Imo Industries Inc. v. Transamerica Corporation, Tig Insurance Company, F/K/A Transamerica Insurance Company, A.C.E. Insurance Company, Ltd. , 437 N.J. Super. 577 ( 2014 )


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  •                  NOT FOR PUBLICATION WITHOUT THE
    APPROVAL OF THE APPELLATE DIVISION
    SUPERIOR COURT OF NEW JERSEY
    APPELLATE DIVISION
    DOCKET NO. A-6240-10T1
    IMO INDUSTRIES INC.,
    APPROVED FOR PUBLICATION
    Plaintiff-Appellant/
    Cross-Respondent,                     September 30, 2014
    v.                                          APPELLATE DIVISION
    TRANSAMERICA CORPORATION, TIG
    INSURANCE COMPANY, f/k/a TRANSAMERICA
    INSURANCE COMPANY, A.C.E. INSURANCE
    COMPANY, LTD., THE CENTRAL NATIONAL
    INSURANCE COMPANY OF OMAHA, INSURANCE
    COMPANY OF NORTH AMERICA, ACE LTD.,
    as successor-in-interest to INSURANCE
    COMPANY OF NORTH AMERICA, INDUSTRIAL
    UNDERWRITERS INSURANCE COMPANY, CERTAIN
    UNDERWRITERS AT LLOYD'S OF LONDON,
    CERTAIN LONDON MARKET INSURANCE
    COMPANIES, PACIFIC EMPLOYERS INSURANCE
    COMPANY, SERVICE FIRE INSURANCE COMPANY,
    ZURICH AMERICAN INSURANCE COMPANY,
    ZURICH AMERICAN INSURANCE COMPANY OF
    ILLINOIS, as successor-in-interest to
    ZURICH AMERICAN INSURANCE COMPANY,
    AMERICAN ZURICH INSURANCE COMPANY, as
    successor-in-interest to ZURICH
    AMERICAN INSURANCE COMPANY, ZURICH
    INSURANCE COMPANY, as successor-in-
    interest to ZURICH AMERICAN INSURANCE
    COMPANY, ZURICH INTERNATIONAL LTD.,
    ZURICH INSURANCE GROUP, as successor-
    in-interest to ZURICH INTERNATIONAL LTD.,
    ACE PROPERTY & CASUALTY INSURANCE
    COMPANY, as successor-in-interest to
    AETNA INSURANCE COMPANY,
    Defendants-Respondents/
    Cross-Appellants,
    and
    PYRAMID INSURANCE COMPANY OF BERMUDA,
    LTD., a/k/a PYRAMID INSURANCE COMPANY,
    LTD., AETNA CASUALTY AND SURETY
    COMPANY, a/k/a TRAVELERS CASUALTY AND
    SURETY COMPANY, TRAVELERS CASUALTY AND
    SURETY COMPANY f/k/a AETNA CASUALTY AND
    SURETY COMPANY, TRAVELERS PROPERTY
    CASUALTY CORP., as successor-in-interest
    to AETNA CASUALTY AND SURETY COMPANY
    and TRAVELERS CASUALTY AND SURETY
    COMPANY, FIREMAN'S FUND INSURANCE
    COMPANY, INTERSTATE FIRE AND CASUALTY
    COMPANY, PURITAN INSURANCE COMPANY,
    WESTPORT INSURANCE CORPORATION, as
    successor-in-interest to PURITAN
    INSURANCE COMPANY, TRANSPORT INDEMNITY
    COMPANY, MISSION AMERICAN INSURANCE
    COMPANY, as successor-in-interest to
    TRANSPORT INDEMNITY COMPANY, ASSOCIATED
    INTERNATIONAL INSURANCE COMPANY,
    INTEGRITY INSURANCE COMPANY, THE NEW
    JERSEY PROPERTY-LIABILITY GUARANTY
    ASSOCIATION on behalf of INTEGRITY
    INSURANCE COMPANY in insolvency,
    MIDLAND INSURANCE COMPANY, THE NEW
    JERSEY PROPERTY-LIABILITY GUARANTY
    ASSOCIATION on behalf of MIDLAND
    INSURANCE COMPANY in insolvency,
    MISSION INSURANCE COMPANY, THE NEW
    JERSEY PROPERTY-LIABILITY GUARANTY
    ASSOCIATION on behalf of MISSION
    INSURANCE COMPANY in insolvency,
    WESTERN EMPLOYERS INSURANCE COMPANY,
    THE NEW JERSEY PROPERTY-LIABILITY
    GUARANTY ASSOCIATION on behalf of
    WESTERN EMPLOYERS INSURANCE COMPANY
    in insolvency, YOSEMITE INSURANCE
    COMPANY,
    Defendants-Respondents,
    and
    ALLIANZ UNDERWRITERS, INC., ALLIANZ
    UNDERWRITERS INSURANCE COMPANY, as
    2          A-6240-10T1
    successor-in-interest to ALLIANZ
    UNDERWRITERS, INC., ALLIANZ GLOBAL RISKS
    US INSURANCE COMPANY, as successor-in-
    interest to ALLIANZ UNDERWRITERS INSURANCE
    COMPANY, AMERICAN BANKERS INSURANCE
    COMPANY OF FLORIDA, AMERICAN EMPIRE
    SURPLUS LINES INSURANCE COMPANY, as
    successor-in-interest to GREAT AMERICAN
    SURPLUS LINES INSURANCE COMPANY,
    AMERICAN EMPIRE SURPLUS LINES INSURANCE
    COMPANY, XL INSURANCE COMPANY, L.T.D.,
    as successor-in-interest to AMERICAN
    EXCESS INSURANCE COMPANY, AMERICAN HOME
    ASSURANCE COMPANY, AMERICAN RE-INSURANCE
    COMPANY, AMERICAN INTERNATIONAL
    UNDERWRITERS, AIU INSURANCE COMPANY, as
    successor-in-interest to AMERICAN
    INTERNATIONAL UNDERWRITERS, AMERICAN
    INTERNATIONAL GROUP, as successor-in-
    interest to AIU INSURANCE COMPANY,
    EMPLOYERS MUTUAL CASUALTY COMPANY,
    FEDERAL INSURANCE COMPANY, FIRST STATE
    INSURANCE COMPANY, GRANITE STATE
    INSURANCE COMPANY, GREAT AMERICAN
    SURPLUS INSURANCE COMPANY, CITY
    INSURANCE COMPANY, THE HOME INSURANCE
    COMPANY, as successor-in-interest to
    CITY INSURANCE COMPANY, COLUMBIA
    CASUALTY COMPANY, COVENANT MUTUAL
    INSURANCE COMPANY, COVENANT INSURANCE
    COMPANY, as successor-in-interest to
    COVENANT MUTUAL INSURANCE COMPANY,
    GREAT AMERICAN SURPLUS INSURANCE
    COMPANY, CITY INSURANCE COMPANY, THE
    HOME INSURANCE COMPANY, as successor-
    in-interest to CITY INSURANCE COMPANY,
    COLUMBIA CASUALTY COMPANY, COVENANT
    MUTUAL INSURANCE COMPANY, COVENANT
    INSURANCE COMPANY, as successor-in-
    interest to COVENANT MUTUAL INSURANCE
    COMPANY, GREENWICH INSURANCE COMPANY,
    as successor-in-interest to HARBOR
    INSURANCE COMPANY, HARBOR INSURANCE
    COMPANY, INTERNATIONAL SURPLUS LINES
    INSURANCE COMPANY, INTERNATIONAL
    INSURANCE COMPANY, as successor-in-
    3             A-6240-10T1
    interest to INTERNATIONAL SURPLUS
    LINES INSURANCE COMPANY, CRUM AND
    FORSTER INSURANCE COMPANY, as
    successor-in-interest to INTERNATIONAL
    SURPLUS LINES INSURANCE COMPANY,
    HIGHLANDS INSURANCE COMPANY, HUDSON
    INSURANCE COMPANY, THE INSURANCE
    COMPANY OF THE STATE OF PENNSYLVANIA,
    LANDMARK INSURANCE COMPANY, LEXINGTON
    INSURANCE COMPANY, NATIONAL CASUALTY
    COMPANY, NATIONAL UNION FIRE INSURANCE
    COMPANY OF PITTSBURGH, PA, NORTHBROOK
    INDEMNITY COMPANY, ALLSTATE INSURANCE
    COMPANY, as successor-in-interest to
    NORTHBROOK INDEMNITY COMPANY, ROYAL
    INSURANCE COMPANY, ROYAL INSURANCE
    COMPANY OF AMERICA, as successor-
    in-interest to ROYAL INSURANCE COMPANY,
    ROYAL INDEMNITY COMPANY, as successor-
    in-interest to ROYAL INSURANCE COMPANY,
    ROYAL INDEMNITY COMPANY, X.L.,
    REINSURANCE AMERICA, INC., as successor-
    in-interest to SERVICE FIRE INSURANCE
    COMPANY, NATIONAL AMERICAN INSURANCE
    COMPANY OF CALIFORNIA, as successor-
    in-interest to MISSION AMERICAN
    INSURANCE COMPANY, PREMIER INSURANCE
    COMPANY, S&H INSURANCE COMPANY,
    NATIONAL FARMERS UNION PROPERTY AND
    CASUALTY COMPANY, as successor-in-
    interest to S&H INSURANCE COMPANY,
    TRANSAMERICA PREMIER INSURANCE COMPANY,
    as successor-in-interest to PREMIER
    INSURANCE COMPANY, TIG PREMIER INSURANCE
    COMPANY, as successor-in-interest to
    TRANSAMERICA PREMIER INSURANCE COMPANY,
    TRANSCONTINENTAL INSURANCE COMPANY,
    Defendants.
    ____________________________________________
    Argued March 31, 2014 – Decided September 30, 2014
    Before Judges Yannotti, Ashrafi, and
    St. John.
    4                       A-6240-10T1
    On appeal from Superior Court of New Jersey,
    Law Division, Morris County, Docket No.
    L-19-09.
    Robin L. Cohen and Kenneth H. Frenchman of
    the New York bar, admitted pro hac vice,
    argued the cause for appellant/cross-
    respondent IMO Industries Inc. (DeCotiis,
    FitzPatrick & Cole, L.L.P., Kasowitz,
    Benson, Torres & Friedman, L.L.P., Steven J.
    Roman (Dickstein Shapiro, L.L.P.) of the
    D.C. bar, admitted pro hac vice, and Mr.
    Frenchman, attorneys; Mr. Roman, Jeffrey D.
    Smith, Ms. Cohen and Elizabeth A. Sherwin,
    on the brief).
    Sherilyn Pastor argued the cause for
    respondent/cross-appellant Transamerica
    Corporation (McCarter & English, L.L.P.,
    attorneys; Ms. Pastor and Gregory H.
    Horowitz, of counsel and on the brief;
    Nicholas M. Insua, Adam J. Budesheim,
    Stephanie Platzman-Diamant, and Mark D.
    Villanueva, on the brief).
    Shawn L. Kelly argued the cause for
    respondent/cross-appellant TIG Insurance
    Company (Riker Danzig Scherer Hyland &
    Perretti, L.L.P., attorneys; Mr. Kelly,
    Ronald Puhala, Sigrid S. Franzblau and
    Richard C. Kielbania, of counsel and on the
    brief).
    Mark D. Hoerrner argued the cause for
    respondent Pyramid Insurance Company, Ltd.
    (Budd Larner, P.C., attorneys; Mr. Hoerrner,
    Marc I. Bressman and David I. Satine, on the
    brief).
    Patricia B. Santelle argued the cause for
    respondents/cross-appellants ACE Property &
    Casualty Insurance Company, Century
    Indemnity Company, Central National
    Insurance Company of Omaha, Industrial
    Underwriters Insurance Company, Pacific
    Employers Insurance Company, and Service
    5                         A-6240-10T1
    Fire Insurance Company (White and Williams
    L.L.P., attorneys; Ms. Santelle, Gregory S.
    Capps, and Paul A. Briganti, on the brief).
    Mark J. Leimkuhler (Lewis Baach, P.L.L.C.)
    of the D.C. bar, admitted pro hac vice,
    argued the cause for respondents/cross-
    appellants London Market Insurers (Tompkins,
    McGuire, Wachenfeld & Barry, L.L.P., and Mr.
    Leimkuhler, attorneys; Mr. Leimkuhler, of
    counsel and on the brief; Aisha E. Henry
    (Lewis Baach, P.L.L.C.) of the D.C. bar,
    admitted pro hac vice, and Matthew P.
    O'Malley, on the brief).
    Michael A. Kotula argued the cause for
    respondents Fireman's Fund Insurance
    Company, Interstate Fire & Casualty Company
    and Westport Insurance Corporation (Rivkin
    Radler, L.L.P., attorneys; Mr. Kotula and
    Lawrence A. Levy of the New York bar,
    admitted pro hac vice, on the brief).
    Coughlin Duffy, L.L.P. and John K. Daly
    (Meckler Bulger Tilson Marick & Pearson,
    L.L.P.) of the Illinois bar, admitted pro
    hac vice, attorneys for respondents/cross-
    appellants Zurich American Insurance Company
    and Zurich International (Bermuda), Ltd.
    (Robert J. Re and Mr. Daly, of counsel and
    on the brief; Maida Perez, on the brief).
    L'Abbate, Balkan, Colavita & Contini,
    L.L.P., attorneys for respondent Transport
    Insurance Company (Gretchen B. Connard and
    John D. McKenna, on the brief).
    Ford Marrin Esposito Witmeyer & Gleser,
    L.L.P., attorneys for respondent Travelers
    Casualty & Surety Company (James M. Adrian
    and Kenneth D. Walsh, on the brief).
    Locke Lord L.L.P., attorneys for respondent
    CX Reinsurance Company Limited (Richard I.
    Scharlat, on the brief).
    6                         A-6240-10T1
    Norris McLaughlin & Marcus, P.A., attorneys
    for amicus curiae Independent Energy
    Producers of New Jersey (Robert Mahoney, on
    the brief).
    The opinion of the court was delivered by
    ASHRAFI, J.A.D.
    Several parties appeal from a final judgment determining
    insurance coverage for asbestos-related personal injury claims.
    Plaintiff IMO Industries, Inc. is the insured and the successor
    to a manufacturer of industrial products that contained
    asbestos.    Defendants are primary and excess liability insurers,
    as well as Transamerica Corporation, the former parent company
    of the predecessor manufacturer.
    Over the years, IMO purchased a total of $1.85 billion in
    insurance coverage from all the defendant insurers.       That amount
    is sufficient to pay for its anticipated liabilities and defense
    costs for asbestos-related personal injury claims.    Nonetheless,
    IMO initiated this litigation to establish its rights under
    those insurance policies and to recover money damages.
    Among many issues and topics, the appeals present some
    questions that have not been previously addressed in the New
    Jersey Supreme Court's insurance allocation decisions for so-
    called long-tail environmental losses, beginning with Owens-
    7                            A-6240-10T1
    Illinois, Inc. v. United Insurance Co., 
    138 N.J. 437
    (1994), and
    Carter-Wallace, Inc. v. Admiral Insurance Co., 
    154 N.J. 312
    (1998).   We must decide whether the trial court correctly
    treated primary insurance policies that pay for all litigation
    defense costs "outside the limits," or in addition to, the
    indemnification limits of the policies.     We must also decide how
    the coverage limits of excess multi-year policies must be
    treated in the allocation model.     Additional issues include
    whether IMO was entitled to a jury trial on its claims for money
    damages, and numerous challenges to the trial court's
    interpretation of insurance policies within the Owens-Illinois
    and Carter-Wallace allocation methodology.
    Having considered the record and the parties' written and
    oral arguments, we find no ground to reverse the many rulings of
    the several judges who presided over this litigation.     We affirm
    the final judgment of the Law Division.
    I.
    Facts and Procedural History
    The Parties
    Plaintiff IMO originated in 1901 as the Delaval Steam
    Turbine Company.   It manufactured turbines, pumps, gears, and
    other machinery with industrial and military uses, including for
    United States Navy ships.   In some of Delaval's products
    8                            A-6240-10T1
    manufactured from the 1940s to the 1980s, component parts
    contained asbestos.
    Defendant Transamerica is a holding company that acquired
    Delaval in 1963.   Delaval operated as a subsidiary of
    Transamerica under different names until its divestiture in 1986
