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MarkWest Energy Partners, L.P. v. Zurich American Insurance Co.

Court of Appeals of Colorado, First Division

July 14, 2016

MarkWest Energy Partners, L.P., a Delaware master limited partnership, Plaintiff-Appellant,
v.
Zurich American Insurance Company, a New York corporation, Defendant-Appellee,

         City and County of Denver District Court No. 14CV31489 Honorable Karen L. Brody, Judge.

          Snell & Wilmer, L.L.P., Michael E. Lindsay, James D. Kilroy, Jessica E. Yates, Luke W. Mecklenburg, Denver, Colorado, for Plaintiff-Appellant

          McElroy, Deutsch, Mulvaney & Carpenter, L.L.P., Jane E. Young, Greenwood Village, Colorado, for Defendant-Appellee

          Reed Smith, L.L.P., James M. Davis, Chicago, Illinois; John N. Ellison, Anthony B. Crawford, Philadelphia, Pennsylvania, for Amicus Curiae United Policyholders.

          OPINION

          DAILEY JUDGE.

         ¶ 1 In this insurance coverage dispute, plaintiff, MarkWest Energy Partners, L.P. (MarkWest), appeals the district court's entry of summary judgment in favor of defendant, Zurich American Insurance Company (Zurich).

         ¶ 2 The district court concluded that, because MarkWest failed to comply with a condition precedent in a liability policy requiring it to timely report an "incident" to Zurich, it was barred from recovering anything from Zurich. Contrary to the district court, we conclude that Colorado's "notice-prejudice" rule applies, and that, consequently, MarkWest is only barred from recovering if Zurich was prejudiced by the late report of the incident. Thus, we reverse and remand for further proceedings.

         I. Background

         ¶ 3 MarkWest, a natural gas company, procured from Zurich a commercial general liability policy (the Policy) with a limited pollution liability endorsement (the Endorsement), covering "incidents" occurring between November 1, 2012, and November 1, 2013.

         ¶ 4 On November 4, 2012, MarkWest was constructing a pipeline in Ohio when a chemical used in the drilling process escaped the drilling area, thereby contaminating the surrounding area. MarkWest immediately reported the incident to local environmental officials, who approved a chemical cleanup protocol weeks later and confirmed that cleanup had been successfully completed in February 2013.

         ¶ 5 On March 28, 2013, MarkWest notified Zurich of the contamination and filed an associated claim for over $3 million. Although the incident had occurred and Zurich had been notified well within the Policy's coverage dates, Zurich denied the claim because MarkWest had failed to provide notice within sixty days of the "incident, " as required by the Endorsement.

         ¶ 6 MarkWest filed the present action to recover from Zurich $3 million-plus in damages with respect to the original insurance claim, as well as additional damages for bad-faith (common law and statutory) denial of coverage.

         ¶ 7 Zurich filed a motion for summary judgment under C.R.C.P. 56(b), and MarkWest responded with a motion for determination of a question of law under C.R.C.P. 56(h). As pertinent here, both cross-motions addressed the same issue - that is, whether MarkWest was barred from pursuing the lawsuit because of its noncompliance with the Endorsement's notice provision, or whether MarkWest could proceed with its claim in the absence of prejudice to Zurich as a result of the untimely notice.

         ¶ 8 The district court ruled in favor of Zurich, concluding that,

• by failing to report the pollution incident to Zurich within the sixty day notice period, "MarkWest did not comply with an express condition precedent in the insurance contract";
• therefore, "MarkWest's right to coverage under the Policy was never triggered"; and
• "the question of whether Zurich was prejudiced by MarkWest's untimely notice is, therefore, irrelevant."

         ¶ 9 Consequently, the district court denied MarkWest's motion for determination of a question of law and granted Zurich's motion for summary judgment.

         II. Analysis

         ¶ 10 MarkWest contends that the district court erred because "unless [Zurich] can show its ability to investigate the occurrence or defend against a claim was prejudiced by late notice, [the court] cannot deny a claim based solely on a ...


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