author: Justice RICE

text:
    TRANS SHUTTLE, INC.; Mo’s Express, LLC, d/b/a Mo’s Express; and Jejaw Gosha, individually and d/b/a Hallelujah Shuttle, Plaintiffs/Applicants-Appellants, v. PUBLIC UTILITIES COMMISSION OF the STATE of Colorado, Defendant-Appellee.
    No. 03SA156.
    Supreme Court of Colorado.
    May 3, 2004.

      Hochstadt, Straw, Strauss & Silverman, P.C., Richard Strauss, Denver, Colorado, M. Andrew Andrade, Law Offices of M. Andrew Andrade, Greenwood Village, Colorado, Attorneys for Plaintiffs/Applicants-Appellants.
    Ken Salazar, Attorney General, David A. Beckett, Assistant Attorney General, Larry A. Williams, Assistant Attorney General, Business and Licensing Section, Department of Law, Revenue/PUC Unit, Attorneys for Defendanh-Appellee.
   Justice RICE

delivered the Opinion of the Court.

Petitioner-Appellants Trans Shuttle, Inc., and Mo’s Express, LLC (collectively “appellants”), seek review of the district court’s decision which upheld penalties assessed against appellants by the Public Utilities Commission (“PUC”). The PUC determined that appellants had engaged in transporting persons in intrastate commerce without the prior issuance by the PUC of a certificate of public convenience and necessity (“CPCN”), as required by section 40-10-104(1), 11 C.R.S. (2003).

Appellants each hold a certificate issued by the Federal Motor Carrier Safety Administration or its predecessor (collectively “FMCSA”). These certificates authorize appellants to provide passenger service over interstate routes. They also authorize intrastate passenger service under limited circumstances:

CONDITION: The carrier is authorized to provide intrastate passenger transportation service under this certificate only if the carrier also provides substantial regularly scheduled interstate passenger transportation service on the same route.

This language closely tracks the statutory language under which the certificate was granted. See 49 U.S.C. § 13902(b)(3) (2003).

Appellants claim that because they hold these certificates, the PUC is without jurisdiction to assess penalties against them and that the PUC did not regularly pursue its authority in assessing the penalties. They also claim that the PUC engaged in improper rulemaking, that the district court imposed an improper standard of review, and that the PUC deprived appellants of them property without due process of law. Appellants presented no evidence at their respective penalty assessment hearings to dispute the allegations of the PUC. Instead, they relied solely on their FMCSA certificates, claiming that they were in compliance with these certificates.

We affirm. We hold that the PUC has jurisdiction to regulate providers of intrastate transportation services and that the PUC properly pursued its authority in this matter. The PUC is clearly empowered to assess fines against parties providing intrastate passenger service without a CPCN. The evidence in the record amply demonstrates that appellants were engaged in providing for-hire transportation services that were entirely intrastate in nature. Because appellants provided no evidence to the contrary, the district court correctly affirmed the PUC’s penalty assessment.

We also hold that the PUC proceedings were adjudicatory in nature and not rulemak-ing, and appellants were not denied their property rights without due process of law. Because we have determined that the PUC had jurisdiction to assess penalties against appellants, we do not need to address appellants’ claim that the district court applied an incorrect standard of review.

I. Facts and Procedural History

A. Trans Shuttle

On February 5, 2001, a PUC investigator spotted a Trans Shuttle vehicle on level 5 of Denver International Airport (“DIA”). The investigator approached the vehicle and requested transportation to the Adam’s Mark Hotel in Denver. The driver then transported the investigator to the Adam’s Mark, whereupon the investigator paid a $17 fare and received a receipt. On March 17, 2001, the same investigator observed another Trans Shuttle vehicle on Level 5 óf DIA. The investigator heard the driver announce that he was providing service to “Denver hotels downtown, door-to-door, and southeast.” The investigator boarded the vehicle and was transported to the Adam’s Mark. Again, the investigator paid a fare of $17 and received a receipt.

On April 4, 2001, the investigator observed two passengers disembark from a Trans Shuttle vehicle at the Adam’s Mark. The passengers told the investigator that they had paid $17 each for transport from DIA to the Adam’s Mark, and produced receipts indicating payment. The investigator did not ask the passengers how they had arrived at DIA.

The PUC issued a civil penalty assessment notice (“CPAN”) against Trans Shuttle for providing intrastate passenger service without a CPCN, in violation of section 40-10-104(1). Prior to the hearing on this CPAN, Trans Shuttle filed a motion to dismiss the proceedings, arguing that the PUC lacked jurisdiction over it because it was operating in interstate, not intrastate, travel pursuant to the authority granted to it by an FMCSA certificate. Trans Shuttle claimed that the FMCSA had exclusive jurisdiction to determine whether Trans Shuttle was operating in violation of the FMCSA certificate.

The administrative law judge (“ALJ”) assigned to the case denied the motion, finding that the PUC, as a threshold matter, did possess jurisdiction to determine whether a particular transportation service provided was interstate or intrastate in nature. The ALJ found that the mere fact that Trans Shuttle possessed a FMCSA certificate did not deprive the PUC of the power to enforce the provisions of Title 40. To hold otherwise, the ALJ declared, would render the relevant provisions of Title 40 meaningless for all transportation service providers who happened to hold an FMCSA certificate, because the PUC would have no jurisdiction to ever determine if that provider was engaging in purely intrastate commerce. The ALJ determined that Trans Shuttle’s argument presented an affirmative defense, and that Trans Shuttle therefore bore the burden of proof to show that it was acting in compliance with its FMCSA certificate.

Trans Shuttle appeared at its civil penalty hearing and was represented by counsel. However, even though its motion to dismiss had already been denied, Trans Shuttle presented no evidence to refute the PUC’s allegations. Thus, the only evidence before the ALJ was the evidence presented by the PUC. The ALJ ruled that Trans Shuttle had violated section 40-10-104(1) on three occasions and civil penalties should be assessed. Trans Shuttle did not file exceptions to the ALJ’s decision, and it therefore became the final PUC decision.

B. Mo’s Express

On February 5, 2001, a PUC investigator received a ride from a Mo’s Express vehicle. The investigator was transported from DIA to the Westin Hotel in Denver. During the trip, the driver stated that he did not leave the Denver metropolitan area except for occasional trips west into the mountains. The driver further stated that he did not operate on a schedule. The investigator paid a fare of $17 and received a receipt which indicated “door-to-door” service.

Based on this information, the PUC issued a CPAN against Mo’s Express for providing intrastate passenger service without a CPCN, in violation of section 40-10-104(1). Mo’s Express did not appear at its penalty assessment hearing, although its FMCSA certificate authorizing a variety of scheduled interstate and intrastate transportation was apparently entered into evidence. The ALJ found that the scant evidence in the record indicated that Mo’s Express did not use any of the authority granted to it under its FMCSA certificate, as the services provided in this case were entirely intrastate and not offered as part of any scheduled operations. The ALJ therefore ruled that Mo’s Express had violated section 40-10-104(1) and a civil penalty should be assessed. Mo’s Express filed an exception to the ALJ’s recommended decision, but this exception was denied by the PUC. Thus, the ALJ’s ruling became the final PUC decision.