    by means of a spin-off to shareholders.     After the divestiture,
    plaintiff became IMO Industries, Inc.
    From the 1960s until 1993, Transamerica owned Transamerica
    Insurance Company, which became defendant TIG Insurance Company
    ("TIG") when it was divested in 1993.     Transamerica acquired
    Pyramid Insurance Company of Bermuda in the 1970s and still
    owned it at the time of this litigation.     Transamerica, TIG, and
    Pyramid are at times collectively referred to in this litigation
    as the Transamerica defendants.
    The other defendants are insurance companies, together with
    their predecessors and affiliates, that provided different
    levels of primary or excess liability insurance to plaintiff or
    Transamerica.   Among the excess insurers that have raised issues
    on appeal are two groups of insurers that we will refer to in
    this opinion as "ACE" and "LMI."1     We will also refer to IMO and
    TIG to mean the present company or its predecessors.
    1
    "ACE" in this opinion shall mean one or more of the following
    insurers: ACE Property and Casualty Insurance Company, Century
    (continued)
    9                         A-6240-10T1
    Risk Management Program
    In 1972, Transamerica established a corporate risk
    management program ("TARM") that oversaw insurance matters for
    its subsidiaries.    The objectives of the TARM program were to
    protect Transamerica and its subsidiaries from catastrophic
    losses and to minimize costs for insurance coverage and
    accidental losses.   According to Transamerica's director of risk
    management in the 1980s, the TARM program was never intended to
    be an insurer for subsidiaries, although Transamerica would
    often pay losses that fell within a subsidiary's self-insured
    retention ("SIR").   A SIR operates in some ways like a
    deductible for an insurance policy but also is significantly
    different, as we will discuss later in this opinion.   The TARM
    program procured insurance on behalf of Transamerica's
    subsidiaries in exchange for an annual fee.   The fee covered the
    costs of purchasing insurance, TARM's operating costs, and the
    subsidiary's share of losses.
    (continued)
    Indemnity Company, CCI Insurance Company, Insurance Company of
    North America, Indemnity Insurance Company of North America,
    Central National Insurance Company of Omaha, Service Fire
    Insurance Company, Industrial Underwriters Insurance Company,
    and Pacific Employers Insurance Company.
    "LMI" stands for "London Market Insurers" and shall mean one
    or more of individual Lloyd's syndicates or London Market
    companies.
    10                        A-6240-10T1
    Transamerica would charge back its payments covering a
    subsidiary's SIRs through the risk management fees.
    Subsidiaries like IMO that experienced unique or significant
    losses were also charged a catastrophe fee beyond the normal
    risk management fee.   Before its divestiture in 1986, IMO had
    paid approximately $33 million in such fees to Transamerica.
    IMO's Insurance Policies
    Before 1964, IMO had general liability policies issued by
    New Jersey Manufacturers Insurance Company ("NJM") and Aetna
    Casualty and Surety Company ("Aetna").   From 1964 to 1972, IMO
    purchased primary insurance directly from TIG.   We will refer to
    these pre-1972 policies as TIG's "direct policies."
    From 1972 through 1976, Transamerica purchased insurance on
    behalf of IMO from the Highlands Insurance Company.   The
    Highlands policies were written above a $100,000 SIR, meaning
    that IMO's losses must exceed that level of loss from any single
    occurrence before it could access coverage under the Highlands
    policies.   There was no insurance in place to cover IMO's SIR.
    TIG also issued excess policies to IMO during this time period.
    From 1977 to 1986, Transamerica purchased first-layer
    excess insurance coverage for IMO from ACE and Pyramid.     These
    policies also required SIRs.   To cover the SIRs, Transamerica
    purchased insurance policies from TIG, which are referred to in
    11                          A-6240-10T1
    this litigation as "fronting policies."     These policies allowed
    IMO to obtain insurance certificates showing full coverage for
    all losses.    The "fronting" reference meant there was no risk
    assumed by the insurance carrier, here TIG.2
    The TIG fronting policies had stated coverage limits of $1
    million from 1977 through 1984 and higher limits for 1985 and
    1986, totaling in the aggregate $10.75 million for the ten-year
    period.   For the fronting policies in effect from 1977 through
    1981, defense costs were paid "outside the limits" of the
    policies.     This means that the policies would pay their stated
    $1 million indemnity limits plus defense costs; the defense
    costs were supplemental to the indemnification coverage and did
    not erode the indemnity limits.     We will refer to these policies
    as "outside the limits" policies.      Defense costs for the
    policies in effect from 1982 through 1986 were within the policy
    2
    "Fronting" means "[t]he use of a licensed, admitted insurer to
    issue an insurance policy on behalf of a self-insured
    organization or captive insurer without the intention of
    transferring any of the risk. The risk of loss is retained by
    the self-insured or captive insurer with an indemnity or
    reinsurance agreement. . . . Fronting arrangements allow
    captives and self-insurers to comply with financial
    responsibility laws imposed by many states that require evidence
    of coverage written by an admitted insurer, such as for
    automobile liability and workers compensation insurance."
    Fronting, IRMI Risk & Ins., http://www.irmi.com/online/
    insurance-glossary/terms/f/fronting.aspx (last visited Sept. 4,
    2014); see also Richard V. Rupp, Insurance & Risk Management
    Glossary 150 (1991) (fronting insurer issues policy on behalf of
    captive insurer but assumes little or no financial exposure).
    12                           A-6240-10T1
    limits, meaning payments for defense costs did erode the
    indemnity limits.
    Thus, IMO had "direct policies" from TIG from 1964 through
    1972, excess policies at various times including 1972 through
    1976, and "fronting policies" from 1977 to 1986, the first five
    years of which were "outside the limits" policies.   Over the
    years since the 1986 divestiture, TIG made payments totaling
    more than $30 million for IMO's asbestos liabilities and defense
    costs from both its direct and fronting policies.    Adding TIG's
    payments from excess policies, TIG paid IMO more than $72
    million for its asbestos liabilities and costs.
    IMO also received payments from Pyramid's excess policies,
    including from the time that TIG claimed it had no more
    responsibility for IMO's losses.
    Digressing briefly from the facts to restate the lead issue
    in this appeal, TIG claims its policies are exhausted because it
    has paid far more than the amount of loss allocated to it under
    the Owens-Illinois and Carter-Wallace loss allocation model.
    IMO contends TIG's obligations have not ended because the
    indemnification limits of the "outside the limits" policies
    cannot be exhausted by allocating responsibility to those
    policies.   It contends only actual payments that reach the $1
    million dollar indemnification limits will exhaust TIG's
    13                          A-6240-10T1
    obligation to cover defense costs under the five years of
    "outside the limits" policies.    According to IMO, as of the end
    of 2010, TIG owed an additional $48 million in defense costs
    under those policies.
    Transamerica's Agreements with TIG
    Between 1976 and 1992, Transamerica entered into four
    agreements with TIG to indemnify TIG for its payments under the
    fronting policies.   In 1992, Transamerica and TIG also entered
    into an agreement with regard to the pre-1972 direct policies
    pursuant to which Transamerica would contribute to TIG half the
    total amounts of defense and indemnity sought by IMO for
    asbestos litigation.    The result of these agreements was that
    Transamerica actually paid approximately half the amounts paid
    by TIG to IMO under its direct and fronting policies.
    Divestiture of IMO
    In 1986, Transamerica divested IMO's predecessor by
    spinning off its shares to Transamerica shareholders, and the
    new company became IMO.    The terms of the divestiture were
    contained in a Distribution Agreement dated December 18, 1986.
    On the subject of insurance coverage, the agreement stated:
    Section 6.02 Insurance With respect to all
    insurance plans of [IMO], [IMO] shall be
    liable for payment of claims (to the extent
    not covered by Transamerica's Risk
    Management Program) arising out of
    incidents, known or unknown, reported or
    14                         A-6240-10T1
    unreported, which were incurred prior or
    subsequent to the Distribution Date.
    [(Emphasis added).]
    A dispute on appeal pertains to the underscored language and the
    obligations, if any, it imposes upon Transamerica after the
    divestiture.
    Asbestos Lawsuits, IFAs, and Exhaustion of Policies
    At the time of the 1986 divestiture, IMO had been named as
    a third-party defendant in three asbestos liability lawsuits.
    IMO tendered these claims to TIG for indemnification and
    defense.    TIG provided one hundred percent of the funds to pay
    these claims, and Transamerica then reimbursed TIG at least half
    that amount pursuant to their agreements.     Many more asbestos
    claims were filed after the divestiture, and TIG continued to
    provide a defense to IMO under both its direct policies and its
    fronting policies.
    In 1989, IMO sent "first notice" letters to excess
    insurers.    These letters made no demand for payment and provided
    minimal information about the claims against IMO or any
    underlying policies that might be in place.     In fact, according
    to the excess insurers, IMO told them it had ample primary
    insurance coverage and their policies were unlikely to be
    reached in the foreseeable future.
    15                        A-6240-10T1
    In 1991, IMO discovered NJM's and Aetna's older primary
    insurance policies and tendered its asbestos claims to NJM and
    to Travelers Insurance Company ("Travelers") as successor to
    Aetna.   Aetna's policies covered IMO from 1955 to 1964.    On
    September 30, 1992, IMO entered into an Interim Defense and
    Indemnification Funding Agreement ("IFA") with TIG and
    Aetna/Travelers under which all defense costs were to be paid by
    TIG and Aetna, and indemnity payments were split in three equal
    shares among TIG, Aetna, and IMO.
    NJM, on the other hand, did not acknowledge coverage on its
    primary liability policies issued to IMO from 1935 through 1954.
    IMO filed suit against NJM and was successful in compelling it
    to provide coverage.   On March 24, 1993, IMO entered into an IFA
    with NJM, which applied in conjunction with the earlier IFA with
    TIG and Aetna/Travelers.   Neither of the two IFAs was intended
    to be a final allocation of IMO's losses, and both reserved the
    parties' rights to seek reallocation of the amounts paid.
    Under the two IFAs, defense costs were split equally among
    Aetna, NJM, and TIG, and indemnity costs were split equally
    among the three insurers and IMO.    In 1998, NJM declared its
    policies exhausted, having paid $4,234,703 in defense and
    indemnity costs.   It made no further payments after that time.
    When Aetna balked at continuing payments, IMO filed suit against
    16                          A-6240-10T1
    Aetna and IMO's excess insurers seeking to compel payments under
    Aetna's IFA.   IMO did not actively pursue the matter against the
    excess insurers, and in 2000 it voluntarily dismissed them from
    the litigation.   A new sharing arrangement was reached among
    Aetna/Travelers, TIG, and IMO under which Aetna paid one fourth
    of defense costs and one fourth of indemnity costs, IMO paid one
    third of indemnity costs and none of the defense costs, and the
    balance of both types of costs was paid by TIG.
    Aetna declared its policies exhausted in August 2003,
    having paid a total of $15,240,064.   IMO did not challenge
    Aetna's declaration of exhaustion.    TIG then continued making
    payments under the IFAs for several more months, paying one
    hundred percent of defense costs and two thirds of the indemnity
    costs.   All of IMO's defense costs through the end of 2003 were
    paid by means of the IFAs, and IMO incurred no unreimbursed
    defense costs through that time.
    In early 2004, when TIG declared its 1977 through 1986
    fronting policy limits exhausted, TIG had paid a total of
    $30,856,193 to IMO as reimbursement of indemnity and defense
    costs, these payments being allocated by TIG to both its pre-
    1972 direct policies and to the 1977 through 1986 fronting
    policies.
    17                          A-6240-10T1
    Owens-Illinois and Carter-Wallace
    The New Jersey Supreme Court's 1994 decision in Owens-
    
