The Colorado Supreme Court clarified on Monday that litigants may not use a judicial doctrine focused on breaches of contract to sue municipalities for negligently constructed housing, effectively sidestepping the broad immunity state law provides to government entities.

The Colorado Governmental Immunity Act, with limited exceptions, shields public entities from lawsuits over injuries they cause. Its purpose is to protect tax dollars and prevent a flood of lawsuits from disrupting government services.

However, the condominium association for Burlingame Ranch II, an affordable housing community the city of Aspen developed itself, believed it could hold the city responsible for construction defects in a different way. Instead of claiming negligent construction, which the CGIA would block, the association argued the city breached its contract with homebuyers by not addressing the defects.

The state’s Court of Appeals believed that was a viable approach, but the Supreme Court stepped in and quashed the condo association’s legal theory.

“Without the CGIA’s grant of immunity, exposure to unlimited liability would frustrate the state and its political subdivisions in their efforts to provide essential public services” like housing, wrote Justice Carlos A. Samour Jr. in the June 17 opinion.

In August 2017, after Aspen had developed the Burlingame Ranch II community, it transferred control to the owners through the condo association. Before the transfer, the city worked to address multiple defects to wooden building components.

Claiming it had suffered damages, the association sought to force the city into arbitration for allegedly breaching its contract. District Court Judge Denise Lynch concluded, to the contrary, the association actually had a negligence claim barred by governmental immunity masquerading as a breach-of-contract dispute.

However, the Court of Appeals disagreed. Under a judicially created principle known as the “economic loss rule,” contractual obligations take precedence over other liability claims. The court believed a hearing was necessary to flesh out the details of a potential breach of contract claim.

Outside groups weighed in to the Supreme Court about the Court of Appeals’ reasoning. The Colorado Municipal League argued if local governments could forfeit their immunity through plaintiffs’ newfound reliance on contractual disputes, they “may be hesitant to use all tools available to promote housing.” The Community Associations Institute, on the other hand, argued no one would agree to contract with governmental entities if they could avoid liability for breaching their contracts.

During oral arguments last year, Burlingame Ranch II’s attorney maintained governmental immunity should not be allowed to swallow any contract-based injuries caused by public entities.

Hypothetically, “I live in a neighborhood and there’s a school bus. It’s a government school bus and it’s driving around the neighborhood. And it’s driving erratically. And I know that that school bus, one day, is going to hit me,” said Christopher Griffiths. “So, I go to the school district and I sign a contract with them. I say, ‘School district, let’s agree right now that if your school bus hits me, it’s gonna be $50,000.'”

Griffiths then supposed that when the school bus hit him, the school district would argue Griffiths actually had a liability claim and the district was immune under state law, regardless of the contract. Griffiths did not believe the Supreme Court should endorse that about-face.

Ultimately, the court rejected his reasoning. The economic loss rule cannot be used to undermine governmental immunity, Samour wrote, and judges cannot hear lawsuits against public entities when the injuries they cause could be framed as a liability claim — like negligent construction.

“The question of jurisdiction under the CGIA must be resolved before the economic loss rule may enter the picture,” Samour wrote. “If there is no subject matter jurisdiction under the CGIA because the defendant is entitled to governmental immunity, the economic loss rule is irrelevant and the claim must be dismissed.”

The case is City of Aspen v. Burlingame Ranch II Condominium Owners Association, Inc.