C. The District Court Proceedings

The district court, considering both cases together, affirmed the PUC’s assessment of civil penalties against Trans Shuttle and Mo’s Express. After observing the standard of review mandated by section 40-6-115(3), the court found that the PUC regularly pursued its authority to regulate intrastate transportation of passengers, pursuant to section 40-10-104(1). The court therefore held that “it was not beyond the scope of the PUC’s authority to issue a penalty against the Plaintiffs.” The court noted that the ALJ’s conclusions were adequately supported by evidence in the record. The court also noted that neither Trans Shuttle nor Mo’s Express provided any evidence which might refute the PUC investigators’ allegations, nor did they provide any evidence to establish that they were in compliance with their FMCSA certificates. The court de-elared that Trans Shuttle and Mo’s Express bore the burden of proof on the issue, and that in presenting no evidence they had failed to meet this burden.

D. Related Federal Proceedings

In a related matter, Trans Shuttle filed suit against the PUC in federal district court, seeking injunctive relief from the PUC’s assessment of civil penalties against them. The district court ruled that the case should be dismissed because Trans Shuttle (and the other plaintiffs, none of whom is a current party to this proceeding) had an adequate remedy at law in the state courts. Trans Shuttle, Inc. v. Pub. Utils. Comm’n, No. 00-K-1458, slip op. at 3 (D.Colo. Dec. 12, 2000). The court stated:

[Plaintiffs] have already been afforded the opportunity to present evidence to support their position that they were lawfully providing intrastate transportation services in the state of Colorado pursuant to federal authority and that such federal authority preempts the [PUC’s] authority to regulate them. They lost before the [PUC], but have the opportunity to argue their position on appeal. It seems both unnecessary and unwise at this juncture to undertake a duplicative and parallel review of these issues in federal court. Federal review may be appropriate at a different juncture, for example, if Plaintiffs pursue their challenge in an action filed with the [FMCSA].

Id. at 3-4.

The Tenth Circuit Court of Appeals affirmed the district court’s dismissal of the case. Trans Shuttle, Inc. v. Pub. Utils. Comm’n, No. 01-1025, 2001 WL 1355987 at *2 (10th Cir. Nov.5, 2001). The court of appeals held that the dismissal was appropriate under the abstention doctrine of Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). The court found that “Colorado provides suitable fora by which the shuttle operators may obtain a remedy for their alleged constitutional violation.” Id. at *3. The court specifically rejected the claim that Colorado state courts lacked jurisdiction to determine whether the plaintiffs were in compliance with their FMCSA certificates. Id. The court also recognized the particularly strong state interest involved, because the PUC’s “purpose is to protect the health and safety of its citizens who ride with these [intrastate] carriers and who share the roads with them.” Id. at *5.

II. Standard of Review

Judicial review of a PUC decision is governed by section 40-6-115. Pub. Serv. Co. of Colo. v. Trigen-Nations Energy Co., 982 P.2d 316, 322 (Colo.1999). Review is limited to

determin[ing] whether the [PUC] has regularly pursued its authority, including a determination of whether the decision under review violates any right of the petitioner under the constitution of the United States or of the state of Colorado, and whether the decision of the [PUC] is just and reasonable and whether its conclusions are in accordance with the evidence.

§ 40-6-115(3); see Silverado Communication Corp. v. Pub. Utils. Comm’n, 893 P.2d 1316, 1319 (Colo.1995). The reviewing court may not overturn the PUC’s findings of fact if they are supported by substantial evidence in the record. Powell v. Pub. Utils. Comm’n, 956 P.2d 608, 613 (Colo.1998); Boulder Air-porter, Inc. v. Rocky Mountain Shuttlines, Inc., 918 P.2d 1118, 1121 (Colo.1996). This evidence must be viewed in the light most favorable to the PUC’s decision. Trigen-Nations, 982 P.2d at 322; Powell, 956 P.2d at 613; Boulder Airporter, 918 P.2d at 1121. Furthermore, because the PUC has considerable technical expertise in the arena of public utilities regulation, the courts should accord deference to the PUC’s interpretations of applicable statutes and regulations. Trigen-Nations, 982 P.2d at 322; Boulder Airporter, 918 P.2d at 1120. However, the courts must make an independent judgment on questions of law. Trigen-Nations, 982 P.2d at 322.

III. The PUC Has Jurisdiction to Assess Penalties and Regularly Pursued Its Authority

A. The PUC Has Jurisdiction over Appellants

Section 40-7-113(l)(b), 11 C.R.S. (2003), permits the PUC to issue a civil penalty against any person operating as a common carrier without a CPCN as required by section 40-10-104. The PUC’s authority to assess such penalties is, however, limited by state and federal law. By statute, the PUC may not regulate interstate commerce. See § 40-7-111, 11 C.R.S. (2003) (“None of the provisions of articles 1 to 7 of this title ... shall apply ... to commerce among the several states....”). Authority to regulate interstate commerce is vested in the federal government, see U.S. Const. art. I, § 8, cl. 3, and federal regulation of interstate commerce preempts any competing state regulation. See id. at art. VI, cl. 2.

The FMCSA was created by Congress to, among other things, regulate motor carriers engaged in the interstate transportation of passengers. See 49 U.S.C. § 113 (2003) (creating the FMCSA); 49 U.S.C. § 13902 (2003) (authorizing licensing of motor carriers). The FMCSA authorizes such carriers to provide “l'egular-route” intrastate transportation services “if such intrastate transportation is to be provided on a route over which the carrier provides interstate transportation of passengers.” 49 U.S.C. § 13902(b)(3). Thus, the PUC may not regulate a carrier engaged in the intrastate transportation of passengers if such transportation is provided under FMCSA authority pursuant to section 13902(b)(3). Furthermore, the PUC is specifically preempted from regulating the rates or scheduling of any inter- or intrastate passenger transportation services operating over interstate routes. See 49 U.S.C. § 14501(a)(1) (2003). Outside of these proscriptions, however, the PUC’s authority to assess penalties against carriers engaged in the intrastate transportation of passengers is not preempted by federal law.

Appellants do possess FMCSA certificates authorizing them to provide intrastate transportation services. While such authorization is limited only to circumstances where they “also provide[] substantial regularly scheduled interstate passenger transportation service on the same route,” appellants claim that they are operating pursuant to this authority. However, appellants presented no evidence at the PUC hearing to support this assertion. Rather, appellants contend that the mere existence of their FMCSA certificates precludes the PUC from considering their activities, and that the PUC is without jurisdiction to determine whether they are, in fact, operating in compliance with those certificates. Appellants argue that the doctrine of primary jurisdiction dictates that any interpretation of their FMCSA certificates should be made by the FMCSA, not the PUC.

