COLORADO COURT OF APPEALS                                        2016COA110


Court of Appeals No. 15CA0770
City and County of Denver District Court No. 14CV31489
Honorable Karen L. Brody, Judge


MarkWest Energy Partners, L.P., a Delaware master limited partnership,

Plaintiff-Appellant,

v.

Zurich American Insurance Company, a New York corporation,

Defendant-Appellee,


                       JUDGMENT REVERSED AND CASE
                        REMANDED WITH DIRECTIONS

                                 Division I
                         Opinion by JUDGE DAILEY
                       Taubman and Freyre, JJ., concur

                           Announced July 14, 2016


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
¶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


                                    1
 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


                                   2
  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]




                                    3
  cannot deny a claim based solely on a failure to strictly comply with

  the notice provision.” We agree.

¶ 11   We review de novo a district court’s order granting summary

  judgment. Mountain States Adjustment v. Cooke, 2016 COA 80,

  ¶ 11. Summary judgment is proper when there is no genuine issue

  as to any material fact and the moving party is entitled to judgment

  as a matter of law. Geiger v. Am. Standard Ins. Co. of Wis., 192 P.3d

  480, 482 (Colo. App. 2008).

                           A. The Policy’s Meaning

¶ 12   In its main text, the Policy excluded from coverage losses due

  to pollutants; the Endorsement to the Policy, however, 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 [sixty (60)]1 days from the

  date of [its] commencement.”2 The Endorsement also added a


  1The language of the Endorsement provides for a thirty-day notice
  period, but the term was changed to sixty days by the
  Endorsement’s applicable timetable.

  2 This was one of five conditions listed in the Endorsement that
  needed to be met for coverage to be extended to the otherwise-
  excluded losses due to pollutants. Only the notice requirement is at
  issue here.

                                        4
  “Duties In The Event of Pollution Incident” provision to the Policy

  which (1) repeated MarkWest’s obligation to report any pollution

  incident within sixty days of its commencement and (2) 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.

¶ 13   We construe insurance policies according to principles of

  contract interpretation. Shelter Mut. Ins. Co. v. Mid-Century Ins. Co.,

  214 P.3d 489, 492 (Colo. App. 2008), aff’d, 246 P.3d 651 (Colo.

  2011). Such principles would ordinarily lead us to conclude that

  timely notice of contamination was a condition precedent that had

  to be satisfied before coverage under the policy would be extended

  to pollution incidents. See Soicher v. State Farm Mut. Auto. Ins. Co.,

  2015 COA 46, ¶ 22 (“A condition precedent is ‘[a]n act or event,

  other than a lapse of time, that must exist or occur before a duty to

  perform something promised arises.’” (quoting Black’s Law

  Dictionary 355 (10th ed. 2014))) (alteration in original); Dinnerware

  Plus Holdings, Inc. v. Silverthorne Factory Stores, LLC, 128 P.3d 245,

  247-48 (Colo. App. 2004) (“Consistent with the plain meaning of

  ‘provided that,’ courts in other jurisdictions have recognized that


                                        5
  use of that phrase will generally create a condition precedent.”).

  Under these ordinary contract principles, then, we would conclude

  (as the district court did) that, in and of itself, MarkWest’s failure to

  comply with the Endorsement’s notice requirement bars recovery

  here.

¶ 14      But the issues in this case go beyond simple “contract

  interpretation” and application. They also involve matters of public

  policy surrounding the enforcement of insurance policies.

                    B. Colorado’s “Notice-Prejudice” Rule

¶ 15      Traditionally, “an unexcused delay in giving notice relieve[d]

  the insurer of its obligations under an insurance policy, regardless

  of whether the insurer was prejudiced by the delay.” Clementi v.

  Nationwide Mut. Fire Ins. Co., 16 P.3d 223, 227 (Colo. 2001). “The

  traditional approach [was] grounded upon a strict contractual

  interpretation of insurance policies . . . .” Id. at 226.

¶ 16      In Clementi, the supreme court identified three policy

  justifications for departing from the traditional approach, to wit,

  “(1) the adhesive nature of insurance contracts, (2) the public policy

  objective of compensating tort victims, and (3) the inequity of the

  insurer receiving a windfall due to a technicality.” Id. at 229.


                                       6
  Based on these policy considerations, the court abandoned its

  adherence to the “traditional approach” in uninsured motorist

  policies and adopted, in its place, the “so-called notice-prejudice

  rule.” Id. at 225.

¶ 17   “Under the notice-prejudice rule, an insured who gives late

  notice of a claim to his or her insurer does not lose coverage

  benefits unless the insurer proves by a preponderance of the

  evidence that the late notice prejudiced its interests.” Craft v. Phila.