    Illinois, supra
    , 138 N.J. at 478-79, first established the
    "continuous trigger" theory of insurance coverage for long-tail
    environmental losses, such as exposure to asbestos.    The Court
    defined the term "occurrence" in liability policies to mean a
    separate triggering event for insurance coverage in each year
    from the time a claimant alleging injury was first exposed to
    asbestos until manifestation of an asbestos-related disease or
    until insurance coverage became unavailable.   
    Ibid. The Court also
    established a pro-rated model for the allocation of
    coverage responsibilities among multiple insurers based on an
    insurer's time on the loss and limits of risk coverage in the
    policies.   
    Id. at 474-75.
    In July 1998, the Court issued its decision in Carter-
    
    Wallace, supra
    , 
    154 N.J. 312
    , as further development of the
    allocation methodology.   The Court held that excess insurers
    were included in the model, and that policies would be exhausted
    "vertically" in each year of coverage applicable to a claim
    rather than all primary insurance policies being exhausted
    "horizontally" first across the range of "triggered" coverage
    years before excess insurers' policies would attach.    
    Id. at 325-28.
    18                         A-6240-10T1
    In November 1998, representatives from IMO, TIG, and
    Transamerica met and discussed applying the Carter-Wallace
    allocation methodology to IMO's claims.   IMO's General Counsel
    strongly disagreed with Carter-Wallace and refused to apply its
    methodology to allocate responsibility among IMO's insurers.      He
    was satisfied with the IFA arrangements in place where IMO paid
    a third of indemnity and no defense costs.
    The Present Litigation
    In 2002, IMO sought assurance from the Transamerica
    defendants that they would continue to pay full defense costs
    and most of the indemnity costs for asbestos claims.   When
    assurance was not given, IMO filed its initial complaint in
    August 2003 against the Transamerica defendants.
    In early 2004, the Transamerica defendants informed IMO
    that TIG's fronting policies were exhausted as of December 31,
    2003.   A February 4, 2004 letter written by counsel for Pyramid
    stated that, up to December 31, 2003, Transamerica had paid "at
    least $9,703,101 in indemnity for asbestos bodily injury claims,
    and at least $5,138,148 for expenses for those claims" and that
    those sums exceeded the amount of the SIRs and the limits of
    TIG's fronting policies.   The letter informed IMO that any
    future payments for indemnity and expenses would be paid "by
    Pyramid's excess policies, up to the limits of the Pyramid
    19                         A-6240-10T1
    policies."   Pyramid's future payments would be based on its
    Carter-Wallace allocation share after a short transitional
    period.
    Although IMO eventually added the excess insurers to the
    present litigation, it initially told them in private meetings
    that it had done so to avoid inconsistent judgments if active
    litigation against the excess insurers were to become necessary
    in the future.   IMO reassured the excess insurers that their
    policies were not going to be reached because the TIG "outside
    the limits" policies for 1977 through 1981 would never reach
    their limits of coverage.3
    In July 2005, IMO appeared to waver in its belief that the
    TIG policies had not been exhausted.    As a result, Pyramid
    agreed that its excess policies were triggered and advanced IMO
    $2 million toward defense invoices.    In August 2005, however,
    3
    According to TIG and some of the excess insurers, IMO
    originally took the position that the $1 million limits of the
    fronting policies would never be reached because each asbestos
    personal injury claim was a separate occurrence, and IMO's
    indemnification liability for those claims was a relatively
    small amount. No individual asbestos claim would exhaust the $1
    million in indemnification coverage and TIG would perpetually
    have to provide defense costs on the "outside the limits"
    policies. As we will explain further, IMO and its expert
    presented a different version of their theory of "limitless
    defense costs" during this litigation that did not rely on a
    separate occurrence and $1 million dollars of indemnity coverage
    for each individual claim.
    20                         A-6240-10T1
    IMO again asserted that the TIG policies had not been exhausted.
    Pyramid then stopped making payments.
    On August 21, 2007, IMO wrote to excess insurers demanding
    that they pay IMO's asbestos losses in accordance with an
    allocation calculated by IMO's expert, Dr. Charles Mullin.      In
    his trial testimony, Mullin reviewed his calculations and agreed
    that they indicated TIG's fronting policies should be allocated
    $13,349,296 in defense and indemnity costs.      He subsequently
    adjusted that figure to $13,433,600.
    Since making its August 2007 demand on excess insurers, IMO
    has settled with more than a dozen of them, with total policy
    limits of at least $708 million.      Some of the excess insurers
    that did not settle and raise issues in this appeal have also
    paid millions of dollars to IMO under their policies.
    On September 10, 2008, IMO produced a new allocation of
    losses and claimed that TIG and Transamerica owed millions more
    than the approximately $13.5 million calculated in Mullin's
    earlier allocations.    IMO based this claim on TIG's continuing
    obligation to pay defense costs under the first five fronting
    policies until its actual payments of indemnification
    obligations, rather than allocation, reached the $1 million
    level of each policy.    IMO claimed that allocation of losses to
    the fronting policies under the Carter-Wallace model was not
    21                          A-6240-10T1
    sufficient to reach their limits but actual payment had to be
    made by TIG in accordance with the language of those policies.
    In this litigation, IMO has referred to this coverage
    position by several different names, including "bookend" and
    "limitless defense costs."   The Transamerica defendants refer to
    it as the "running spigot" theory of coverage under TIG's
    fronting policies of 1977 through 1981.   The crux of this theory
    is that, with defense costs being paid outside the policy
    limits, TIG's obligation to cover defense costs for claims that
    could be attributed to those policy years would continue until
    TIG actually paid $1 million in indemnity costs from the policy
    in each of those years.   With the small amount of indemnity
    payments on the liability that IMO has for injured plaintiffs in
    asbestos cases (many of those cases settling for only several
    thousand dollars from IMO), the limits of the TIG "outside the
    limits" policies would not be reached for many years.     TIG's
    obligation to continue paying for defense costs would continue
    indefinitely.
    Pleadings and Pre-Trial Proceedings
    IMO began this litigation with its first complaint and jury
    demand filed in August 2003 against only the Transamerica
    defendants.   It sought a declaration of rights and obligations
    under the TARM program and under the primary and excess
    22                          A-6240-10T1
    insurance policies issued by TIG and Pyramid.     It also sought
    compensatory and punitive damages for breach of contract and
    related causes of action.    Defendants filed answers, cross-
    claims, counterclaims, and a third-party complaint against three
    excess insurance carriers.
    In 2004, IMO filed a second amended complaint, adding new
    claims against the Transamerica defendants and also naming
    numerous excess insurers as defendants.      Over time in this
    litigation, most of the excess insurers either settled with IMO
    or were dismissed from the case.      Twelve defendants remained in
    the case at the time of the trials beginning in 2009.
    In the intervening time, the court entered orders holding
    that New Jersey law is applicable to certain pertinent issues,
    granting or denying summary judgment on various grounds,
    determining that the Carter-Wallace allocation methodology would
    be applied, and appointing a special allocation master ("SAM")
    to consider all allocation-related issues and to make
    recommendations to the trial judge.
    In January 2009, Retired Judge Robert Muir, Jr., was
    recalled to the bench and assigned to the case.      At about that
    time, Pyramid and TIG renewed motions they had filed earlier to
    strike plaintiff's jury demand and to proceed with a bench
    trial.   On June 30, 2009, Judge Muir granted the motions and
    23                          A-6240-10T1
    ordered that all issues would be tried without a jury.   This
    court and the Supreme Court denied IMO's motions for leave to
    appeal that ruling.
    Bench Trials on Discrete Issues
    In June 2009, Judge Muir tried the issues related to
    certain excess insurers in a four-day bench trial.   He issued a
    final decision and order on the excess insurers' coverage
    disputes on December 16, 2009.    Several excess insurers —
    including ACE, LMI, and Zurich American Insurance Company and
    its predecessors and affiliates ("Zurich") — have cross-
    appealed, challenging Judge Muir's December 2009 decision as
    well as other aspects of the final judgment entered two years
    later.
    After the June 2009 bench trial, Judge Muir scheduled
    separate bench trials on two major issues.    At the Phase I trial
    conducted in the early months of 2010, the issue was whether the
    TIG fronting policies were in fact exhausted.   Judge Muir found
    by an oral decision on October 14, 2010, that the policies were
    not only exhausted by the end of 2003, but that TIG had overpaid
    its obligations.
    In reaching that conclusion, Judge Muir found that IMO's
    allocation expert, Mullin, was not a credible witness and that
    IMO's "limitless defense costs" or "running spigot" theory was
    24                          A-6240-10T1
    not supported by the evidence or legal precedent.   He determined
    that TIG had paid $9,655,200 in indemnity losses and $6,254,400
    in defense costs, for a total of $15,909,600 paid under its
    fronting policies of 1977 through 1986 and also excess policies
    from 1972 through 1976.   Since the judge's findings allocated
    $13,636,700 to IMO's defense costs and indemnification losses
    during that time period based on an allocation model prepared by
    the SAM, TIG had overpaid its obligations by $2,271,900.    Judge
    Muir stated it would be inequitable and unconscionable to allow
    IMO to keep the overpayments, but he did not rule further with
    respect to disposition of TIG's overpayments, and did not reach
    any decision as to payments TIG had made under its pre-1972
    direct policies.
    At the Phase II trial held in the spring of 2010, Judge
    Muir considered the dispute between IMO and Transamerica.     In
    his written decision issued on December 29, 2010, the judge
    found that IMO had failed to establish the existence of an
    implied-in-fact contract requiring Transamerica to continue
    reimbursing IMO for its SIRs and other unreimbursed costs of
    asbestos claims, and that the written Distribution Agreement
    controlling the 1986 divestiture of IMO is an unambiguous
    contract that governs the issues between IMO and Transamerica.
    The judge rejected IMO's assertion that Transamerica was IMO's
    25                          A-6240-10T1
    de facto insurer for its SIRs, deductibles, and other expenses,
    and he dismissed IMO's claims for breach of contract, estoppel,
    and bad faith.
    Judge Muir completed his service on recall in January 2011
    after issuing his decisions on the Phase I and Phase II trials.
    Retired Judge Donald Coburn was then assigned on recall to
    preside over the case.
    Final Judgment
    Following the Phase I trial, the SAM prepared a retroactive
    allocation of IMO's losses, which "ignored" payments by TIG and
    others in calculating the allocation figures and made no
    recommendations as to the treatment of overpayments by TIG that
    Judge Muir had found.    Because the SAM's report attributed
    defense costs to TIG after 2003, it concluded that TIG still
    owed IMO almost $2 million under the fronting policies.
    Judge Coburn directed the SAM to prepare a new loss
    allocation report that did not accept IMO's "running spigot"
    theory and took into account all payments made by TIG.    The
    SAM's revised allocation schedule issued in April 2011 was based
    on total estimated costs to IMO of $325 million through the end
    of 2010.   It allocated $15,232,832 to the TIG fronting policies
    under what TIG calls a "modified spigot" theory.
    26                        A-6240-10T1
    In his ruling on the final loss allocation, Judge Coburn
    rejected parts of the SAM's revised allocation schedule as
    contrary to Judge Muir's Phase I decision.    Applying Judge
    Muir's decision that TIG payments from policy years that were
    overpaid would be transferred to those years that were
    underpaid, Judge Coburn determined that all payments from TIG,
    including those previously attributed to the pre-1972 direct
    policies, could be transferred to determine if policies were
    exhausted under the proper Carter-Wallace allocation.      He
    further found that the "running spigot" theory was not supported
    by IMO's own reasonable expectations when it procured the
    insurance policies, and that the allocation of additional
    defense costs to the fronting policies would be disproportionate
    to the degree of risk transferred to TIG under those policies.
    Judge Coburn adjusted the SAM's calculation by reducing
    defense costs attributed to TIG by the amounts incurred after
    the TIG policies were exhausted.    He allocated $8,165,364 in
    indemnity and $5,159,341 in defense costs to TIG's pre-1972
    direct policies, a total of $13,324,705.    He allocated
    $8,403,478 in indemnity and $5,342,606 in defense costs to TIG's
    fronting policies, a total of $13,746,084.    By taking into
    account TIG's payments under the IFAs, which totaled
    $30,856,193, and also payments made by another insurer
    27                               A-6240-10T1
    affiliated with TIG, Judge Coburn determined that TIG had
    overpaid IMO $15,201,438, which he rounded off to $15,200,000.
    Judge Coburn suggested that the parties discuss resolution
    of how that amount might be reimbursed to TIG by the excess
    insurers that had coverage obligations.   The parties, however,
    were not able to resolve the issue.   By final judgment dated
    August 16, 2011, the judge awarded $15,200,000 to TIG as money
    damages against IMO for TIG's overpayments on its policies, plus
    prejudgment interest of $1,400,000.   Of the amount awarded to
    TIG, the judgment accounted for a total of $8,521,771 as sums
    paid or to be paid by ACE, LMI, and one other excess insurer to
    IMO, the balance being IMO's separate responsibility.
    The final judgment also declared that Transamerica had no
    further obligation to IMO for its asbestos claims, and the
    excess insurers were ordered to pay their shares according to
    the allocation schedule adopted by the final judgment.    The
    judgment also denied IMO's application for attorneys' fees and
    prejudgment interest and Transamerica's application for
    attorneys' fees under an indemnification provision of the 1986
    Distribution Agreement.   All remaining claims, counterclaims,
    and cross-claims that were not specifically addressed in the
    final judgment were dismissed with prejudice.
    28                          A-6240-10T1
    II.
    Exhaustion of TIG's Fronting Policies
    The lead issue in the case — the exhaustion issue — is
    whether TIG must cover defense costs for an endless or
    indefinite time until it has actually paid the indemnification
    limits of its policies, or whether those policies were exhausted
    and TIG has no further obligations to IMO.
    IMO, some excess insurers, and amicus curiae Independent
    Energy Producers of New Jersey claim error in Judge Muir's
    exhaustion decision and its implementation by Judge Coburn in
    the final allocation judgment.    They contend the judges failed
    to hold TIG liable for a continuing obligation to pay defense
    costs although the fronting policies from 1977 through 1981
    require payment of defense costs "outside the limits" of the
    indemnification coverage.
    The policies provide that the insurer will "not be
    obligated to pay any claim or judgment or to defend any suit
    after the applicable limit of the company's liability has been
    exhausted by payment of judgments or settlements" (emphasis
    added).   IMO argues that the policies unambiguously require
    exhaustion by formal payment, not just by allocation of
    sufficient losses to the policies.
    29                        A-6240-10T1
    Before we address this argument, we will review Owens-
    