The doctrine of primary jurisdiction, sometimes called the deference doctrine, allows for judicial deference to an agency where such deference is necessary to promote uniformity and take advantage of the special expertise of that agency. See Arapahoe County Pub. Airport Auth. v. Centennial Express Airlines, 956 P.2d 587, 592 (Colo.1998); see also United States v. W. Pacific R.R., 352 U.S. 59, 64, 77 S.Ct. 161, 1 L.Ed.2d 126 (1956). However, the doctrine “should be utilized reluctantly where the issue is strictly a legal one that is within the conventional competence of the courts.” Centennial Express, 956 P.2d at 592. Strictly speaking, the problem “is not one of jurisdiction. ... Rather, the problem is one of harmony, efficiency, and prudence.” Mashpee Tribe v. New Seabury Corp., 592 F.2d 575, 581 n. 1 (1st Cir.1979).

While no fixed formula exists to determine when to apply the doctrine, Centennial Express, 956 P.2d at 592; W. Pacific R.R., 352 U.S. at 64, 77 S.Ct. 161, certain factors have previously been identified by this and other courts. These factors are whether the controversy involves complex “technical questions of fact uniquely within an agency’s expertise and experience,” Centennial Express, 956 P.2d at 592, whether “uniformity and consistency require administrative discretion,” id., whether “the agency determination would materially aid the court,” Mashpee Tribe, 592 F.2d at 581, and whether deference would prevent the prompt resolution of the case. Id. (noting that the district court was correct to “not defer to administrative action of uncertain aid and uncertain speed”); see also Nat’l Communications Ass’n v. Am. Tel. & Tel. Co., 46 F.3d 220, 223 (2d Cir.1995) (“The court must also balance the advantages of applying the doctrine against the potential costs resulting from complications and delay in the administrative proceedings.”). When examining these factors, a court or state agency must consider the facts of the particular case to determine whether deferring jurisdiction to the federal agency is appropriate. See W. Pacific R.R., 352 U.S. at 69, 77 S.Ct. 161 (noting that the decision to defer on matters of railroad tariff construction should be made “based on the particular facts of each case”). With these principles in mind, we now consider whether the doctrine of primary jurisdiction should have been invoked in this case.

Many federal courts, as well as the FMCSA and its predecessors, have considered thé issue of when intrastate transportation services may be offered under an FMCSA certificate. Thus, it is well settled that intrastate transportation of passengers under an FMCSA certificate is only authorized if the interstate transportation of passengers meets certain criteria. Specifically, the “interstate traffic ‘must be a regularly scheduled service, it must be actual, it must be bona fide and involve service in more than one State, and it must be substantial.’ ” Airporter of Colo., Inc., v. Interstate Commerce Comm’n, 866 F.2d 1238, 1240 (10th Cir.1989) (quoting Funbus Systems, Inc., ICC Nos. MC-C-10917, MC-153325 (Sub-No. 2), MCC-10943, 1987 WL 100200 at *9 (Dec. 30, 1987) (not published)); see also Boulder Airporter, Inc., 8 I.C.C.2d 553, 559 (1992). While the interstate and intrastate services need not be identical or offered in the same vehicle, the mere holding out to perform interstate transportation services on a particular route is not enough to support intrastate transportation on that route. Funbus Systems, 1987 WL 100200 at *9; Boulder Airporter, 8 I.C.C.2d at 558-59. Rather, “the interstate traffic must be substantial in relation to the intrastate traffic in that same operation.” Airporter of Colo., 866 F.2d at 1241.

In the case at hand, the PUC presented evidence of the intrastate transportation of passengers. Appellants presented no evidence other than their FMCSA certificates. Thus, there was no evidence before the PUC that appellants were engaged in the interstate transportation of passengers that was regularly scheduled or substantial. Indeed, appellants did not present any evidence that they were actually engaged in the interstate transportation of passengers over the same routes as the intrastate transportation. Thus, the only evidence before the PUC clearly demonstrated intrastate transportation of passengers without the required nexus to interstate transportation of passengers.

While interpretation of the Funbus Systems test may in some circumstances involve “technical questions of fact uniquely within an agency’s expertise and experience,” Centennial Express, 956 P.2d at 592, we need not consider under what circumstances, if any, the PUC should defer to the FMCSA, because no such complex issues are present here. Similarly, the PUC has not created a risk of inconsistent rulings by not deferring to the federal agency, nor would an FMCSA determination materially aid the PUC or this court. Agency precedent regarding the need for substantial interstate passenger transportation connected to the intrastate transportation is clear, and appellants have not shown any interstate transportation whatsoever. Thus, there is no question that the FMCSA would reach the same conclusions were the case before them.

Appellants argue that Service Storage & Transfer Co. v. Virginia, 359 U.S. 171, 79 S.Ct. 714, 3 L.Ed.2d 717 (1959), and Holland Industries v. Division of Transportation of the State of Missouri, 763 S.W.2d 666 (Mo.1989), dictate that the PUC should have deferred to the FMCSA. We find neither authority controlling.

In Service Storage, the carrier presented significant evidence that forced the Virginia courts to interpret whether the carrier was in compliance with its Interstate Commerce Commission (“ICC”) certificate, and Virginia’s interpretation of the certificate clearly conflicted with a declaratory ruling of the ICC. The Supreme Court therefore held that Virginia should have deferred to the ICC. Here, however, the evidence before the PUC conclusively indicated that appellants were offering purely intrastate passenger service. Moreover, unlike Service Storage where Virginia ignored the evidence presented by the carrier and reached a result contrary to ICC law, the PUC’s determination clearly comports with existing FMCSA law, and no evidence was presented by appellants to persuade the PUC that it should defer its judgment to the FMCSA.

In Holland Industries, the Missouri Supreme Court relied on Service Storage in determining that the Missouri Department of Transportation (“MDOT”) had no jurisdiction over Holland Industries (“Holland”) based solely on Holland’s possession of an ICC certificate. 763 S.W.2d at 669. The court reached this result even though evidence in the record clearly demonstrated that Holland was not operating pursuant to the authority granted to it by its ICC certificate. Id. (“Here, the ICC has issued a certificate, evidencing an assumption of jurisdiction over Holland’s activities, both interstate and intrastate. MDOT’s findings, supported as they may be, are irrelevant because it has no jurisdiction to act.”). We acknowledge that Holland Industries may be difficult to reconcile with our result here today. However, to the extent that they cannot be reconciled, we simply decline to follow Missouri’s decision.