  Indem. Ins. Co., 2015 CO 11, ¶ 2; see Clementi, 16 P.3d at 229

  (Under that rule, “an insurer [can] deny benefits only where its

  ability to investigate or defend the insured’s claim was compromised

  by the insured’s failure to provide timely notice.”)

¶ 18   In Friedland v. Travelers Indemnity Co., 105 P.3d 639 (Colo.

  2005), the supreme court applied the notice-prejudice rule to, as

  here, an “occurrence” liability policy.3 In Friedland, the officer and



  3 An “occurrence” policy provides “liability coverage only for injury
  or damage that occurs during the policy term, regardless of when
  the claim is actually made.” Dep’t of Regulatory Agencies Reg. 5-1-
  8, 3 Code Colo. Regs. 702-5. In contrast, a “claims-made” policy
  “provides coverage only if a claim is made during the policy period
  or any applicable extended reporting period.” Id.


                                     7
  director of a mining operation sued his insurer to recover defense

  costs and liability payments incurred in connection with a federal

  CERCLA4 suit brought to clean up pollution caused by the mine.

  Id. at 641. The individual had not, however, notified his insurer of

  the CERCLA lawsuit “as soon as practicable,” as was required by

  the policy; rather, he had waited more than six years after the case

  had been filed and six months after it had been settled. Id. at 642.

  Under those circumstances, the court held that (1) the insured’s

  notice was not timely; and (2) the notice-prejudice rule applied; but

  (3) “the insurer [would be] presumed to have been prejudiced by the

  delay” and the insured would have the opportunity to rebut that

  presumption. Id. at 643.

¶ 19   Ten years later, the supreme court rejected the application of

  the notice-prejudice rule to notice provisions in “claims-made” (as



  Thus, an occurrence policy provides coverage for events occurring
  during the policy period (even if the claim is brought years later)
  while a claims-made policy provides potential coverage for events
  claimed (but not necessarily occurring) during the policy period.
  See Craft v. Phila. Indem. Ins. Co., 2015 CO 11, ¶ 28.

  4CERCLA is shorthand for the “Comprehensive Environmental
  Response, Compensation, and Liability Act of 1980,” 42 U.S.C.
  §§ 9601 to 9675 (2012).


                                    8
opposed to “occurrence”) policies. See Craft, ¶ 7. The court based

its decision on the different purposes notice requirements serve in

the different types of policies: in an occurrence policy, the timing of

notice affects the insurer’s ability to investigate and defend a claim

that would otherwise be covered by the policy, whereas in a

claims-made policy, a date-certain notice requirement, by its very

nature, defines the scope of coverage. See id. at ¶¶ 7, 28, 31-32,

45.5 Because “the date-certain notice requirement of a claims-made

policy is a fundamental term of the insurance contract, and notice

under such a provision is a material condition precedent to

coverage,” the court held that applying the notice-prejudice rule “to

excuse an insured’s noncompliance with a date-certain notice

requirement essentially rewrites the insurance contract and

[impermissibly] creates coverage where none previously existed.” Id.

at ¶ 45.


5 See also, e.g., Templo Fuente De Vida Corp. v. Nat’l Union Fire Ins.
Co. of Pittsburgh, 129 A.3d 1069, 1077 (N.J. 2016) (“In the
‘occurrence’ policy, notice provisions are written ‘to aid the
insurance carrier in investigating, settling, and defending claims.’
‘Claims made’ policies commonly require that the claim be made
and reported within the policy period, thereby providing a fixed date
after which the insurance company will not be subject to liability
under the policy.”) (citation omitted).


                                   9
¶ 20    Recently, the supreme court refused to apply the

  notice-prejudice rule to a policy provision prohibiting the insured

  from making voluntary payments on, or settling, a claim without

  the insurer’s consent. Travelers Prop. Cas. Co. of Am. v. Stresscon

  Corp., 2016 CO 22M. The court reasoned that, “[l]ike the notice of

  claim requirement of the claims-made policy at issue in Craft, the

  no-voluntary-payments clause of the contract at issue here actually

  goes to the scope of the policy’s coverage.” Id. at ¶ 14.

       C. Does Colorado’s Notice-Prejudice Rule Apply in This Case?

¶ 21    MarkWest contends that, under Clementi and Friedland, the

  notice-prejudice rule applies in this case; Zurich responds that,

  under Craft and Stresscon, the notice-prejudice rule is inapplicable.