    Illinois, supra
    , 
    138 N.J. 437
    , and some cases that followed it.
    Owens-Illinois is the seminal case in New Jersey setting forth
    the methodology for proportional allocation of indemnity and
    defense costs among multiple insurers in "long-tail"
    environmental exposure litigation.   Spaulding Composites Co. v.
    Aetna Cas. & Sur. Co., 
    176 N.J. 25
    , 39 (2003), cert. denied sub
    nom. Liberty Mut. Ins. Co. v. Caldwell Trucking PRP Grp., 
    540 U.S. 1142
    , 
    124 S. Ct. 1061
    , 
    157 L. Ed. 2d 953
    (2004).
    The insurance policies in Owens-Illinois contained standard
    clauses providing liability coverage for bodily injury that
    "occur[ed]" within the policy period.   Owens-
    Illinois, supra
    ,
    138 N.J. at 447.   The Court explained that, where injuries were
    sustained over long periods of time, questions arise as to when
    and how liability insurance coverage of the allegedly
    responsible parties is triggered and as to how losses should be
    fairly allocated among the range of triggered policies.
    Spaulding 
    Composites, supra
    , 176 N.J. at 32.   The Court observed
    that rigid enforcement of the policy terms as governed by
    traditional principles of insurance law could not capture the
    time of an occurrence in the context of such toxic-tort
    litigation.   Owens-
    Illinois, supra
    , 138 N.J. at 457-59.    It
    concluded that "[m]ass-exposure toxic-tort cases have simply
    30                          A-6240-10T1
    exceeded the capacity of conventional models of judicial
    response."    
    Id. at 459.
    The Court reviewed a number of options to resolve the
    question of determining the "occurrence" of an injury that does
    not manifest for many years.      It ultimately adopted a
    "continuous-trigger" theory by which an injury would trigger
    coverage continuously from the date of the claimant's first
    exposure to asbestos onward as a single "occurrence" for each
    year.    
    Id. at 478-79.
        The Court then adopted a pro-rata
    allocation methodology, distributing the insured's losses for
    the triggered time period in percentage shares commensurate with
    the "degree of risk transferred or retained in each of the years
    of repeated exposure to injurious conditions."       
    Id. at 475.
        The
    resulting allocation among insurance policies would thus be
    "related to both the time on the risk and the degree of risk
    assumed."    
    Id. at 479.
       The insured would share in the
    allocation for periods where it voluntarily retained the risk
    rather than contracting for available insurance.       
    Ibid. Policy limits and
    exclusions would remain applicable, and the resulting
    allocation would conform to the particulars of the policies at
    issue.   
    Id. at 476.
    The Court "recognize[d] the difficulties of apportioning
    costs with any scientific certainty," but accepted that a "rough
    31                          A-6240-10T1
    measure" of each insurer's proportionate allocation of losses
    might be the best that could be achieved.    
    Id. at 476-77.
        The
    Court never independently addressed allocation of defense costs
    as opposed to indemnification for claims that the insured would
    have to pay to the injured person, though the undeniable
    implication of Owens-Illinois is that defense costs are also
    allocable, subject to policy terms, in the same manner as
    indemnity expenditures.
    In Carter-
    Wallace, supra
    , 154 N.J. at 325-27, the Court
    confirmed the application of the continuous-trigger theory and
    pro-rata methodology in allocating liability among both primary
    and excess policies.   It rejected an argument made by the
    second-level excess insurer in that case that the insured party
    must exhaust all primary and first-level excess policies in the
    entire coverage block before accessing any second-level excess
    coverage.   
    Id. at 324.
    The Court also rejected the insured's contention that the
    entire universe of losses should be collapsed to a single year
    so as to access immediately the coverage from all insurers for
    that one year.   
    Id. at 325.
      Neither of these arguments was
    faithful to the holding of Owens-Illinois that ongoing injuries
    should be treated as a single occurrence within each year.
    Consequently, the Court adopted an approach requiring that
    32                           A-6240-10T1
    losses first be allocated "horizontally" among the range of
    years in the coverage block, but that policies be exhausted
    "vertically" within each year, such that each successive layer
    of insurance within a given year would be accessed as the one
    below was exhausted.   
    Id. at 327-28.
      The Court added:
    Our jurisprudence in this area has not been
    marked by rigid mathematical formulas, and
    we do not advocate any such inflexibility
    now. Rather, our focus remains on "[a] fair
    method of allocation . . . that is related
    to both the time on the risk and the degree
    of risk assumed." [Owens-
    Illinois, supra
    ,
    138 N.J.] at 479. Nevertheless, we
    anticipate that the principles of Owens-
    Illinois, as clarified by our decision
    today, represent the presumptive rule for
    resolving the allocation issue among primary
    and excess insurers in continuous trigger
    liability cases unless exceptional
    circumstances dictate application of a
    different standard.
    [Carter-
    Wallace, supra
    , 154 N.J. at 327-28.]
    In Spaulding 
    Composites, supra
    , 176 N.J. at 28, the Court
    considered whether application of a "non-cumulation" clause in a
    comprehensive general liability policy could be enforced
    consistently with the Owens-Illinois methodology.    Such clauses
    "operate[] to limit an insurer's liability under multiple
    sequential . . . policies where losses related to a 'single
    occurrence' trigger the successive policies."    
    Id. at 43-44
    (emphasis added).   The purpose of such clauses is to avoid the
    "'cumulation' of policy limits for damage arising out of [a]
    33                          A-6240-10T1
    single occurrence . . . ."    
    Id. at 44.
      Because Owens-Illinois
    had explicitly rejected the theory that an injury in a long-term
    environmental exposure case constitutes one single occurrence,
    the Court held that non-cumulation clauses simply did not apply
    in that context.   
    Ibid. It added: [E]ven
    if the non-cumulation clause was not
    facially inapplicable, we would not enforce
    it because it would thwart the Owens-
    Illinois pro-rata allocation modality. Once
    the court turns to pro rata allocation, it
    makes sense that the non-cumulation clause,
    which would allow the insurer to avoid its
    fair share of responsibility, drops out of
    the policy.
    [Ibid.]
    Thus Spaulding Composites supports the proposition that the
    Owens-Illinois and Carter-Wallace allocation model supersedes
    contrary terms of an insurance policy.
    The Court again affirmed the allocation model in Benjamin
    Moore & Co. v. Aetna Casualty & Surety Co., 
    179 N.J. 87
    , 91
    (2004), but this time the Court adhered to the language of the
    policies where they did not conflict with the allocation model.
    In Benjamin Moore, the Court determined that an insured would
    have to satisfy its full per-occurrence deductibles for each
    policy before accessing indemnity coverage.     In so doing, the
    Court clarified that:
    when a policy is triggered, so are its
    fundamental terms and conditions. Although
    34                         A-6240-10T1
    Owens-Illinois did not turn on policy
    language or traditional interpretation rules
    because it was crafting an overarching
    scheme for solving the scientifically
    unsolvable problem of determining how to
    allocate progressive environmental damage to
    sequential policies, that scheme was
    nevertheless meant to be superimposed on the
    specific terms of insurance contracts. That
    is why the Owens-Illinois allocation
    methodology is subject to "limits and
    exclusions." In other words, Owens-Illinois
    was never intended to displace the basic
    provisions of the insurance contract so long
    as those provisions are not inconsistent
    with the underlying methodology specifically
    adopted in that case.
    [Id. at 101 (emphasis added and citations
    omitted).]
    IMO argues this last-quoted explanation by the Court means
    that the Owens-Illinois and Carter-Wallace allocation
    methodology must be superimposed over the terms of TIG's
    fronting policies rather than superseding those terms.     If, as
    IMO contends, the policies require that only actual payments for
    IMO's losses can relieve TIG of its contractual obligation to
    pay for defense costs, total coverage of IMO's losses and the
    attachment point for excess insurers will be affected.
    IMO and amicus curiae contend that Judge Coburn mistakenly
    deemed the policy language requiring actual payment to be
    ambiguous and inappropriately resolved that ambiguity in favor
    of his own belief that a reasonable insured would never expect
    coverage of defense costs far exceeding the indemnity limits of
    35                           A-6240-10T1
    a policy.   Judge Coburn commented that an insurer would pay its
    indemnification limit in full before incurring a much larger
    obligation to pay defense costs, but IMO and amicus curiae
    contend that case law prohibits an insurer that provided
    "outside the limits" defense coverage from avoiding its
    obligations by paying its indemnity limit and then abandoning
    the insured.   See, e.g., Chubb/Pacific Indem. Group v. Ins. Co.
    of N. Am., 
    233 Cal. Rptr. 539
    , 543 (Ct. App. 1987); Douglas v.
    Allied Am. Ins., 
    727 N.E.2d 376
    , 382 (Ill. App. Ct. 2000);
    Simmons v. Jeffords, 
    260 F. Supp. 641
    , 642 (E.D. Pa. 1966).
    According to IMO and amicus curiae, many insureds actively
    seek and bargain for limitless coverage of litigation defense
    and related costs.   Amicus curiae cites examples in the federal
    courts to support its argument that such coverage may far exceed
    the limits of the indemnification obligation of the insurer.
    See, e.g., Emhart Indus. v. Home Ins. Co., 
    515 F. Supp. 2d 228
    ,
    231, 257 (D.R.I. 2007), aff’d sub nom. Emhart Indus. v. Century
    Indem. Co., 
    559 F.3d 57
    (1st Cir. 2009).
    In his final allocation decision, Judge Coburn first noted
    that coverage for defense costs outside policy limits was
    provided in policies representing only $40.6 million of more
    than $1.85 billion of total coverage.   Consequently, the SAM's
    allocation schedule had "only used the indemnity amount of each
    36                          A-6240-10T1
    policy without attempting to include any value for those
    portions of policies that paid defense costs in addition to the
    face amount."   The parties agreed with this approach for the
    sake of efficiency since the difference in the allocation
    percentages would be negligible.
    Judge Coburn disagreed with IMO that the policy language of
    TIG's "outside the limits" fronting policies unambiguously
    requires exhaustion by formal payment.   He stated he would
    construe that language consistently with Owens-Illinois and the
    reasonable expectations of the parties to permit exhaustion by
    allocation of indemnity losses rather than by actual payment of
    those losses.   Judge Coburn also adopted Judge Muir's conclusion
    that all of TIG's payments pursuant to the IFAs, whether or not
    reimbursed by Transamerica, would count to satisfy the limits of
    the fronting policies.   He agreed with Judge Muir that annual
    policy limits would be exhausted by crediting across coverage
    years payments that TIG had previously attributed to one policy
    year to a different underpaid policy year.   As a result of his
    calculations, Judge Coburn not only accepted Judge Muir's
    earlier conclusion that the fronting policies had been exhausted
    by the end of 2003, but he found that some of the "outside the
    limits" policies had been exhausted in 1999 and others in 2000.
    IMO complains that not even TIG and Transamerica claimed that
    37                          A-6240-10T1
    the fronting policies were exhausted earlier than the end of
    2003.
    IMO and amicus curiae also criticize Judge Coburn's
    statements that the expectations of the parties would not make
    sense if the obligation of TIG to pay defense costs far exceeded
    its obligation to provide indemnity coverage under any policy.
    They argue that many liability policies provide for coverage of
    litigation or defense expenses far beyond the indemnification
    limits of the policies, and courts have uniformly recognized the
    enforceability of such policy provisions.     See Gen. Accident
    Ins. Co. of Am. v. Dep't of Envt'l Prot., 
    143 N.J. 462
    , 464
    (1996) (using the term "cost-exclusive" policies to mean the
    same as our "outside the limits" policies).
    We recognize that some of Judge Coburn's statements in his
    oral decision of May 24, 2011, if applied to other types of
    liability coverage, may deviate from the expectations of
    insureds who purchase "outside the limits" policies and pay
    premiums to cover all their litigation expenses.    But Judge
    Coburn was not addressing a typical insurance claim for a single
    occurrence and a single insurance policy.   He was deciding how
    the allocation model established in Owens-Illinois and Carter-
    Wallace should apply to long-tail claims, with many primary and
    excess policies covering years of loss, some of which did not
    38                           A-6240-10T1
    have defined limits of coverage for defense costs.   As Judge
    Coburn stated in his decision, "exhaustion may mean one thing in
    one context [and] it may mean another thing in another context."
    To allay some of the fears expressed by amicus curiae, the
    exhaustion decision in this case is closely tied to its facts.
    We reach no general conclusion that an insurer's obligations to
    cover defense costs and other litigation expenses through an
    "outside the limits" policy is limited by the maximum amount of
    indemnification coverage provided in that policy.
    In the context of crafting a fair though imprecise
    allocation model for long-tail claims, our Supreme Court has
    allowed that a policy term that is contrary to the model may
    "drop[] out of the policy."   Spaulding 
    Composites, supra
    , 176
    N.J. at 44.   It also suggested that policy terms that are
    "inconsistent with the underlying methodology specifically
    adopted in [Owens-Illinois]" may be displaced.   Benjamin 
    Moore, supra
    , 179 N.J. at 101.   We find no legal error in the trial
    judges' interpretation of the "payment" provision of the
    "outside the limits" policies and their reliance on the
    supervening effect of the Owens-Illinois and Carter-Wallace
    allocation methodology.
    Challenging the final allocation judgment on a separate
    ground, IMO argues that the payments from TIG that were not
    39                           A-6240-10T1
    reimbursed by Transamerica were paid out of the direct policies
    pre-dating 1972 and should not be attributed to the fronting
    policies from 1977 to 1986.    According to IMO, Judge Coburn
    deviated from Judge Muir's decision in transferring payments
    across policy years, resulting in Judge Coburn's finding that
    TIG had overpaid its obligations by $15.2 million rather than
    the approximately $2.27 million that Judge Muir found.
    Judge Muir's legal conclusion, however, was not as IMO
    claims.   In responding to IMO's contention that TIG payments
    reimbursed by Transamerica should not be credited to TIG's
    allocations, Judge Muir concluded that Transamerica's payments
    were equally applicable for TIG's exhaustion purposes as were
    TIG's unreimbursed payments.    He stated:
    [W]ho made the payments to IMO [was]
    irrelevant, just as it would be if TIG went
    out and borrowed money to make the payments.
    That the payments were made and were
    received by IMO as part of the Fronting
    Policy indemnity duty is the only issue of
    concern. I reject any adverse inferences
    IMO projects from the fact Transamerica made
    payments.
    But Judge Muir did not limit the transfer of overpayments
    on TIG policies to the years that the fronting policies were in
    effect.   The final allocation schedule adopted by the court
    showed some of TIG's policies individually overpaid and others
    individually underpaid.   Judge Coburn carried forward to
    40                         A-6240-10T1
    additional calculations Judge Muir's conclusion that overpaid
    years could be shifted to underpaid years and that IMO should
    not be permitted to retain the total overpayment once the
    allocation schedule was complete and the entirety of TIG's
    obligations was determined.
    TIG's payments totaled more than $30 million.     Although
    some of those payments are attributable to the pre-1972 direct
    policies, more than $15 million, according to Judge Muir's
    findings and more than $13 million according to Judge Coburn's
    findings based on a revised allocation schedule, were
    attributable to TIG's fronting policies.   There is no dispute
    that TIG made payments that exceeded the aggregate of its Owens-
    Illinois and Carter-Wallace allocations.   So, we can say its
    policies were exhausted not just by allocation, but by
    allocation combined with payments that exceeded the total amount
    allocated to TIG.
    We also reject IMO's argument that such retrospective
    shifting of payments across coverage years violates the holding
    of Carter-Wallace that prohibits horizontal distribution of
    losses over several policy years.   That holding pertains to a
    different question, whether all primary insurance policies over
    the range of coverage years have to be exhausted before the
    coverage obligations of any excess policies attach.    Carter-
    41                           A-6240-10T1
    