The mere possession of an FMCSA certificate does not divest the PUC of all jurisdiction over those who possess the certificate. The strong public interest in PUC regulation of common carriers counsels against such a result. See McKay v. Pub. Utils. Comm’n, 104 Colo. 402, 413, 91 P.2d 965, 970-71 (1939) (noting the strong public interest in PUC regulation of common carriers); § 40-10-102, 11 C.R.S. (2003). Furthermore, as stated above, application of the doctrine of primary jurisdiction requires the reviewing court or agency to make a determination based upon the facts of the particular case. Here, appellants relied solely on the existence of their FMCSA certificates, and the PUC and district court properly determined that, without more, deference to the FMCSA was not appropriate. Indeed, if the bare existence of an FMCSA certificate divested state agencies and courts of all jurisdiction over the holder of the certificate, the federal district court in Trans Shuttle, Inc. v. Pub. Utils. Comm’n, No. 00-K-1458, slip op. (D.Colo. Dec. 12, 2000), would have had little reason to abstain, nor would the Tenth Circuit Court of Appeals have upheld the district court’s dismissal. Trans Shuttle, Inc. v. Pub. Utils. Comm’n, No. 01-1025, 2001 WL 1355987 at *2 (10th Cir. Nov.5, 2001).

We therefore hold that the PUC and the district court properly rejected the application of the primary jurisdiction doctrine.

B. The PUC Regularly Pursued Its Authority

The PUC is empowered to regulate public utilities in Colorado. Colo. Const. art. XXV (vesting in the PUC all power to regulate public utilities). Common carriers are included within the statutory definition of a public utility. § 40 — 1—103(l)(a), 11 C.R.S. (2003); § 40-10-102. A common carrier includes every person or entity offering motor vehicle transportation to passengers for compensation. § 40 — 1—102(3)(a)(I), 11 C.R.S. (2003). Article 10 of title 40 sets forth the standards and rules regarding the PUC’s regulation of common carriers. Section 40-10-104(1) mandates that “[n]o motor vehicle carrier shall operate any motor vehicle for the transportation of persons upon the public highways of this state in intrastate commerce without first having obtained from the commission a [CPCN].”

The PUC’s authority to regulate common carriers is unquestionably in the public interest. McKay, 104 Colo. at 413, 91 P.2d at 970-71 (noting that “state regulation of common-carrier service ... is in the public interest” and “[t]he exercise of regulatory power [over common carriers] is primarily in the public interest”); § 40-10-102 (“All motor vehicle carriers ... are declared to be affected with a public interest and subject to this article and the laws of this stateThe PUC is therefore vested with broad authority to regulate public utilities. § 40-3-102, 11 C.R.S. (2003) (“The power and authority is hereby vested in the [PUC] ... to do all things ... which are necessary or convenient in the exercise of such power .... ”); see City of Montrose v. Pub. Utils. Comm’n, 629 P.2d 619, 622 (Colo.1981) (“The [PUC] is invested with broad authority to regulate public utilities in this state.”). Thus, in assessing civil penalties against appellants, the PUC is merely exercising its power to regulate motor vehicle carriers operating within the state. See § 40-3-102; § 40-10-102. This exercise of power is necessary for the PUC to fulfill its obligation to protect the health and safety of the public. See City of Montrose, 629 P.2d at 624 (noting that “the PUC has a general responsibility to protect the public interest regarding utility rates and practices”); Trans Shuttle, Inc. v. Pub. Utils. Comm’n, No. 01-1025, 2001 WL 1355987 at *5 (10th Cir. Nov.5, 2001) (noting that the PUC’s “purpose is to protect the health and safety of its citizens who ride with these carriers and who share the roads with them”).

Here, the PUC issued CPAN’s against appellants pursuant to section 40-7-113. The CPAN’s followed the procedures required by section 40-7-116, 11 C.R.S. (2003). These CPAN’s included the nature of the violation, the date of the violation and the date of the notice, the maximum penalty amount, and information about contesting the violation in a hearing before the PUC. Thus, it cannot be said that the PUC did not follow regular procedures in issuing the CPAN’s.

Furthermore, the opportunity for judicial review of the PUC’s decision is sufficient to permit the PUC to fully adjudicate appellants’ constitutional claims. Appellants are first entitled to review in district court. § 40-6-115(2). For constitutional claims, section 40-6-115(2) explicitly mandates that the district court make an “independent judgment on the law and the facts.” Furthermore, appellants are entitled to review of the district court’s determination in this court. Id. at § 115(5). Thus, “Colorado provides suitable fora by which [appellants] may obtain a remedy for their alleged constitutional violation.” Trans Shuttle, 2001 WL 1355987 at *3.

Lastly, the PUC’s penalty assessment determination was in accordance with the evidence before it. The evidence presented during the hearing showed that appellants provided services without a CPCN that were purely intrastate, as the travel originated and terminated within the state without any connection by the passenger to an interstate journey. Furthermore, the travel was clearly not part of any prearranged through-ticketing scheme, as evidenced by both the PUC investigator’s testimony and his paying of the fare at the conclusion of the journey. Appellants were offered the opportunity to present evidence to prove their affirmative defense that they were operating pursuant to federal authority, but declined to do so.

Because we have already determined that federal law does not preempt , the PUC’s authority in this matter, we therefore hold that the PUC regularly pursued its authority in assessing penalties against appellants. The PUC acted pursuant to its constitutionally and statutorily granted authority, it did not violate any constitutional rights of appellants, and its decision was just and reasonable and in accordance with the evidence. See § 40-6-115(3).

IV. The PUC Did Not Engage in Improper Rulemaking

Appellants claim that the PUC engaged in improper rulemaking by requiring them to prove that they were engaged in substantial interstate commerce. Appellants argue that application of this, standard required the PUC to follow the rule-making procedures of section 24-4-103, 7B C.R.S. (2003), because the PUC was creating a new standard applicable to all carriers transporting passengers in intrastate travel pursuant to an FMCSA certificate. We are not persuaded. We recognize that there is not always a clear distinction between agency adjudication and agency rule-making. See Colorado Office of Consumer Counsel v. Mountain States Tel. & Tel. Co., 816 P.2d 278, 284 (Colo.1991) (“While these APA provisions suggest that agency rule-making functions are clearly distinct from agency adjudicative functions, the experience of agency process has proved to be to the contrary.”). However, the proceedings before us today clearly fall on the side of adjudication.

A “rule” is defined as “the whole or any part of every agency statement of general applicability and future effect implementing, interpreting, or declaring law or policy or setting forth the procedure or practice requirements of any agency.” § 24-4-102(15), 7B C.R.S. (2003). In contrast, an adjudication “involves a determination of rights, duties, or obligations of identifiable parties by applying existing legal standards to facts developed at a hearing conducted for the purpose of resolving the particular interests in question.” AviComm, Inc. v. Pub. Utils. Comm’n, 955 P.2d 1023, 1030 (Colo.1998). To determine whether the proceeding in question constitutes rule-making or adjudication, “we look to the actual conduct and effect of the particular proceeding, as well as to the purposes for which the proceeding was brought.” Id. The mere fact that a particular proceeding may have collateral prospective effects on other similarly situated parties does not convert an adjudication into rule-making. Id.; see also Douglas County Bd. of Comm’rs v Pub. Utils. Comm’n, 829 P.2d 1303, 1307 (Colo.1992) (“As is often the case in adjudications by the judicial branch, collateral effects to third parties result from adjudicatory proceedings.”).

