
differed on whether the loading of railcars by CSXI was meant to be
included or excluded. JA 100, 117. In addition, CSXI submitted loss
histories relating only to automobile and trucking liabilities, JA 104;
no part of the premium was based on railroad operations, JA 103; and
the language of the railroad liability exclusion in the upper layer pol-
icy differs from the language in the lower layer policy. National
Union and CSXI disagree about whether this evidence is relevant and
how it should be interpreted.

Although the evidence we have summarized above was in the
record, the district court made no determination at the conclusion of
the bench trial about whether CSXI's activity alleged in the underly-

                     7
ing complaint involved the operation of a railroad. The district court
erred in not making that determination because whether CSXI's activ-
ities involved the operation of a railroad governs whether the railroad
operation exclusion applies. We therefore vacate the judgment and
remand for further proceedings consistent with this opinion. We leave
it to the district court's discretion whether the record needs to be re-
opened for the taking of additional evidence on the dispositive issue.

VACATED AND REMANDED

                    8