    Wallace, supra
    , 154 N.J. at 324-25.   That holding is not
    applicable to the exhaustion decision in this case.
    A contrary conclusion on shifting of payments among
    coverage years might provide an incentive for an insurer not to
    pay claims promptly on the chance that a future development in
    the law, or the discovery of additional policies and additional
    responsible insurers, results in a lesser obligation.   When TIG,
    acting alone or in conjunction with Aetna and NJM, paid for
    IMO's defense expenses in full under the IFAs through 2003, it
    did so without a concession that its payments were the correct
    amount of its allocated responsibility and without waiving a
    right to claim credits when a final allocation was determined.
    As a result of Judge Muir's and Judge Coburn's decisions,
    defense costs are allocated to TIG's fronting policies in
    general conformity with the risks transferred to those policies.
    Once the indemnity limits of the fronting policies were reached
    by allocation, and the prior aggregate payments from TIG
    exceeded those allocations, TIG's coverage was exhausted.     The
    alternative, that TIG's responsibility for defense costs would
    remain open indefinitely, would contradict the mandate of Owens-
    Illinois requiring allocation proportionate to the risks
    transferred to the insurer.   The trial court correctly construed
    42                          A-6240-10T1
    the "payment" language in the "outside the limits" policies in
    the context of an Owens-Illinois and Carter-Wallace allocation.
    IMO further contends that the trial judges ignored the
    insurers' contemporaneous conduct in performing their
    obligations under the policies.     It contends that TIG and
    Transamerica made payments for seventeen years after the 1986
    divestiture because they understood their obligations to do so
    under their contracts with IMO.     We reject this argument, too.
    It hinges on a spreadsheet prepared by a representative of
    Transamerica, which shows that the policies were overpaid in the
    aggregate but not all the individual fronting policies had
    sufficient losses allocated to exhaust them outright.     Judge
    Muir rejected the probative value of the spreadsheet as both
    inaccurate in its figures and ultimately immaterial to an Owens-
    Illinois and Carter-Wallace allocation.    We defer to the judge's
    rejection of that evidence as evaluated in the context of the
    full record.   See Rova Farms Resort, Inc. v. Investors Ins. Co.,
    
    65 N.J. 474
    , 483-84 (1974).
    TIG made payments in good faith pursuant to the IFAs.         At
    the time of TIG's payments, allocation pursuant to Owens-
    Illinois and Carter-Wallace had not been mandated or was not
    attempted yet in this matter.     The overpayments resulted from
    ongoing development of the law fixing the responsibilities of
    43                           A-6240-10T1
    the many insurers on the risk.    The fact that the timing of
    TIG's payments failed to coincide with loss allocations as
    calculated later was simply an accident of the development of
    the pertinent law.
    It was also a product of IMO's refusal to allow a Carter-
    Wallace allocation at an earlier time to replace the IFAs.       If
    the court were to decrease IMO's and the excess insurers'
    liability for defense costs at TIG's expense, it would distort
    the parties' relative share of liability in a manner that does
    not accurately reflect the degree of risk each assumed.
    In addition, IMO's "running spigot" theory contradicts the
    dictates of Owens-Illinois and would afford IMO an impermissible
    double recovery of some defense costs already borne by its
    primary insurers pursuant to the IFAs.    In this case, producing
    a proper allocation pursuant to Owens-Illinois and Carter-
    Wallace requires that the fronting policies be construed to have
    been exhausted by allocation and aggregate payment by TIG that
    exceeded the policy limits.
    Finally, Transamerica and TIG offer as an alternative
    ground for affirmance of the exhaustion issue that IMO should be
    barred from raising its "running spigot" theory by the doctrine
    of unclean hands.    That doctrine permits the court to refuse
    equitable relief to a "wrongdoer with respect to the subject
    44                         A-6240-10T1
    matter of the suit," specifically where the party is "guilty of
    bad faith . . . in the underlying transaction."      Pellitteri v.
    Pellitteri, 
    266 N.J. Super. 56
    , 65 (App. Div. 1993).     Thus, a
    court may refuse to hear the wrongdoer's argument, even if
    otherwise meritorious, in the interest of equity and justice.
    Goodwin Motor Corp. v. Mercedes-Benz of N. Am., Inc., 172 N.J.
    Super. 263, 271 (App. Div. 1980).      Application of the doctrine
    lies within the trial court's discretion.      
    Pellitteri, supra
    ,
    266 N.J. Super. at 65.
    Because IMO had previously insisted that TIG adhere to its
    obligations under the IFAs rather than determine its obligations
    pursuant to the Carter-Wallace methodology, Judge Muir invoked
    the doctrine of unclean hands to bar IMO from contesting the
    shifting of overpayments to TIG's underpaid policies when IMO
    pursued a Carter-Wallace allocation in this litigation.      The
    judge stated IMO could not reverse course after it filed suit
    and take the position that the IFA payments were voluntarily
    made by TIG and Transamerica and could not be used as credits
    for underpaid years.     We agree with the Transamerica defendants
    that the unclean hands doctrine also supports affirmance of
    Judge Muir's exhaustion decision.
    In sum, Judge Muir correctly determined that payments by or
    on behalf of a single insurer could be shifted from one policy
    45                         A-6240-10T1
    year to another to determine exhaustion, and that the TIG
    fronting policies were exhausted by the end of 2003.   In
    addition, Judge Coburn's final judgment, which deemed the
    fronting policies exhausted by allocation rather than by payment
    on specific policies, was consistent with the dictates of Owens-
    Illinois.
    III.
    A.
    Coverage Limits of Multi-Year Policies
    On cross-appeals, ACE, LMI, and TIG allege error in the
    treatment of multi-year policies in the allocation schedule.
    They contend that the plain language of their multi-year
    policies mandates that a single coverage limit for the entire
    term of the policy should have been used in the allocation
    schedule rather than the full coverage limit for each year the
    policy was in effect.   They contend there was no basis for
    relying on extrinsic evidence to interpret the policies, and the
    trial court's acceptance of annualized application of the
    coverage limits results in multiplying the coverage that IMO
    purchased by the number of years the policies were in effect.
    ACE and LMI Multi-Year Policies
    ACE and LMI challenge Judge Muir's adoption of the SAM's
    ruling imposing annual occurrence limits on their multi-year
    46                        A-6240-10T1
    excess policies.   ACE contends that policies it issued for
    November 1, 1959, to May 1, 1961; for January 1, 1974, to
    January 1, 1977; and for September 1, 1974, to January 1, 1977,
    provide a single per-occurrence limit for the duration of each
    policy.   LMI similarly contends that its multi-year policies
    issued during 1967 to 1976 contain single per-occurrence limits.
    The language addressing the limits of liability differs among
    the policies, but each establishes a liability limit for each
    occurrence (or accident) and sets forth an aggregate limit for
    each annual period.
    IMO does not dispute that the plain language of the
    policies would impose per-occurrence limits on a term rather
    than annual basis, but it sought a blanket ruling that every
    year of a multi-year policy should be treated as if a separate
    annual limit is available for asbestos claims.
    The SAM noted that Owens-Illinois did not resolve this
    issue and that the Supreme Court granted discretion to the
    master appointed by the trial court to develop a formula that
    fairly reflects the risks transferred to insurers or assumed by
    the insured.   He reviewed the holdings of Spaulding 
    Composites, supra
    , 176 N.J. at 25; Benjamin 
    Moore, supra
    , 179 N.J. at 87;
    and Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Surety
    Co., 
    978 F. Supp. 589
    , 608 (D.N.J. 1997), aff'd in part, rev'd
    47                          A-6240-10T1
    in part, 
    177 F.3d 210
    (3d Cir. 1999), and concluded that it
    would be appropriate to attribute a separate occurrence to each
    year of a multi-year policy.
    On November 18, 2009, Judge Muir affirmed the SAM's
    recommendation in a written opinion and conforming order.       The
    judge observed:
    Owens-Illinois undergirded its methodology
    with the premise that when progressive
    indivisible injury results from exposure to
    injurious conditions courts may reasonably
    treat the progressive injury "as an
    occurrence within each of the years of a
    [comprehensive general liability] policy."
    [138 N.J. at 478.] The single occurrence
    for multi-year CGL policies contravenes that
    premise and accordingly is unenforceable.
    We agree and affirm the judge's decision.
    First, we note that the cases upon which ACE and LMI rely,
    Diamond Shamrock Chemical Co. v. Aetna Casualty & Surety Co.,
    
    258 N.J. Super. 167
    (App. Div. 1992), certif. denied, 
    134 N.J. 481
    (1993), and two unpublished decisions of this court, are not
    on point.    Diamond Shamrock predates Owens-Illinois and was
    decided under the laws of New York.    
    Id. at 222-23.
      As to the
    other cases, in addition to being unpublished opinions with no
    precedential value, R. 1:36-3, they were also decided under the
    laws of other states.    These cases do not answer the question of
    whether provisions in policies that apply a single occurrence
    48                         A-6240-10T1
    limit over multi-year terms contravene the dictates of Owens-
    Illinois.
    In Chemical 
    Leaman, supra
    , 978 F. Supp. at 607-08, the
    United States District Court for the District of New Jersey
    applied Owens-Illinois to the question of multi-year occurrence
    limits.   The court stated that the proper construction of Owens-
    Illinois was to "direct treatment of progressive property damage
    as distinct occurrences triggering per-occurrence limits in each
    year of a policy."   
    Id. at 607.
       It noted that a precedential
    California case, Armstrong World Industries, Inc. v. Aetna
    Casualty & Surety Co., 
    26 Cal. Rptr. 2d 35
    (Ct. App. 1993),
    review granted and opinion superseded sub nom. In re Asbestos
    Insurance Coverage Cases, 
    866 P.2d 1311
    (Cal. 1994), was
    discussed favorably in Owens-
    Illinois, supra
    , 138 N.J. at 451,
    455, 475.    The United States District Court quoted Armstrong
    World Industries as follows with regard to the proper allocation
    method for multi-year policies:
    "This Court finds that the most equitable
    method of allocation is proration on the
    basis of policy limits, multiplied by years
    of coverage. This method is consistent with
    the policy language in that it takes policy
    limits into consideration . . . This method
    also reflects the fact that higher premiums
    are generally paid for higher 'per person'
    or 'per occurrence' limits. Since some
    policies are in effect for more than one
    year, and injury occurs during every year
    from first exposure until death . . .
    49                       A-6240-10T1
    [m]ultiplying the policy limits by years of
    coverage results in a more equitable
    allocation than proration based on policy
    limits alone."
    [Chemical 
    Leaman, supra
    , 978 F. Supp. at
    607-08 (emphasis added) (quoting Armstrong
    World 
    Industries, supra
    , 26 Cal. Rptr. 2d at
    57).]
    The District Court understood "occurrence" in these cases
    to mean "discrete and separate injury in every year."      
    Id. at 608.
      It agreed with the commentary in Barry R. Ostrager &
    Thomas R. Newman, Handbook on Insurance Coverage Disputes § 9.04
    (7th ed. 1994), that the decision of the California court in
    Armstrong World Industries supports payment of per-occurrence
    limits for each year of a multi-year policy.      Chemical 
    Leaman, supra
    , 978 F. Supp. at 608.    Accordingly, it found that the
    insurance policies at issue in that case with terms greater than
    one year were "liable up to their respective per-occurrence
    limits for a separate occurrence during each triggered policy
    year in which they were on the risk."     
    Ibid. We implicitly endorsed
    the holding of Chemical Leaman in
    United States Mineral Products Co. v. American Insurance Co.,
    
    348 N.J. Super. 526
    , 545-46 (App. Div. 2002), a case that
    pertained to the issue of policy extensions, not multi-year
    policies.    
    Id. at 529.
      More generally, we stated, "[I]t is
    clear that underpinning the [Supreme] Court's allocation method
    50                         A-6240-10T1
    is acceptance of the proposition that losses in an environmental
    damages case must be treated as an occurrence in each of the
    periods covered by a comprehensive general liability policy."
    