Here, the PUC instituted penalty assessment hearings against appellants for alleged violations of existing law. The penalties assessed at these hearings were for prior violations by appellants and applied only to appellants. The facts required to resolve the issues before the PUC were specific to these particular proceedings. While the decisions of the PUC in these proceedings may in turn have effects on other similarly situated carriers operating pursuant to FMCSA certificates, the proceedings directly applied only to appellants, relying on facts specific to appellants’ operations, and therefore constituted adjudication. See AviComm, 955 P.2d at 1030 (holding that a proceeding was adjudicatory because “the PUC applied existing law to the facts of this case and the decision applied to identifiable parties”).

V. Appellants’ Due Process Rights Were Not Violated

Appellants allege that they have been deprived of their property without due process of law, in violation of the Fifth and Fourteenth Amendments to the United States Constitution. They claim that the PUC imposed an improper burden of proof upon them, that the PUC did not apprise them of what evidence would be required to meet this burden, and that the PUC prevented them from operating pursuant to the authority granted to them by their FMCSA certificates. These arguments are without merit.

The evidence submitted at the hearing presented a prima facie case that appellants were providing purely intrastate transportation services. Thus, the PUC properly imposed the burden on appellants to demonstrate that these intrastate transportation services were being offered pursuant to federally granted authority. See W. Transp. Co. v. People, 82 Colo. 456, 461-62, 261 P. 1, 3 (1927) (placing the burden of proof on the defendant-carrier to show that the PUC’s enforcement action unduly burdened interstate commerce).

Appellants further claim that in order to meet the burden placed upon them, they were required to prove that they were engaged in “substantial interstate commerce” without being apprised of what evidence was necessary to demonstrate this. However, the ICC clearly explained what is meant by the term “substantial interstate commerce” and what evidence is required to demonstrate “substantial interstate commerce.” Funbus Systems, Inc., ICC Nos. MC-C-10917, MC-153325 (Sub-No. 2), MC-C-10943, 1987 WL 100200 at *9 (Dec. 30, 1987) (not published) (detailing what evidence should be submitted to prove substantial interstate commerce); see also Airporter of Colo., Inc., v. Interstate Commerce Comm’n, 866 F.2d 1238, 1240 (10th Cir.1989) (detailing what evidence should be submitted to prove substantial interstate commerce, quoting Funbus Systems); Boulder Airporter, Inc., 8 I.C.C.2d 553, 559 (1992) (showing only “timetables reflecting interstate operations, which are not supported by traffic studies showing actual interstate service, ... is not competent to sustain the validity of the intrastate authority in question”). Moreover, the PUC has explicitly adopted the Funbus Systems test. ABC Carriers, Inc., PUC Decision No. C98-1024 at 8-11 (Oct. 1, 1998). Thus, it cannot be said that appellants were forced to meet an unarticulated standard of proof.

AppeUants also claim that the PUC improperly deprived them of property rights granted to them by the FMCSA certificates. The PUC assessed penalties against appellants for violations of Colorado law, determining that appellants were in violation of section 40-10-104(1). The weight of evidence before the PUC clearly indicated that appellants were providing intrastate transportation services. The mere fact that appellants claim that they were operating pursuant to their certificates does not make it so. Thus, the PUC did not deprive appellants of their property rights under the FMCSA certificates. Appellants are still free to provide legitimate interstate and intrastate transportation services as authorized by those certificates.

Lastly, we note that appellants received adequate procedural due process in the PUC hearings. Prior to the imposition of any penalty, appellants were afforded the opportunity to present evidence before the PUC to dispute the PUC’s allegations. The hearings also provided the opportunity for cross-examination and argument by counsel. Appellants, however, chose to present no evidence and made the strategic decision to challenge the PUC entirely on a question of law rather than on any disputed facts. Appellants have also received judicial review in both the district court and this court. Thus, appellants have clearly not been denied procedural due process. See Mathews v. Eldridge, 424 U.S. 319, 333, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976) (“The fundamental requirement of due process is the opportunity to be heard ‘at a meaningful time and in a meaningful manner.’ ”) (quoting Armstrong v. Manzo, 380 U.S. 545, 552, 85 S.Ct. 1187, 14 L.Ed.2d 62 (1965)); Whiteside v. Smith, 67 P.3d 1240, 1248 (Colo.2003).

VI. Conclusion

We hold that the PUC has jurisdiction over appellants and regularly pursued its authority in assessing penalties against them. We further hold that the PUC proceedings were adjudicatory and not rule-making, and that the PUC did not deprive appellants of their property rights without due process of law. We therefore affirm the ruling of the district court.

      . Jejaw Gosha, doing business as Hallelujah Shuttle, has dismissed its appeal and is no longer a party to this action.

      . This court has direct review of the district court's decision pursuant to section 40-6-115(5), 11 C.R.S. (2003).

      . The precise language of section 13902(b)(3) is as follows:
      Intrastate transportation by interstate carriers. — A motor carrier of passengers that is registered by the Secretary under subsection (a) is authorized to provide regular-route transportation entirely in one State as a motor carrier of passengers if such intrastate transportation is to be provided on a route over which the carrier provides interstate transportation of passengers.

      . The issues on appeal are:
      Whether the District Court erred in finding that the [PUC] has jurisdiction to issue a penalty against the Appellants who hold federal licenses to transport passengers and their baggage in intra- and interstate commerce; and whether the District Court erred in finding that the PUC "regularly pursued its authority” in determining that the operations of Appellants were not in compliance with their federal licenses.
      Whether the District Court erred in finding that the PUC, by imposing a standard for establishing compliance with Appellants’ federal licenses, was not engaged in improper rule-making.
      Whether the District Court erred in its standard of review of a PUC decision when the issue is a challenge to jurisdiction of the PUC.
      Whether the District Court erred in finding that the PUC decisions did not deprive the Appellants of their property, i.e., their right to provide passenger service under their federal Certificates, without due process of law guaranteed to Appellants under the United States and Colorado Constitutions, including but not limited to the following:
      a. by finding that Appellants provided passenger service not in compliance with Appellants’ federal Certificates and in finding that Appellants were required to obtain a certificate from the PUC before providing said passenger service;
      b. by finding that Appellants were not engaged in interstate commerce by picking up passengers and their baggage from DIA and taking them to Denver, Colorado;
      c. by finding that the PUC had authority to interfere with Appellants’ business in compliance with their federal Certificates;
      d. by imposing on Appellants the burden of proof to show that they were in compliance with their federal Certificates rather than requiring the PUC to prove that the Appellants were not in compliance forthwith;
      e. by imposing on Appellants the burden to prove that their interstate business was substantial without advising Appellants of the standard of proof to which they would be held.

