Zurich denied the claim on the ground that MarkWest had failed to provide notice within 60 days of the “incident,” as required by the Endorsement.

MarkWest sued Zurich, seeking to recover $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.

The trial court granted summary judgment in favor of Zurich, concluding that:

• By failing to report the pollution incident to Zurich within the 60 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 had never been “triggered”; and

• The question of whether Zurich had been prejudiced by MarkWest's untimely notice was “irrelevant.”

MarkWest appealed.

The Zurich Policy

The policy excluded from coverage losses due to pollutants, but the Endorsement stated that:

this exclusion does not apply to … “property damage” caused by a “pollution incident” provided that: … [t]he “pollution incident” … [is] reported to [Zurich] in writing, within [(60)] days from the date of [its] commencement.

The Endorsement also added a:

Duties In The Event of Pollution Incident

provision to the policy that repeated MarkWest's obligation to report any pollution incident within 60 days of its commencement and additionally required that MarkWest report any claim caused by a pollution incident:

in writing as soon as practicable

and within five years after the policy's expiration date.

The Appellate Court's Decision

The appellate court reversed, ruling that Zurich had to show that its ability to investigate the occurrence or defend against a claim had been prejudiced by the late notice before it could deny MarkWest's claim solely because it had failed to strictly comply with the policy's notice provision.

In its decision, the appellate court explained that, under ordinary contract principles, MarkWest's failure to comply with the Endorsement's notice requirement barred recovery.

However, the appellate court ruled, Colorado's “notice-prejudice” rule applied in this case – notwithstanding the “date-certain” requirement in the policy and notwithstanding that the notice provision was a “material condition precedent” to determining the extent of coverage under the occurrence policy.

Because the trial court had ruled otherwise, the appellate court concluded, it had to reverse its decision and remand the case for further proceedings. MarkWest only could be barred from recovering if Zurich had been prejudiced by its late report of the incident, the appellate court concluded.

The case is MarkWest Energy Partners, L.P. v. Zurich American Ins. Co., No. 15CA0770 (Colo. Ct.App. July 14, 2016). Attorneys involved include: 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.