    Id. at 550.
    Were it not for the pro-rata methodology adopted in Owens-
    Illinois, each asbestos claim filed against IMO that triggered
    the ACE and LMI policies would be treated as a separate
    occurrence subject to the per-occurrence limit for the entire
    multi-year terms of the policies.      The aggregate limits of the
    policies would control the insurers' total liability on the
    claims.   Owens-Illinois changed the ground rules and classified
    all asbestos claims made in a year as a single occurrence.      If
    all three years were to be viewed as a single occurrence, the
    insured would be deprived of the annual aggregate limits of the
    policies.     Because the imposition of per-occurrence limits in
    multi-year policies contravenes the goals of the pro-rata
    methodology established in Owens-Illinois, such limits are
    unenforceable as specifically written.
    Judge Muir's decision adopting annualized application of
    the per-occurrence limits of the ACE and LMI multi-year policies
    is a fairer allocation of the risks transferred and assumed by
    those policies.
    51                         A-6240-10T1
    TIG Multi-Year Policy
    TIG challenges the grant of summary judgment to IMO as to
    the proper interpretation of a three-year policy it issued in
    the 1960s.   Specifically, TIG contends that the $2.5-million
    aggregate limit for bodily injury liability should have been
    applied for the full three-year period, not separately for each
    policy year.
    IMO initially presented the issue to the special discovery
    master ("SDM") appointed for this litigation, a different
    individual from the SAM.   The SDM ruled that the policy language
    was ambiguous in regard to an annual aggregate limit or a single
    limit for the entire three-year period of the policy.     He
    further ruled that the only available extrinsic evidence bearing
    on the policy's interpretation was so one-sided in favor of
    IMO's position as to justify the conclusion that the $2.5
    million aggregate limit applied separately in each policy year.
    The trial court subsequently adopted the SDM's ruling.
    The relevant facts are that TIG issued a policy that ran
    from July 1, 1967, to July 1, 1970.   The policy provided bodily
    injury coverage under its Coverage A designation and property
    damage coverage under its Coverage B designation.   The
    declarations page described Coverage A as having an aggregate
    products liability limit of $2.5 million and Coverage B as
    52                             A-6240-10T1
    having limits of $500,000 each for aggregate products,
    operations, protective, and contractual liabilities.
    Section 6 of the policy, which addressed products liability
    Coverages A and B, provided that, "[s]ubject to the limit of
    liability with respect to 'each occurrence' the limits of bodily
    injury liability and property damage liability stated in the
    Declarations as 'aggregate products' are respectively the total
    limits of the Company's liability for all damages arising out of
    the products hazard."   Section 7, which addressed operations,
    protective, and contractual liability under Coverage B, used
    similar language to delineate the boundaries of those coverages,
    but explicitly added in a final, isolated sentence that
    "[a]ggregate limits of liability as stated in the Declarations
    shall apply separately to each annual period" (emphasis added).
    IMO argues that this last-quoted provision creates an ambiguity
    and that TIG's own representatives treated the $2.5 million
    limit as applying annually rather than as a total limit for all
    three years of the policy.
    In response, TIG cites Chubb Custom Insurance Co. v.
    Prudential Insurance Company of America, 
    195 N.J. 231
    , 238
    (2008), among other case law, and argues there is no ambiguity
    in the policy and thus the court may not resort to extrinsic
    evidence to interpret it.    TIG contends Section 6 of the policy
    53                        A-6240-10T1
    is applicable to coverage for bodily injury claims arising out
    of exposure to asbestos and that section's silence with respect
    to annual coverage limits, together with Section 7's explicit
    provision for separate annual limits for property damage, is
    clear policy language that can only be interpreted to limit the
    policy's total aggregate limit for the three years to $2.5
    million.   According to TIG, the trial court's unwarranted
    interpretation increased the aggregate limit to $7.5 million.
    There is support in the case law for TIG's argument that a
    multi-year policy should not be interpreted as having annual
    coverage limits unless the language of the policy provides such
    limits.    See Diamond 
    Shamrock, supra
    , 258 N.J. Super. at 224-25;
    CSX Transp., Inc. v. Commercial Union Ins. Co., 
    82 F.3d 478
    , 483
    (D.C. Cir. 1996); Soc'y of the Roman Catholic Church of the
    Diocese of Lafayette & Lake Charles, Inc. v. Interstate Fire &
    Cas. Co., 
    26 F.3d 1359
    , 1366 (5th Cir. 1994); Hercules, Inc. v.
    AIU Ins. Co., 
    784 A.2d 481
    , 495-96 (Del. 2001).    But, again,
    these cases were not applying the Owens-Illinois and Carter-
    Wallace allocation methodology.
    We do not find legal error in the SDM's and the trial
    court's conclusion that the policy at issue here was
    sufficiently ambiguous that resort to extrinsic evidence should
    be employed to interpret it.   The representatives of TIG who had
    54                         A-6240-10T1
    responsibility for implementing the policy invariably applied an
    annual $2.5 million aggregate limit in their handling of
    pertinent claims and in other communications.
    TIG argues that the actions of those employees were not
    relevant to interpreting the policy because they were not
    involved in drafting or issuing the policy in 1967.     They were
    administering the terms of the policy some thirty years later
    without ever having reviewed the clear limitations language of
    the policy.   The limitations language of the policy, however, is
    not as clear as TIG claims, and TIG had no witness to contradict
    the interpretation that its own representatives placed on the
    multi-year policy.
    We do not find reversible error in the trial court's
    ruling.   The court's application of an annual aggregate limit
    for bodily injury to each year of TIG's multi-year policy was
    consistent with the Owens-Illinois and Carter-Wallace allocation
    methodology, and we will not disturb that ruling on appeal.
    B.
    "Stub Policies" (Partial-Year Coverage)
    The ACE defendants claim that the coverage limit of a "stub
    policy," that is, a policy issued or extended for only part of a
    year, should be pro-rated.   They assert that assigning the full
    policy limit for purposes of the Owens-Illinois and Carter-
    55                          A-6240-10T1
    Wallace methodology unfairly allows the insured to increase the
    liability limits for which it paid a premium.    We disagree.
    An ACE policy in effect from February 13, 1976, to January
    1, 1977, provides umbrella liability coverage to a limit of $1
    million for each occurrence, and $1 million annual aggregate.
    ACE contends its coverage limit should be pro-rated to reflect
    the time on the risk, which would be eleven-twelfths (or 0.9167)
    of $1 million.
    The SAM found that policies issued or extended for a term
    of less than one year should be treated for purposes of the
    allocation as having a separate annual aggregate limit that will
    be in place for the term of the shortened policy period.    Judge
    Muir adopted the SAM's report and recommendation.
    In United States Mineral 
    Products, supra
    , 348 N.J. Super.
    at 536-37, we reasoned that an insured who paid a pro-rated
    premium for an additional two weeks of coverage on an excess
    policy identical to that provided by the initial policy would
    expect that such a premium reflected only the insurer's reduced
    time on the risk, not a reduction of the policy's aggregate
    limits.   We concluded that the stub policy created an additional
    set of aggregate limits that were available to the insured for
    the term of the policy.   
    Id. at 550.
      Treating a stub policy as
    providing a pro-rated limit would result in the loss allocated
    56                         A-6240-10T1
    to the policy being reduced twice, once by its time on the risk
    and a second time by the pro-rating of the policy limit.
    Our holding in United States Mineral Products is clear.     If
    the annual aggregate limits of a stub policy are to be pro-
    rated, specific language in the policy must so provide.      
    Id. at 559.
      Nothing in the ACE policy indicates that the annual
    aggregate limits are pro-rated.
    Judge Muir did not err in attributing the full policy limit
    to the ACE policy for the period of time it insured the risk.
    C.
    SIRs as Outside the Limits of Policies
    ACE contends that the trial court erred in determining that
    IMO's payment of its SIR obligations was outside the coverage
    limits of ACE policies.
    ACE issued two excess umbrella policies to Transamerica and
    its subsidiaries, which were in effect from January 1, 1976,
    through April 1, 1979.    They provided a $1,000,000 limit of
    coverage, and also stated:
    $500,000 Combined Annual Aggregate That
    Would Otherwise Be Recoverable Hereunder
    Shall Be Retained by the Insured in Addition
    to the Underlying Set Forth Above.
    ACE sought a ruling that the limits of the policies were
    eroded by IMO's retention of $500,000.    The SAM issued a written
    report and recommendation concluding that the $1 million annual
    57                         A-6240-10T1
    limits are not eroded by the retention.   He noted that "[i]t is
    long standing custom and practice in the insurance industry to
    distinguish between deductibles and self insured retentions."
    While the limits of a policy are reduced by a deductible, they
    remain intact in the case of a self-insured retention.     The SAM
    rejected ACE's argument that the phrase "that would otherwise be
    recoverable" as quoted from the policy demonstrated an intention
    that the $500,000 "retention" would be deducted from the
    coverage limits.
    The SAM also observed that ACE's position was weakened by
    its past course of conduct.   It had paid its full $1 million
    limit for claims occurring during the 1977-78 policy period.
    Moreover, an ACE claims adjuster stated in a 1980 status report
    that the policy limits were "in excess of a self insured
    retention of the insured of $500,000 each occurrence plus an
    annual aggregate of an additional $500,000 which can be utilized
    only once per year."   The SAM found that the adjustor's
    "interpretation of the clause is entirely logical and consistent
    with the reading of the endorsements whereby the word 'retained'
    is given the standard meaning denoting a self insured retention,
    as commonly understood in the insurance industry."
    Judge Muir adopted the SAM's ruling and denied ACE's motion
    for summary judgment with respect to this issue.   The final
    58                          A-6240-10T1
    judgment allocated a total of $1 million each to the two ACE
    policies.
    Although the SAM found that the distinction between a
    deductible and a SIR is "black letter insurance law," the issue
    appears not to have been directly addressed by a New Jersey
    court.    In fact, we have in the past observed that "[o]ur courts
    appear to have used the terms self-insured retention and
    deductible interchangeably."     Moore v. Nayer, 
    321 N.J. Super. 419
    , 438-39 (App. Div. 1999), appeal dismissed, 
    164 N.J. 187
    (2000).   However, because Moore was addressing co-insurance and
    did not consider the effect of deductibles or SIRs on policy
    limits, it is not controlling on this issue.
    New Jersey courts have recognized that an insured's
    deductible erodes the policy limits.    See Benjamin 
    Moore, supra
    ,
    179 N.J. at 105-06; cf. Am. Nurses Ass'n v. Passaic Gen. Hosp.,
    
    98 N.J. 83
    , 88-89 (1984) (explaining why a deductible does not
    constitute "other insurance").    On the other hand, federal
    courts have stated clearly that a SIR does not reduce the limits
    of an insurance policy.    In In re September 11th Liability
    Insurance Coverage Cases, 
    333 F. Supp. 2d 111
    , 124 n.7 (S.D.N.Y.
    2003), the United States District Court explained the
    distinction between SIRs and deductibles:
    A SIR differs from a deductible in that a
    SIR is an amount that an insured retains and
    59                        A-6240-10T1
    covers before insurance coverage begins to
    apply. Once a SIR is satisfied, the insurer
    is then liable for amounts exceeding the
    retention, less any agreed deductible.
    Barry R. Ostrager & Thomas R. Newman,
    Handbook on Insurance Coverage Disputes
    § 13.13[a] (12th ed. vol.2, 2004). . . .
    In contrast, a deductible is an amount that
    an insurer subtracts from a policy amount,
    reducing the amount of insurance. With a
    deductible, the insurer has the liability
    and defense risk from the beginning and then
    deducts the deductible amount from the
    insured coverage.
    [Ibid. (citation omitted).]
    See also Rite Aid Corp. v. Liberty Mut. Fire Ins. Co., 414 F.
    Supp. 2d 508, 517 (M.D. Pa. 2005) (a SIR transforms a primary
    policy into an excess policy covering amounts in excess of the
    SIR); Gen. Star Nat'l Ins. Corp. v. World Oil Co., 
    973 F. Supp. 943
    , 949 (C.D. Cal. 1997) (same); Jeffrey E. Thomas & Aviva
    Abramovsky, 4 New Appleman on Insurance Law § 31.02[7][d] (2012)
    (once a SIR is satisfied the insurer is liable for amounts
    exceeding the retention less any agreed deductible).
    Here, the $500,000 "retained by the insured" would reduce
    the coverage limit from $1 million if it is a deductible, but
    leave the $1 million intact if it is a SIR.   In the policies,
    the $500,000 is described as an amount to be retained by the
    insured.   The word "deductible" appears nowhere in the relevant
    provisions.   The endorsements also use the specific terms
    "retained" and "retention."   "[T]he words of an insurance policy
    60                           A-6240-10T1
    should be given their ordinary meaning . . . ."     Longobardi v.
    Chubb Ins. Co. of N.J., 
    121 N.J. 530
    , 537 (1990).    The more
    general phrase "otherwise recoverable" does not change the
    meaning of the words used in the policies to mean deductible.
    As to ACE's argument that the SAM should not have
    considered extrinsic evidence of the parties' intent, that
    ground for the SAM's ruling was included as a secondary
    rationale.    Moreover, the conduct of the parties does provide an
    important source for deriving their intent as to the meaning of
    an insurance contract.    Am. Home Prods. Corp. v. Liberty Mut.
    Ins. Co., 
    565 F. Supp. 1485
    , 1503 (S.D.N.Y. 1983), aff'd as
    modified, 
    748 F.2d 760
    (2d Cir. 1984).
    The assignment of $1 million limits to the subject ACE
    policies was not error in the allocation schedule.
    IV.
    A.
    Allocation Preceding Coverage Determinations
    ACE and LMI, joined by other excess insurers, challenge
    Judge Muir's decision at the 2009 excess insurers' trial that
    coverage issues would not be re-litigated for each individual
    asbestos claim.    Judge Muir relied on language in Owens-
    