      .Appellants argue that the district court applied an incorrect standard of review in determining whether the PUC had jurisdiction to assess penalties against appellants. They declare that a "rigorous de novo examination" was required, and they allege that the district court applied a more relaxed standard. Because we fully examine the PUC’s jurisdiction over appellants under a de novo standard, we need not consider this argument.

      . Records of the Colorado Department of Motor Vehicles were introduced linking all the vehicles identified here to Trans Shuttle.

      . Commercial passenger carriers who have been granted access to DIA are equipped with automated vehicle identification tags. The tags allow DIA to monitor the access and location of these vehicles. Records were introduced from DIA’s Landside Operations Manager which corroborated the testimony of the PUC investigator with respect to the time and location he identified each Trans Shuttle vehicle described here.

      . It is not disputed that Trans Shuttle does not possess a CPCN.

      . It is not disputed that Mo’s Express does not possess a CPCN.

      . The penalties complained of in the federal proceeding were assessed for earlier violations that were similar in nature to the violations here.

      . The ICC is a predecessor of the FMCSA.

      . Appellants make five claims regarding their due process rights. See note 4, supra. However, some of these claims merely reiterate their belief that the PUC did not have jurisdiction to assess penalties against them, an argument that we have already rejected. This section therefore only addresses those claims which present a new argument.


source: Caselaw Access Project

author: Justice HOBBS Justice COATS,

license: Public Domain

text:
    Dawn Michelle GOODSON, individually, and as parent and guardian and next friend of Brittany Weber and Austin Weber, minors, Petitioner, v. AMERICAN STANDARD INSURANCE COMPANY OF WISCONSIN, Respondent.
    No. 02SC388.
    Supreme Court of Colorado, En Banc.
    May 3, 2004.

      William Muhr, David A. Harper, Colorado Springs, Colorado, Attorneys for Petitioner.
    A. Peter Gregory, Rebecca K. Wagner, Englewood, Colorado, Attorneys for Respondent.
    Thomas L. Roberts, Bradley A. Levin, Denver, Colorado, Attorneys for Amicus Curiae, Colorado Trial Lawyers Association.
   Justice HOBBS

delivered the opinion of the court.

We granted certiorari in this case to review the court of appeals’ decision in Goodson v. American Standard Insurance Co. of Wisconsin, No. 00CA1489, 2002 WL 1803756 (Colo.App. Mar.7, 2002). The court of appeals reversed the trial court’s judgment entered on the jury verdict in favor of the insured. It held that the insurer defending against a bad faith tort suit was entitled to an instruction that the insured must establish substantial property or economic loss as a prerequisite to recovering damages for emotional distress.

We disagree with the court of appeals and reverse. We hold that, in a tort claim against an insurer for breach of the duty of good faith and fair dealing, the plaintiff may recover damages for emotional distress without proving substantial property or economic loss. To the extent this holding conflicts with the court of appeals’ decision in Farmers Group, Inc. v. Trimble, 768 P.2d 1243 (Colo.App.1988) (“Trimble III ”), we overrule that decision.

I.

In May, 1995, Dawn Goodson and her two minor children were involved in an automobile accident. They were stopped at a red light when a vehicle struck them from behind. Chet Weber owned the vehicle that Goodson was driving at the time of the accident. Weber gave Goodson authorization to drive his vehicle. Weber was a named insured of American Standard Insurance Company of Wisconsin (“American Standard”). Goodson timely notified American Standard of the collision.

Goodson delayed seeking medical treatment for herself and her children for over a year because she was concerned about the cost of medical bills and was unaware of the personal injury protection (“PIP”) benefits available under Weber’s policy. In July, 1996, Goodson and her children began receiving chiropractic treatment for their injuries. Around that time, Goodson learned of the possibility of receiving PIP benefits and submitted to American Standard an application for PIP benefits. Around October, 1996, Goodson submitted her outstanding chiropractic bills to American Standard for payment.

American Standard disputed Goodson’s claim from the outset. First, American Standard took the position that the PIP benefits under Weber’s policy were subject to reduction because Goodson and her children received treatment from a provider that was not a member of American Standard’s preferred provider organization (“PPO”). Second, around October 1996, American Standard claimed that Weber’s policy was ineffective at the time of the accident because he failed to pay the premium. Third, in December, 1997, American Standard agreed that the policy was effective at the time of the collision, but asked Goodson and her children to undergo an independent medical evaluation (“IME”) to determine whether their injuries were related to the accident and whether their medical treatment was reasonable and necessary. In April 1998, American Standard finally paid the full amount of the outstanding medical bills, which totaled slightly over $8,000.

In July, 1998, Goodson filed suit against American Standard, alleging the following claims: breach of contract; bad faith breach of insurance contract; outrageous conduct; and willful and wanton breach of insurance contract and exemplary damages. During the trial, American Standard reasserted its position that the policy had been cancelled for non-payment of the premium and threatened to recover the benefits Goodson received.

The case was submitted to the jury solely on the tort claim of bad faith breach of insurance contract. American Standard requested an instruction requiring the jury to find substantial property or economic loss as a prerequisite to an award of emotional distress damages. The trial court refused to give the instruction, reasoning that if such an instruction were required,

[Ijnsuranee companies would understand that they can fiddle around and put the insured through all sorts of hoops and problems and difficulties ... and then at the last minute, the insurer can pay the bills ... and eliminate damages for emotional distress, and the whole idea of bad faith handling of insurance cases goes out the window.

The trial court instructed the jury to consider “any non-eeonomic losses or injuries which Plaintiffs have had or will have in the future including: pain and suffering; inconvenience; emotional distress; and impairment of quality of life.” The trial court also instructed the jury to award punitive damages if it found beyond a reasonable doubt that American Standard acted in a willful and wanton manner.

The jury returned a general verdict against American Standard, awarding Good-son and her children $75,000 in actual damages. Moreover, the jury found beyond a reasonable doubt that American Standard’s breach was willful and wanton, and awarded $75,000 in punitive damages. The trial court entered judgment on the jury verdict.

American Standard appealed the judgment, claiming that: (1) the trial court erred in refusing to instruct the jury that it could award damages for emotional distress only if Goodson showed substantial property loss or economic damages caused by American Standard’s breach; and (2) the trial court erred in denying its motions for directed verdict and judgment notwithstanding the verdict. Goodson filed a cross-appeal, claiming that: (1) the trial court erred in denying her motion to increase the exemplary damages awarded by the jury to three times the actual damages; and (2) the trial court erred in determining the date for accrual of prejudgment interest as part of Goodson’s bill of costs.

The court of appeals reversed the trial court on the issue of the jury instruction, holding that the trial court erred in refusing to instruct the jury that it could only award damages for emotional distress if Goodson showed substantial property loss or economic damages caused by American Standard’s breach. In reaching its decision, the court of appeals relied on Trimble III, 768 P.2d 1243 (Colo.App.1988), which held that in order to reduce the threat of fictitious claims, damages for emotional distress can only be recovered in an action for bad faith breach of insurance contract “when the emotional distress results from substantial property or economic loss proximately caused by the insurer’s tortious conduct.” The court of appeals remanded the case for a new trial solely on the issue of damages.