  Each party’s position carries considerable force and is supported by

  various pronouncements in Colorado case law. And, each party’s

  position is supported by case law from other jurisdictions.6


  6 For example, Zurich’s position is supported by, among other
  things, a California appellate court decision in a case very much
  like the one here. See Venoco, Inc. v. Gulf Underwriters Ins. Co., 96
  Cal. Rptr. 3d 409, 416-17 (Cal. Ct. App. 2009) (holding that the
  notice-prejudice rule did not apply to an insurance policy that
  excluded pollution coverage generally, but then included an
  exception to that exclusion if the insured notified the insurance
  company within sixty days of the incident).

                                    10
¶ 22   Ultimately, however, we agree with MarkWest.

¶ 23   Zurich’s contention rests largely on two premises:

           the notice provision at issue here references a

            “date-certain” requirement, as in Craft; and

           the notice provision at issue here is a “material condition

            precedent” to determining the extent of coverage, as in

            Craft and (by implication) Stresscon.

¶ 24   Contrary to Zurich’s first assertion, the supreme court did not

  decide Craft based on the existence of a date-certain notice clause,

  which may appear in either claims-made or occurrence policies.

  See 16 Richard A. Lord, Williston on Contracts § 49:88 (4th ed.

  2002) (“Insurance contracts quite commonly contain . . . a provision

  requiring the insured to give notice to the insurer, within a specified

  or reasonable time, of any accident, claim, or occurrence which the

  insured asserts to be within the coverage of the policy.”) (emphasis

  added). Instead, as we noted above, the supreme court relied on

  the effect of a date-certain clause in a claims-made policy. And,

  unlike in Craft, the Policy in the present case was not a claims-

  made policy; it was an occurrence policy, for which, as we also




                                    11
  noted above, a notice requirement serves a fundamentally different

  purpose.

¶ 25   With respect to Zurich’s second assertion, we acknowledge

  that (1) the notice requirement in Craft, for which the court rejected

  application of the notice-prejudice rule, was a material condition

  precedent to the definition of coverage under the policy; (2)

  Stresscon similarly rejected application of the rule to a

  “no-voluntary-payments” or “no-settlement” provision which, like in

  Craft, “was a fundamental term” defining the scope of coverage

  under the policy; and (3) in the present case, the notice requirement

  of the Policy is framed as a condition precedent to obtaining

  coverage.

¶ 26   But, again, it was the purpose of (not the label attached to) the

  notice requirement in a claims-made policy that was critical to the

  court’s decision in Craft. And in Stresscon, the court was

  concerned with enforcing a type of requirement, noncompliance

  with which would be inherently more prejudicial than

  noncompliance with the notice requirement in an occurrence

  liability policy. Cf. Hanson Prod. Co. v. Ams. Ins. Co., 108 F.3d 627,

  630-31 (5th Cir. 1997) (“[T]he failure to give notice of a claim poses


                                    12
  a smaller risk of prejudice than failure to obtain consent to a

  settlement. In many instances of untimely notice of a claim, the

  insurer is not prejudiced at all, and ultimately may not face any

  coverage obligation. Conversely, in many if not most cases where

  an insured settles a case without the insurer’s consent, the insurer

  faces at least some liability.”).

¶ 27   Insurance contracts quite commonly make timely notice “an

  express condition precedent to the insurer’s duty to defend or

  indemnify the insured”; yet “most jurisdictions require . . . the

  insurer demonstrate that it was prejudiced by the delay [in

  providing notice].” 16 Lord, § 49:88; see 13 Steven Plitt, Daniel

  Maldonado, Joshua D. Rogers & Jordan R. Plitt, Couch on Insurance

  § 193:49 (3d ed. 2010) (“[M]any jurisdictions now require proof of

  prejudice in order for an insurer to avoid liability in the event of an

  unreasonable or unexcused delay, even under a notice provision

  which is a condition precedent to recovery.”) (footnote omitted).

¶ 28   Indeed, in Brakeman v. Potomac Insurance Co., 371 A.2d 193

  (Pa. 1977) — a case upon which the supreme court relied heavily in

  Clementi — the court applied the notice-prejudice rule to a policy




                                      13
  containing a notice requirement that was a condition precedent to

  coverage. The Pennsylvania court reasoned that

            [a] strict contractual approach is . . .
            inappropriate here because what we are
            concerned with is a forfeiture. The insurance
            company in the instant case accepted the
            premiums paid by the insured for insurance
            coverage and now seeks to deny that coverage
            on the ground of late notice. As was said in
            Cooper v. Government Employees Insurance
            Co., . . . :

                  “(A)lthough the policy may speak of the
                  notice provision in terms of ‘condition
                  precedent,’ . . . nonetheless what is
                  involved is a forfeiture, for the carrier
                  seeks, on account of a breach of that
                  provision, to deny the insured the very
                  thing paid for. This is not to belittle the
                  need for notice of an accident, but rather
                  to put the subject in perspective. Thus
                  viewed, it becomes unreasonable to read
                  the provision unrealistically or to find
                  that the carrier may forfeit the coverage,
                  even though there is no likelihood that it
                  was prejudiced by the breach. To do so
                  would be unfair to insureds.”