    Illinois, supra
    , 138 N.J. at 477, prohibiting the insurers in
    that case from re-litigating already-settled claims after
    61                         A-6240-10T1
    refusing to defend them.   We agree with that decision.   Allowing
    excess insurers to contest coverage is not feasible for long-
    tail, multi-claim coverage cases and would compromise the
    allocation methodology mandated by the Supreme Court.
    Ordinarily, the insured "bears the burden of establishing
    that a claim lies within [a] policy's scope of coverage."
    Shaler ex rel. Shaler v. Toms River Obstetrics & Gynecology
    Assocs., 
    383 N.J. Super. 650
    , 662 (App. Div.), certif. denied,
    
    187 N.J. 82
    (2006).   ACE and LMI argued from the outset that IMO
    must satisfy its burden of establishing that claims it had paid
    were covered under the terms of the ACE and LMI policies.
    Judge Muir first observed that IMO and the insurers that
    had participated in its defense had adopted reasonable
    procedures for settling only claims for which IMO potentially
    faced liability.    At the time of that observation, about 75,000
    asbestos-related claims had been filed against IMO, of which IMO
    had settled approximately 15,000 and obtained dismissal of about
    30,000.   IMO began to notify the excess insurers of the claims
    in 1989 and offered to make its claim files available to them
    for inspection.    Meanwhile, the excess insurers declined to
    involve themselves in defense of the claims.   They chose their
    course of action although they had the right, explicitly stated
    in their policies, to associate in the defense.    Judge Muir
    62                         A-6240-10T1
    considered this "continuing indifference" to be "tantamount to a
    refusal [by the excess insurers] to involve themselves in
    presented-claims defense."
    A primary insurer that refuses its obligation to defend
    claims against its insured without first timely challenging
    coverage forfeits the right to hold an insured to that burden at
    a later time.   Griggs v. Bertram, 
    88 N.J. 347
    , 363-64 (1982).
    Excess insurers, on the other hand, generally have no duty to
    participate in the defense and may rely on the good faith of the
    primary insurer in settling claims against the insured.     CNA
    Ins. Co. v. Selective Ins. Co., 
    354 N.J. Super. 369
    , 383-84
    (App. Div. 2002).
    In Owens-
    Illinois, supra
    , 138 N.J. at 477, the Court
    distinguished long-tail coverage cases from the norm in the
    insured's burden of proving coverage for each claim.    It stated:
    Because the defendants refused to involve
    themselves in the defense of the claims as
    presented, they should be bound by the facts
    set forth in plaintiff's own records with
    respect to the dates of exposure and with
    respect to the amounts of settlements and
    defense costs. Those losses for indemnity
    and defense costs should be allocated
    promptly among the companies in accordance
    with the mathematical model developed,
    subject to policy limits and exclusions. We
    stress that there can be no relitigation of
    those settled claims.
    [(Citation omitted and emphasis added).]
    63                          A-6240-10T1
    Judge Muir understood this last directive of the Court as
    applying with equal force to primary and excess insurers to bar
    them from contesting coverage of claims.   He stated that Owens-
    Illinois was a watershed decision delineating "the response
    required of excess insurers to their insureds' liability for
    asbestos related injuries sustained over decades," and,
    moreover, that it was a "critical point that divides past case
    law principles from its doctrines."
    Applying the language used by the Supreme Court in Owens-
    Illinois, Judge Muir concluded that where insurers, primary or
    excess, "refused" to avail themselves of the right to associate
    in defense of claims against the insured, they "should be bound
    by facts set forth in the insureds' records with respect to
    amounts of settlements and defense costs" and could not
    otherwise "relitigate the settled claims."
    ACE and LMI contend they have a right as excess insurers
    but no affirmative duty to associate in IMO's defense.    They add
    that Owens-Illinois neither imposed any such duty nor otherwise
    limited the right of excess insurers to demand that their
    insured bear its normal burden of establishing coverage for each
    claim made against their policies.
    As this court's underlying opinion in Owens-Illinois noted,
    both primary and excess policies were involved in that case.
    64                           A-6240-10T1
    Owens-Illinois, Inc. v. United Ins. Co., 
    264 N.J. Super. 460
    ,
    467, 477 (App. Div. 1993), rev'd in part, 
    138 N.J. 437
    (1994).
    The Supreme Court did not explicitly condition its directive
    prohibiting re-litigation of coverage issues to the primary
    insurers' affirmative duty to defend.       Rather, the Court stated:
    "In future cases, insurers aware of their responsibility under
    the continuing-trigger theory might minimize their costs by
    assuming responsibility for or involving themselves in the
    defense of the actions . . . ."    Owens-
    Illinois, supra
    , 138 N.J.
    at 478 (emphasis added).
    It stands to reason that accommodating a challenge to
    coverage in tens of thousands of individual claims would not
    only prove daunting but would compromise the integrity of the
    framework Owens-Illinois offers for efficient and equitable
    allocation of losses among policies.      As we have stated, policy
    terms and traditional principles applicable to ordinary coverage
    litigation must bend insofar as they conflict with application
    of the Owens-Illinois framework.       Benjamin 
    Moore, supra
    , 179
    N.J. at 104.   The Court could thus impose a greater obligation
    on the part of excess insurers than specifically stated in their
    policies to participate in the insured's defense, or risk losing
    the right to challenge coverage decisions.
    65                          A-6240-10T1
    Nor is our conclusion inequitable.   IMO put the excess
    insurers on notice of the thousands of claims against it, and
    Owens-Illinois put them on notice of the necessity of
    participating in order to preserve their right to challenge
    coverage determinations.
    The trial court appropriately gave effect to a plainly
    stated directive of Owens-Illinois — that insurers who have
    declined to associate in the defense of claims against the
    insured may be precluded from later challenging coverage.
    B.
    Duty to Defend Uncovered Claims
    ACE argues that the court erred in determining that defense
    costs incurred by IMO in connection with uncovered asbestos
    claims are recoverable under policies that limit defense
    reimbursement to costs paid as a consequence of a covered
    occurrence.   ACE contends the majority of its policies are
    ultimate net loss policies that only obligate it to indemnify
    IMO where IMO itself becomes obligated by adjudication or
    compromise to pay for a covered occurrence.   Relying on case law
    from other jurisdictions, ACE maintains that courts interpreting
    similar policy language have held that the duty to indemnify
    defense costs arises only when the costs are incurred in
    connection with covered claims.
    66                        A-6240-10T1
    LMI advances the same argument, although its policies
    differ from the ACE policies.   However, both excess insurers'
    policies use the same definition of ultimate net loss.   LMI
    argues that the ultimate net loss provision makes the existence
    of an actually covered claim, and not just a potentially covered
    claim, a prerequisite for indemnification of defense costs.     It
    asserts that requiring IMO to segregate defense costs and to
    identify those utilized for actually covered claims would have
    no impact on the allocation process, and it would not be overly
    difficult to apportion defense costs after the allocation is
    completed.
    IMO responds that the excess insurers' policies promise to
    pay for the costs of defending liabilities arising from covered
    "occurrences," not covered "claims."   It emphasizes that Owens-
    Illinois defines an "occurrence" to be the decision to
    manufacture asbestos-containing products, not the exposure of a
    specific claimant to an asbestos product.
    IMO further asserts that the excess insurers have relied on
    cases that are not pertinent to the proper definition of
    occurrence, and that the differences between the law of New
    Jersey and the law of New York and other states as to the nature
    of a covered occurrence distinguish the holdings of the case law
    cited by ACE and LMI.   IMO argues that the trial court's refusal
    67                         A-6240-10T1
    to parse defense costs between covered and uncovered claims
    accords with the realities of defending mass tort claims, where
    the effective defense of meritless claims is part and parcel of
    the defense of covered claims.
    A representative provision of the many policies involved
    provides that the insurer will indemnify the insured:
    for all sums which the [in]sured shall be
    obligated to pay by reason of the liability:
    (a) imposed upon the [in]sured by law, or
    (b) assumed under contract or agreement . .
    . for damages on account of: (i) Personal
    Injuries . . . caused by or arising out of
    each occurrence . . . as defined in the
    Underlying Umbrella Policies . . . .
    [(Emphasis added).]
    A representative underlying policy covers damages and expenses
    for the insured's "ultimate net loss," which it defines as:
    the total sum which the insured, or any
    company as his insurer, or both becomes
    obligated to pay by reason of personal
    injury . . . either through adjudication or
    compromise . . . expense for . . . lawyers .
    . . and investigators and other persons and
    for litigation, settlement, adjustment and
    investigation of claims and suits which are
    paid as a consequence of any occurrence
    covered hereunder . . . .
    [(Emphasis added).]
    The excess insurers argue that the phrase "be [or becomes]
    obligated to pay" absolves them of paying for defending against
    claims that are dismissed or adjudicated to be without merit.
    68                      A-6240-10T1
    In a written report and recommendation dated March 27,
    2008, the SAM ruled that "[t]he common straightforward reading
    of the language is that indemnification for defense related
    expenses must be related to an occurrence.      If there is no
    occurrence then there can be no covered damages."      He observed
    that New Jersey law defines the occurrence as IMO's decision to
    sell asbestos products, and concluded that all of IMO's defense
    expenses flow from that decision.      He therefore recommended that
    the court deny the excess insurers' motion and find that IMO is
    entitled to receive indemnity for all its defense expenses.
    On the request of LMI and ACE for reconsideration, the SAM
    noted: "Mass-tort asbestos claims are defended very differently
    from the average claims," and some defendants choose to try
    questionable cases to a conclusion in order to send a deterrent
    message to the plaintiffs' bar.    He also noted that applying
    LMI's and ACE's interpretation of an occurrence to each
    individual claim would present a significant practical
    challenge, in that it would impose an unworkable burden on IMO
    and require the expenditure of substantial judicial resources.
    He added:
    It is extremely difficult to see how
    adjudicating LMI's policies' provision to
    indemnify defense costs for only covered
    claims would not hijack the allocation
    process. While IMO should be required to
    demonstrate that a claim does fall within a
    69                         A-6240-10T1
    given policy year, to require an evidentiary
    process on thousands of claims to determine
    their linkage to defense costs would be
    unworkable and unmanageable. It would seem
    extremely difficult to connect every defense
    payment to a claim and to make a second
    determination that the claim is, indeed, a
    covered claim.
    Judge Muir adopted the SAM's reasoning and ruling by an
    order dated November 4, 2009.
    Both the excess policies and the underlying policies
    obligate the insurers to pay for damages arising out of an
    "occurrence."   In Owens-
    Illinois, supra
    , 138 N.J. at 447, where
    the insurers' policies had coverage and ultimate net loss
    provisions virtually identical to those in this case, the Court
    recited our conclusion that the manufacture and sale of the
    asbestos-containing product should be regarded as the single
    occurrence triggering liability for asbestos-related injuries or
    damage.   
    Id. at 445-46
    (citing Owens-
    Illinois, supra
    , 264 N.J.
    Super. at 503).   Our opinion, in turn, had relied on the
    reasoning of the District Court in Owens-Illinois, Inc. v. Aetna
    Casualty & Surety Co., 
    597 F. Supp. 1515
    , 1525 (D.D.C. 1984),
    which held that "the number of injuries or claims, even if
    temporally removed from their causes, are irrelevant when
    determining the number of occurrences."   See also In re
    Integrity Ins. Co., 
    214 N.J. 51
    , 69-70 (2013) (the majority of
    courts have adopted a "cause test" for defining "occurrences");
    70                          A-6240-10T1
    U.S. Mineral 
    Prods., supra
    , 348 N.J. Super. at 542 (manufacture
    and sale of asbestos-containing product constitutes single
    occurrence triggering liability).
    The same result must follow here in the context of proving
    coverage for each individual claimant.    The excess insurers'
    obligation to cover IMO's ultimate net losses, which include
    defense costs, was triggered when IMO manufactured and sold
    asbestos-containing products and claimants became injured by
    those products.    IMO's decision to trade in such products
    resulted in IMO paying damages to claimants following litigation
    or settlement.    Under the terms of the excess insurance
    policies, LMI and ACE are required to indemnify IMO for the sums
    it expended in defending all those claims.
    The conclusion that the excess insurers must reimburse IMO
    for defense costs even if some of them were incurred to defend
    uncovered claims is also compelled by another aspect of Owens-
    Illinois.   As the SAM noted, the need to segregate and classify
    defense costs according to each individual claim would greatly
    complicate the already complex allocation process.    Challenges
    among the parties as to whether particular claims were covered
    or uncovered would increase litigation and require additional
    judicial attention.   The reason the Court developed the pro-rata
    methodology was to reduce the litigation costs and judicial
    71                           A-6240-10T1
    inefficiencies attendant to resolving insurance coverage for
    long-term environmental damages.       Owens-
    Illinois, supra
    , 138
    N.J. at 474.    Adopting the process that the excess insurers
    suggest would directly contravene those objectives.
    The unpublished and out-of-state decisions cited by the
    excess insurers are not controlling.      None of them applies an
    analysis based on the principles articulated in Owens-Illinois.
    We affirm the trial court's ruling that defense costs are
    subject to allocation even if a portion of them ultimately were
    devoted to defending against claims that were determined not to
    be covered under the insurance policies.
    V.
    Denial of Jury Trial
    IMO contends that the court erred in denying its demand for
    a jury trial on the legal issues in the case for which it sought
    money damages.     More specifically, IMO argues that the court
    improperly relied on the relief sought in IMO's original
    complaint.     It further argues that claims for future costs did
    not predominate the Phase I and II trials, and that the court
    misapplied the holding of Ciba-Geigy Corp. v. Liberty Mutual
    Insurance Co. (In re Environmental Insurance Declaratory
    Judgment Actions) ("In re Environmental"), 
    149 N.J. 278
    (1997).
    72                          A-6240-10T1
    IMO sought a jury trial on its TARM and bad faith claims
    against the Transamerica defendants and on its bad faith denial
    of coverage claims against other insurers, for which it sought
    compensatory and punitive damages.   The Transamerica defendants
    moved to strike IMO's jury demand, arguing that IMO's claims
    were predominately equitable, that all the claims that sought
    money damages were ancillary to IMO's declaratory judgment and
    specific performance claims, and that relevant case law
    supported dispensing with a jury in the complex circumstances of
    this litigation.
    Judge Muir reviewed the substance of the original complaint
    and each amended complaint filed by IMO.   He stated that the
    equitable or legal nature of a lawsuit is primarily determined
    by the remedies sought in the original complaint.   Cf. Mantell
    v. Int'l Plastic Harmonica Co., 
    141 N.J. Eq. 379
    , 383-89 (E. &
    A. 1947) (parties cannot amend a pleading to change the
    jurisdiction of the court hearing the case).   Relying on the
    holdings of Mantell and Boardwalk Properties, Inc. v. BPHC
    Acquisitions, 
    253 N.J. Super. 515
    (App. Div. 1991), the judge
    determined that IMO's predominant claims were for specific
    performance in the future and for a declaration that defendant
    insurers were obligated to provide coverage for future
    73                         A-6240-10T1
    indemnification and defense costs.       As a result, no right to a
    jury attached to IMO's pleadings.
    "Failure to grant a constitutionally guaranteed right of
    jury trial is not amenable to the harmless error rule."        500
    Columbia Tpk. Assocs. v. Haselmann, 
    275 N.J. Super. 166
    , 171
    (App. Div. 1994).     Thus, the trial court's ruling may not be
    disregarded if IMO had a right to a jury trial protected by our
    State Constitution.
    IMO does not have a right to a jury trial unless such a
    right is in fact found in our State Constitution or in a
    statute.   Ins. Co. of N. Am. v. Anthony Amadei Sand & Gravel,
    Inc., 
    162 N.J. 168
    , 175 (1999).     "Without statutory
    authorization, a right to trial by jury does not attach to a
    claim if the claim did not exist at common law."       In re
    
