Chapter 10 - § 10.7 • BAD FAITH CLAIMS AGAINST A GOVERNMENTAL ENTITY ARE BARRED BY THE COLORADO GOVERNMENTAL IMMUNITY ACT (CGIA)

• Jurisdiction: Colorado

§ 10.7 • BAD FAITH CLAIMS AGAINST A GOVERNMENTAL ENTITY ARE BARRED BY THE COLORADO GOVERNMENTAL IMMUNITY ACT (CGIA)

In Jordan v. City of Aurora, 876 P.2d 38 (Colo. App. 1993), the plaintiff, Jordan, sued the City of Aurora, a self-insured employer, for bad faith in denying payment of workers' compensation benefits. After a jury verdict in favor of Jordan, Aurora appealed, arguing that Jordan's bad faith claims were barred by sovereign immunity. The court of appeals noted that the "Colorado Governmental Immunity Act provides a public entity the defense of sovereign immunity against actions for tort injuries except those specified in § 24-10-106, C.R.S. (1988 Repl. Vol. 10A)." Id. at 41. Moreover, "because a claim of bad faith is a tort, and none of the exceptions contained in § 24-10-106 apply, the claim is barred by sovereign immunity." Id. Accordingly, the court held that the jury verdict against Aurora had to be vacated.

As Jordan shows, where a claim of bad faith is brought against a governmental entity that has acted as a self-insurer, such claim is barred by sovereign immunity. However, the CGIA does not apply to actions based on contract. Rocky Mountain Health Maint. Org., Inc. v. Colo. Dep't of Health Care Policy & Fin., 54 P.3d 913, 917 (Colo. App. 2001). Therefore, a contractual claim for benefits against a self-insured governmental entity would not be barred.

In Colorado Special Districts Property & Liability Pool v. Lyons, 277 P.3d 874 (Colo. App. 2012), the court of appeals upheld the trial court's dismissal under C.R.C.P. 12(b)(1) of the Lyonses' bad faith breach of insurance contract claims against Colorado Special Districts Property and Liability Pool (the Pool) and County Technical Services, Inc. (CTSI) on the ground that the Pool and CTSI were immune from liability under the CGIA.

In 2006, several banks purchased bonds from a quasi-municipal corporation in Douglas County, the LCMD. The bonds had been issued by the LCMD to finance a residential community, Lincoln Creek Village (LCV). The Lyonses were members of the board of directors of both the LCMD and LCV. After the banks brought an action against the Lyonses for damages arising from the sale of the bonds, they requested the Pool to defend and indemnify them under a certificate of insurance the Pool had issued to the LCMD. After initially defending the Lyonses under a reservation of rights, the Pool brought a declaratory judgment action seeking a determination that it had no duty to...