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Colorado Supreme Court Rules That the Economic Loss Rule Has No Bearing on Whether the Colorado Governmental Immunity Act Bars a Plaintiff’s Claims

June 19, 2024

In City of Aspen v. Burlingame Ranch II Condo. Owners Ass’n, Inc., 2024 CO 46 (Colo. 2024), the Colorado Supreme Court case clarifies that the economic loss rule (ELR) has no part to play in determining whether the Colorado Government Immunity Act (CGIA) deprives the trial court of subject matter jurisdiction. This has been a grey area over the past few years where plaintiffs have argued that claims that “could” be brought as a tort claim are barred by the economic loss rule, and therefore “could not” be brought as a tort claim – and therefore, the CIGA does not immunize the government. Of course, the government argued the flip side, taking the position that if it could be brought as a tort claim, it is barred by the CGIA. The Supreme Court agreed with the government.

As the Colorado Supreme Court said: “The CGIA and the economic loss rule are fundamentally different—they mix like oil and water.”

“On the one hand, the CGIA immunizes public entities from all claims for injury which “lie in tort or could lie in tort.” § 24-10-106(1), C.R.S. (2023). That is to say, the CGIA deprives courts of subject matter jurisdiction over those claims.”

“On the other hand … the economic loss rule prohibits tort claims that are based solely on the breach of a contractual duty that results in purely economic losses (i.e., damages other than physical harm to persons or property, such as the loss of a bargain).”

The Colorado Supreme Court then explained that the CGIA and economic loss rule demand incongruous analyses. Under the CGIA, courts must ask a fundamentally expansive question, i.e., whether the nature of the injury and the relief sought lies in tort or could lie in tort. Whereas the economic loss rule is a “narrowing doctrine,” which extinguishes tort claims when the source of the allegedly breached duty is a contract.

As the Court said: “Surely then, these doctrines are different horses for different courses.” And there it is. In Colorado, the economic loss rule has no part to play in determining whether the CGIA deprives the trial court of subject matter jurisdiction.

Key Takeaway

The City of Aspen ruling practically comes into play in Colorado litigation involving government contracts where there might be conduct that could be a breach of a tort duty, but also a breach of contract. A fiduciary duty is one example. We’ve even seen this argued in regard to a breach of the implied covenant of good faith and fair dealing. In light of the City of Aspen ruling, a plaintiff will need to think long and hard about how to properly plead the case to avoid triggering immunity under CIGA.

From a transactional perspective, the City of Aspen case is a cautionary ruling, and perhaps even a roadmap, for parties while negotiating terms of a contract with the government, and will provide clarity on what type of conduct by the government might be immune from suit under the CGIA.

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