    Environmental, supra
    , 149 N.J. at 298.
    The Declaratory Judgment Act, N.J.S.A. 2A:16-50 to -62,
    dictates the specifics of declaratory relief but does not
    provide a right to a jury trial.       In re 
    Environmental, supra
    ,
    149 N.J. at 292.    Furthermore, "[d]eclaratory judgment actions
    were unknown at common law."     
    Ibid. "In a declaratory
    judgment
    action, the right to a jury trial depends on whether the action
    is the counterpart to one in equity or law."       
    Ibid. 74 A-6240-10T1 In
    general, a jury trial is available in an action at law,
    but not in an action in equity.     
    Id. at 291.
      To determine
    whether an action is legal or equitable, the court must consider
    the remedies requested by the complaint.     Weinisch v. Sawyer,
    
    123 N.J. 333
    , 344 (1991).     It must look to "the historical basis
    for the cause of action and focus on the requested relief."       
    Id. at 343;
    accord In re 
    Environmental, supra
    , 149 N.J. at 293; Wood
    v. N.J. Mfrs. Ins. Co., 
    206 N.J. 562
    , 575 (2011).     How the
    parties classify the matter is irrelevant; the court must
    examine the substance of the allegations and the relief sought.
    
    Wood, supra
    , 206 N.J. at 576.
    IMO alleges that its third amended complaint contained
    prominent and independent claims for money damages, which gave
    it a right to a jury trial.    It adds that some claims first made
    in the third amended complaint did not arise until six months
    after the original complaint was filed, and those allegations
    could not have been included in the original filing.     Therefore,
    it argues, Judge Muir should not have focused on the declaratory
    relief IMO sought in its original complaint.
    When equitable issues or defenses are presented, the matter
    of whether a jury trial should be granted is left to the
    determination of the judge.     Sun Coast Merch. Corp. v. Myron
    Corp., 
    393 N.J. Super. 55
    , 86-87 (App. Div. 2007), certif.
    75                         A-6240-10T1
    denied, 
    194 N.J. 270
    (2008).    Pursuant to the doctrine of
    ancillary jurisdiction, if a complaint presents a primarily
    equitable action but also includes causes of action at law, the
    court of equity can assume jurisdiction over the legal issues.
    
    Wood, supra
    , 206 N.J. at 575.
    In Lyn-Anna Properties v. Harborview Development Corp., 
    145 N.J. 313
    (1996), the Court held that the chancery court has
    ancillary jurisdiction over legal issues to the extent that
    those are "incidental or essential to the determination of some
    equitable question."    
    Id. at 330
    (quoting Shaw v. G.B. Beaumont
    Co., 
    88 N.J. Eq. 333
    , 336 (E. & A. 1917)).     When a complaint
    seeks both legal and equitable remedies, the court must consider
    the nature of the controversy in addition to the requested
    relief.   
    Id. at 331.
      If the predominant relief is equitable,
    then the legal issues are ancillary and may be decided in a
    bench trial.   
    Id. at 330
    .   If a legal claim is not incidental or
    essential to the predominant equitable remedy, then it should be
    severed and transferred to the Law Division.     
    Ibid. Furthermore, the court
    may strive to dispose of all matters
    in a controversy in a single action if it can do so without
    violating a litigant's constitutional or statutory rights.
    Massari v. Einsiedler, 
    6 N.J. 303
    , 313 (1951).     In Boardwalk
    
    Properties, supra
    , 253 N.J. Super. at 526-27, we stated that the
    76                           A-6240-10T1
    Chancery Division can decide both legal and equitable issues and
    provide appropriate remedies.   We also stated that matters
    triable without a jury under the Constitution of 1844 are
    similarly triable without a jury under the Constitution of 1947.
    
    Id. at 527-28.
    When legal claims arise from controversies that are
    independent of the equitable action, they should be tried
    separately before a jury.   Ibid.; see, e.g., N.J. Highway Auth.
    v. Renner, 
    18 N.J. 485
    , 488-89 (1955).     The court should examine
    the legal claims and determine if they are "so intertwined with
    the equitable issues that the legal issues" fall within the
    equity court's jurisdiction to decide them without a jury.
    Boardwalk 
    Properties, supra
    , 253 N.J. Super. at 528.
    Here, the original complaint focused on declaratory relief,
    although it also included prayers for compensatory and punitive
    damages.   Primarily, IMO sought the court's aid in defining and
    fixing the obligations of Transamerica and TIG in relation to
    the 1986 Distribution Agreement.     The crux of the complaint was
    the alleged "imminent" exhaustion of the TIG insurance policies.
    The defense costs and indemnification payments that IMO sought
    were in connection with pending or future asbestos cases.
    The second amended complaint named several dozen excess
    insurers, but IMO still sought the same declaration of rights as
    77                          A-6240-10T1
    its original complaint and, further, a declaration of rights of
    IMO and the obligations of Transamerica in connection with the
    excess insurers.   For the most part, the asbestos claims in
    dispute were either ongoing or future claims.
    The twenty-four counts of the third amended complaint did
    not change the primary relief sought.    IMO's bad faith claims
    were rooted in the alleged wrongful abandonment of its defense
    and the failure to notify IMO in advance that certain insurance
    policies were about to be exhausted.    Again, IMO was concerned
    that defendants failed or "will fail" to fulfill their
    obligations under the insurance contracts, and have refused or
    "will refuse" to defend and indemnify IMO against asbestos
    claims filed in New Jersey and other states.
    All of IMO's pleadings sought declarations about the future
    obligations of defendants.   Any alleged claims of bad faith,
    wrongful abandonment, breach of fiduciary duty, or tortious
    interference stem from whether the contractual rights alleged by
    IMO in fact existed.   From the outset and throughout the
    litigation, IMO's complaints were mainly equitable.
    Although additional causes of action for money damages may
    have arisen after the filing of the initial complaint, those
    claims are still intertwined with the primary events and the
    allegations presented in the original complaint.    See Eckerd
    78                          A-6240-10T1
    Drugs of N.J., Inc. v. S.R. 215, Rite-Aid Corp., 
    170 N.J. Super. 37
    , 42-43 (Ch. Div. 1979).   As we have stated, they are linked
    to the question of whether or not the Transamerica defendants
    and the excess insurers had an obligation to provide ongoing or
    future defense and indemnification, and an earlier notice of
    exhaustion.
    IMO argues that none of its claims fell within the
    exceptions to the right to a jury trial as stated in In re
    
    Environmental, supra
    , 149 N.J. at 291-300.    In that case, the
    plaintiff was seeking a judgment declaring that the insurers
    were required to indemnify and defend for future costs of an
    environmental remediation action.    
    Id. at 286.
      The issue on
    appeal was whether a constitutional right to a jury trial
    existed in a declaratory judgment action involving claims
    against insurers for breach of contract and recovery of future
    costs where the plaintiff also sought compensatory damages for
    past costs.   
    Ibid. The case was
    complex.    It involved dozens of insurance
    companies and estimated future costs that exceeded $1 billion.
    
    Id. at 288-89.
      The Supreme Court observed that the action was
    at its root a request for specific performance of the insurance
    contracts because the plaintiff wished to be placed in the
    position it would have enjoyed had the insurers performed on the
    79                          A-6240-10T1
    insurance contracts.    
    Id. at 293-95.
       In addition, specific
    performance was an appropriate remedy because several of the
    alleged breaches had not yet occurred, leaving the insured's
    damages incalculable.     
    Id. at 296.
      Therefore, the plaintiff did
    not have a right to a jury trial.       
    Id. at 287,
    295.   A court of
    equity could decide any ancillary legal issues and award money
    damages for past losses.    
    Id. at 295.
    Similarly in this case, there was no right to a jury trial
    because IMO's complaints presented a unique and complex mass-
    tort insurance coverage case focused on a declaration of the
    parties' rights and obligations and on the specific performance
    of insurance contracts as so declared.      In fact, the Court in In
    re Environmental observed that the predominance of equitable
    issues combined with the complexity of the subject matter
    distinguished that case from other insurance actions.        
    Id. at 298.
      The same is true here.
    IMO's breach of contract and bad faith claims grew out of
    the same dispute and were intertwined with its equitable claims.
    They were based on the same facts and proofs as the claims for
    declaratory judgment and specific performance.      They were
    properly and economically adjudicated within the equity court's
    ancillary jurisdiction.    
    Wood, supra
    , 206 N.J. at 575.
    80                            A-6240-10T1
    Additionally, this case is different from Ward v. Merrimack
    Mutual Fire Insurance Co., 
    312 N.J. Super. 162
    , 167-69 (App.
    Div. 1998), because Ward was a coverage case where the primary
    remedy sought was money for damages already incurred.   The
    plaintiff was not making claims for any future or ongoing
    injury.   
    Ibid. We conclude that
    Judge Muir did not err as a matter of law
    when he denied IMO's demand for a jury trial and decided the
    equitable matters and the ancillary legal issues by means of
    bench trials.
    [At the court's direction, the remainder of this
    opinion has been redacted for purposes of
    publication. See R. 1:36-2(d) (guidelines for
    publication). The full opinion is available on
    the Rutgers Newark School of Law website at
    http://njlaw.rutgers.edu/collections/courts/
    search.php.]
    Affirmed.
    81                           A-6240-10T1
    

Document Info

Docket Number: A-6240-10

Citation Numbers: 437 N.J. Super. 577, 101 A.3d 1085

Filed Date: 9/30/2014

Precedential Status: Precedential

Modified Date: 10/30/2014

Authorities (43)

Weinisch v. Sawyer , 123 N.J. 333 ( 1991 )

American Nurses Ass'n v. Passaic General Hospital , 98 N.J. 83 ( 1984 )

Ward v. Merrimack Mut. Fire Ins. Co. , 312 N.J. Super. 162 ( 1998 )

Shaler Ex Rel. Shaler v. TOMS RIVER OBSTETRICS & GY-... , 383 N.J. Super. 650 ( 2006 )

Massari v. Einsiedler , 6 N.J. 303 ( 1951 )

US Mineral Products Co. v. American Ins. Co. , 348 N.J. Super. 526 ( 2002 )

Insurance Co. of North America v. Anthony Amadei Sand & ... , 162 N.J. 168 ( 1999 )

Douglas v. Allied American Insurance , 312 Ill. App. 3d 535 ( 2000 )

Longobardi v. Chubb Ins. Co. of New Jersey , 121 N.J. 530 ( 1990 )

Simmons v. Jeffords , 260 F. Supp. 641 ( 1966 )

Environmental Ins. Declaratory Judgment Actions , 149 N.J. 278 ( 1997 )

Owens-Illinois, Inc. v. United Insurance , 138 N.J. 437 ( 1994 )

500 COLUMBIA TURNPIKE ASSOCIATES v. Haselmann , 275 N.J. Super. 166 ( 1994 )

Diamond Shamrock Chemicals v. Aetna , 258 N.J. Super. 167 ( 1992 )

New Jersey Highway Authority v. Renner , 18 N.J. 485 ( 1955 )

Lyn-Anna Properties, Ltd. v. Harborview Development Corp. , 145 N.J. 313 ( 1996 )

Wood v. New Jersey Manufacturers Insurance , 206 N.J. 562 ( 2011 )

American Home Products Corporation, Plaintiff-Appellant-... , 748 F.2d 760 ( 1984 )

Csx Transportation, Inc. v. Commercial Union Insurance ... , 82 F.3d 478 ( 1996 )

Pellitteri v. Pellitteri , 266 N.J. Super. 56 ( 1993 )

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