  Id. at 196-97 (quoting Cooper v. Gov’t Emps. Ins. Co., 237 A.2d 870,

  873-74 (N.J. 1968)).

¶ 29   The extent to which our supreme court relied on Brakeman in

  deciding Clementi suggests that it too would apply the

  notice-prejudice rule to a notice provision framed as a condition


                                    14
  precedent to coverage in an occurrence liability policy.7 This follows

  because the purpose of a notice provision in an occurrence liability

  policy remains the same regardless of whether the provision is

  couched as a condition (or, as here, a condition precedent) to

  coverage or not. Likewise, the underlying public policies for

  requiring an insurer show prejudice to avoid coverage liability

  remain the same, in either event.8

¶ 30   Based on these two considerations, it would, in our view,

  elevate form over substance to say that the notice-prejudice rule

  applies in the one instance but not the other. Cf. Vill. Escrow Co. v.

  Nat’l Union Fire Ins. Co., 248 Cal. Rptr. 687, 692 (Cal. Ct. App.



  7 This perception is further bolstered by the fact that the Friedland
  court overruled a case that involved a notice provision that was a
  condition precedent to coverage, see Marez v. Dairyland Ins. Co.,
  638 P.2d 286, 287-88 (Colo. 1981), when it adopted the
  notice-prejudice rule for liability policies. See Friedland v. Travelers
  Indem. Co., 105 P.3d 639, 644-45 (Colo. 2005).

  8 Although MarkWest and Zurich actively negotiated the terms of
  the Endorsement, and thus, there was no “contract of adhesion”
  here, this makes no difference to our analysis. See Friedland, 105
  P.3d at 653 (Coats, J., dissenting) (“[A]bsolutely nothing suggests
  that this policy, purchased by the [insured] to insure against
  environmental lawsuits, was in the nature of an adhesion contract
  or was purchased for some reason other than its commercial
  advantage.”).


                                     15
  1988) (depublished)9 (“It would elevate form over substance to hold

  a reporting requirement was subject to the ‘notice-prejudice’ rule if

  located in a separate clause of the insurance contract, but immune

  from that rule if placed in the same clause with other conditions

  defining the insurance company’s liability under the policy.”); Estate

  of Gleason v. Cent. United Life Ins. Co., 350 P.3d 349, 368 (Mont.

  2015) (McKinnon, J., concurring in part and dissenting in part)

  (“[W]here the function and purpose of the notice provision ha[ve] not

  been frustrated by the insured — i.e., where there is no prejudice —

  the reason behind the notice condition in the policy is lacking. In

  these cases, the notice clause should not serve as a technical basis

  for the insurer to escape liability.”).

¶ 31   For these reasons, we conclude that Colorado’s

  notice-prejudice rule applies even where, as here, the notice

  requirement is a condition precedent to coverage under an

  occurrence liability policy. Because the district court concluded




  9California appellate court decisions that are ordered depublished
  by the California Supreme Court have no precedential effect; they
  generally cannot be cited or relied upon by courts or parties in any
  other action or proceeding. See Cal. R. Ct. 8.1105(e)(2), 8.1115(a).

                                      16
  otherwise, we must reverse its decision and remand the case for

  further proceedings.

                         III. Attorney Fees on Appeal

¶ 32   MarkWest contends that it is entitled to an award of attorney

  fees incurred on appeal under section 10-3-1116(1), C.R.S. 2015.10

  Its request is premature.

¶ 33   As pertinent here, section 10-3-1116(1) provides that “[a] first-

  party claimant . . . whose claim for payment of benefits has been

  unreasonably delayed or denied may bring an action in a district

  court to recover reasonable attorney fees and court costs.” There

  has been no determination that MarkWest was entitled to recover

  benefits, much less that its claim was “unreasonably delayed or

  denied.” Unless and until there is such a determination, MarkWest

  is not entitled to recover attorney fees under this section.

¶ 34   In the event MarkWest ultimately prevails on the claim that

  benefits were unreasonably delayed or denied, the district court, if

  requested, may then consider awarding MarkWest a reasonable

  amount of attorney fees incurred on appeal under this statute.

  10In what appears to be a typographical error, MarkWest cites this
  statute in its opening brief as section 13-3-1116.


                                     17
                            IV. Conclusion

¶ 35   The judgment is reversed and the case is remanded for further

  proceedings.

       JUDGE TAUBMAN and JUDGE FREYRE concur.




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