Imo Industries Inc. v. Transamerica Corporation, Tig Insurance Company, F/K/A Transamerica Insurance Company, A.C.E. Insurance Company, Ltd.

NOT FOR PUBLICATION WITHOUT THE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