II.

We disagree with the court of appeals and reverse. We hold that, in a tort claim against an insurer for breach of the duty of good faith and fail* dealing, the plaintiff may recover damages for emotional distress without proving substantial property or economic loss.

A. Bad Faith Breach of Insurance Contract

Whether emotional distress damages in bad faith cases can only be awarded upon a showing of substantial property or economic loss is a question of law; accordingly, we review this question de novo. Mortgage Invs. Corp. v. Battle Mountain Corp., 70 P.3d 1176, 1183 (Colo.2003).

Every contract in Colorado contains an implied duty of good faith and fair dealing. Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 466 (Colo.2003). In most contractual relationships, a breach of this duty will only result in damages for breach of contract and will not give rise to tort liability. Id. at 466.

But, insurance contracts are unlike ordinary bilateral contracts. Id.; Huizar v. Allstate Ins. Co., 952 P.2d 342, 344 (Colo.1998). First, the motivation for entering into an insurance contract is different. Farmers Group, Inc. v. Trimble, 691 P.2d 1138, 1141 (Colo.1984) (“Trimble II”). Insureds enter into insurance contracts for the financial security obtained by protecting themselves from unforeseen calamities and for peace of mind, rather than to secure commercial advantage. Cary, 68 P.3d at 467; Trimble II, 691 P.2d at 1141. Second, there is a disparity of bargaining power between the insurer and the insured; because the insured cannot obtain materially different coverage elsewhere, insurance policies are generally not the result of bargaining. Huizar, 952 P.2d at 344.

Due to the “special nature of the insurance contract and the relationship which exists between the insurer and the insured,” an insurer’s breach of the duty of good faith and fair dealing gives rise to a separate cause of action arising in tort. Cary, 68 P.3d at 466 (citing Trimble II, 691 P.2d at 1141). The basis for tort liability is the insurer’s conduct in unreasonably refusing to pay a claim and failing to act in good faith, not the insured’s ultimate financial liability. Trimble II, 691 P.2d at 1142. Therefore, the fact that an insurer eventually pays an insured’s claims will not prevent the insured from filing suit against the insurer based on its conduct prior to the time of payment.

Claims for bad faith breach of insurance contract arise in first-party and third-party contexts. First-party bad faith cases involve an insurance company refusing to make or delaying payments owed directly to its insured under a first-party policy such as life, health, disability, property, fire, or no-fault auto insurance. Farmers Group, Inc. v. Williams, 805 P.2d 419, 421 (Colo.1991); John H. Bauman, Emotional Distress Damages and the Tort of Insurance Bad Faith, 46 Drake L.Rev. 717, 739 (1998). The insurer’s actions expose the insured to being personally liable for the monetary obligations underlying the insured’s claims.

Third-party bad faith arises when an insurance company acts unreasonably in investigating, defending, or settling a claim brought by a third person against its insured under a liability policy. Williams, 805 P.2d at 421; Bauman, supra, at 746-47. The insurance company’s duty of good faith and fair dealing extends only to the insured, not to the third-party. Lazar v. Riggs, 79 P.3d 105, 107 (Colo.2003). In the third-party context, an insurance company stands in a position of trust with regard to its insured; a quasi-fiduciary relationship exists between the insurer and the insured. Trimble II, 691 P.2d at 1141.

B. Establishing Liability

An insurer’s liability for bad faith breach of insurance contract depends on whether its conduct was appropriate under the circumstances. Trimble II, 691 P.2d at 1142; Bauman, supra, at 739. Because of the quasi-fiduciary nature of the insurance relationship in a third-party context, the standard of conduct required of the insurer is characterized by general principles of negligence. Trimble II, 691 P.2d at 1142. To establish that the insurer breached its duties of good faith and fair dealing, the insured must show that a reasonable insurer under the circumstances would have paid or otherwise settled the third-party claim. Trimble II, 691 P.2d at 1142.

In a first-party context, where the insured has not ceded to the insurer the right to represent his or her interests, there is no quasi-fiduciary duty. Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1274 (Colo.1985). Therefore, the standard of conduct is different. In addition to proving that the insurer acted unreasonably under the circumstances, a first-party claimant must prove that the insurer either knowingly or recklessly disregarded the validity of the insured’s claim. Id. at 1275. This standard of care “reflects a reasonable balance between the right of an insurance carrier to reject a non-compensa-ble claim submitted by its insured and the obligation of such carrier to investigate and ultimately approve a valid claim.” Id.

The reasonableness of the insurer’s conduct must be determined objectively, based on proof of industry standards. Id. The aid of expert witnesses is often required in order to establish objective evidence of industry standards. See Redden v. SCI Colorado Funeral Services, Inc., 38 P.3d 75, 81 (Colo.2001) (stating that in most cases of professional negligence the applicable standard must be established by expert testimony because it is not within the common knowledge and experience of ordinary persons).

C. Establishing Damages

An insured can recover damages for bad faith breach of insurance contract based on traditional tort principles. Lira v. Shelter Ins. Co., 913 P.2d 514, 517 (Colo.1996). Compensatory damages for economic and non-economic losses are available to make the insured whole and, where appropriate, punitive damages are available to punish the insurer and deter wrongful conduct by other insurers. Ballow v. PHICO Ins. Co., 878 P.2d 672, 677 (Colo.1994); Restatement (Second) of Torts §§ 901-909 (1979). Non-economic losses recognized under the rubric of compensatory damages include emotional distress; pain and suffering; inconvenience; fear and anxiety; and impairment of the quality of life. See § 13 — 21—102.5(2)(b), 5 C.R.S. (2003) (defining non-economic losses); Ballow, 878 P.2d at 677 (“an insured suing under the tort of bad faith breach of an insurance contract is entitled to recover damages based upon traditional tort principles of compensation for injuries actually suffered, including emotional distress.”); Restatement (Second) of Torts § 905 (1979).

To recover punitive damages, the insured must establish that the insurer’s breach was accompanied by circumstances of fraud, malice, or willful and wanton conduct. § 13-21-102(l)(a), 5 C.R.S. (2003); Lira, 913 P.2d at 517. A punitive damages award cannot exceed the amount of actual damages and, in certain situations, may be increased or decreased by the court. § 13 — 21—102(1)— (3), 5 C.R.S. (2003).

Insureds have the burden of proving each element of a claim for bad faith breach of insurance contract, including damages, by a preponderance of the evidence. § 13-25-127(1), 5 C.R.S. (2003) (degree of proof required for civil actions); Kopeikin v. Merchants Mortg. and Trust Corp., 679 P.2d 599, 601 (Colo.1984); CJI-Civ. 4th 25:2. Punitive damages require a higher burden of proof and require insureds to establish the requisite attendant circumstances beyond a reasonable doubt. § 13-25-127(2), 5 C.R.S. (2003).

D. Award of Emotional Distress Damages in this Case

The question of whether a substantial property or economic loss should be a prerequisite for recovery of emotional distress damages in bad faith breach of insurance contract claims is one of first impression by our court. We begin by discussing Trim-ble III, upon which the court of appeals relied for its decision in this case. We then proceed to disapprove of the economic loss rule expressed in that decision.

1. Trimble III

The court of appeals first imposed the substantial loss requirement in Trimble III, 768 P.2d 1243 (Colo.App.1988) (disapproved on other grounds by Bernhard v. Farmers Ins. Exchange, 915 P.2d 1285 (Colo.1996)). In Trimble III, the insured, Trimble, was facing several third-party personal injury claims. The insurer, Farmers Group, Inc. (“Farmers”), was required under Trimble’s policy to provide for Trimble’s legal defense in the event of a third-party claim. Farmers hired an attorney to defend Trimble, but during the third-party case, Farmers filed a declaratory judgment action against Trimble seeking determination that one of the third-party claims was not covered under Trim-ble’s policy. As a result, Trimble was no longer able to discuss the third-party proceedings with the attorney retained by Farmers and was forced to hire a private attorney to defend him in the third-party suit. Trimble counterclaimed against Farmers, seeking reimbursement of the cost of hiring the private attorney. Trimble II, 691 P.2d 1138 (Colo.1984); Trimble III, 768 P.2d 1243 (Colo.App.1988); Farmers Group, Inc. v. Trimble, 658 P.2d 1370 (Colo.App.1982) (“Trimble I ”).

In Trimble III, the court of appeals upheld Trimble’s award for compensatory damages, which included damages for emotional distress. Trimble III, 768 P.2d at 1247. The court held that emotional distress is recoverable as an element of damages in an action for bad faith breach of insurance contract when the emotional distress results from substantial property or economic loss proximately caused by the insurer’s conduct. Id. at 1246. In reaching its holding, the court disagreed with the insurer’s assertion that, as with claims for negligent infliction of emotional distress or intentional infliction of emotional distress, an award of damages for emotional distress in an action for bad faith breach of insurance contract must be predicated on proof of bodily harm or intent to cause severe emotional distress. Id. Instead, the court imposed the substantial loss requirement. Id. The court distinguished the tort of bad faith breach of insurance contract from the independent torts of intentional infliction of emotional distress and negligent infliction of emotional distress, stating that the substantial loss requirement would reduce the threat of fictitious claims sufficiently to obviate the need to borrow from the other torts. Id.

2. Goodson’s Emotional Distress Damages

Our court first recognized the tort of bad faith breach of insurance contract in Trimble II. We held that a judgment in excess of policy limits was not a prerequisite to a claim of bad faith breach of insurance contract because “it is the affirmative act of the insurer in unreasonably refusing to pay a claim and failing to act in good faith, and not the condition of nonpayment, that forms the basis for liability in tort.” Trimble II, 691 P.2d at 1142. Our emphasis on the insurer’s conduct, rather than the insured’s ultimate financial liability, stems from the special character of insurance contracts and the nature of the relationship between the insurer and the insured.

We have not limited the categories of damages available to insureds in bad faith breach of insurance contract claims. Rather, we have recognized that insureds are entitled to recover damages based on traditional tort principles, which includes damages for emotional distress. See Lira, 913 P.2d at 517; Ballow, 878 P.2d at 677. We recognize that it can be difficult to quantify and determine the credibility of non-economic injuries such as emotional distress. However, our legal system contains numerous safeguards to mitigate this difficulty and protect against fictitious claims.

First, a statutory cap limits the amount of damages awards for non-economic injuries. § 13-21-102.5, 5 C.R.S. (2003). Second, the trial court can reduce damages awards that are excessive in light of the evidence. See C.R.C.P. 59; Jagow v. E-470 Pub. Highway Auth., 49 P.3d 1151, 1157 (Colo.2002) (jury awards can be reduced if excessive and un'just). To this end, the insurer may request the use of special verdict forms to aid the trial court in assessing the appropriateness of the amount of damages awarded for emotional distress. Third, the jury system itself serves as a safeguard; we routinely entrust the jury with the important task of weighing the credibility of evidence and determining whether, in light of the evidence, plaintiffs have satisfied their burden of proof. With regard to claims for bad faith breach of insurance contract, the insured must prove damages by a preponderance of the evidence. § 13-25-127(1), 5 C.R.S. (2003); Kopeikin, 679 P.2d at 601; CJI-Civ. 4th 25:2.

These safeguards provide adequate protection against fictitious claims in the context of bad faith breach of insurance contract. Given that insureds purchase insurance policies to obtain financial security and peace of mind, emotional distress is a likely and foreseeable consequence of a bad faith denial of the benefits afforded under the contract. The action of the insurer causing anxiety, stress, inconvenience, and financial risk to the insured by delaying payment owed under the policy contravenes a fundamental benefit of obtaining the insurance.

In the case before us, on the emotional distress damages issue, the trial court did not deliver a substantial loss instruction because such a requirement would encourage insurance companies to delay payments owed. We agree with the trial court that an unreasonable denial of insurance benefits — a necessary element of every claim for bad faith breach of insurance contract — can cause anxiety, fear, stress, and uncertainty, even when the benefits are eventually paid.

Here, American Standard delayed the payment due under-the policy for a year and a half after Goodson submitted her outstanding bills for payment. Goodson proved to the jury that she suffered emotional distress as a result of this delay. The anxiety, fear, stress, and uncertainty she experienced occurred as a result of her worry about whether she would be financially responsible for her medical bills, which American Standard refused to pay.

An insured purchases insurance in the first place so as not to suffer such anxiety, fear, stress, and uncertainty. The fact that an insurer finally pays in full does not erase the distress caused by the bad faith conduct. Damages for emotional distress the insured proves are therefore available in actions for bad faith breach of insurance contract upon the showing of the insurer’s liability. To the extent this holding conflicts with the court of appeals’ decision in Trimble III, we overrule that decision.

The trial court did not err in refusing to tender American Standard’s requested instruction. The basis for the trial court’s refusal reflects the same concerns that underlie our current holding — that the essence of the tort of bad faith breach of insurance contract is the insurer’s conduct in unreasonably denying benefits.

Insureds such as Goodson should be able to proceed to the jury on all damages that flow from a breach of the duty of good faith and fair dealing. The court of appeals in Trimble III adopted the substantial loss rule to deter frivolous claims. However, the burden of proof the insured must carry on the issue of liability and damages is sufficient of itself to guard against frivolous claims. Here, American Standard’s liability is not at issue, and the jury found that Goodson proved her economic distress damages. The trial court denied American Standard’s motions for a directed verdict and a judgment notwithstanding the verdict on grounds that there was sufficient evidence for a reasonable jury to reach its damages verdict.

III.

Accordingly, we reverse the court of appeals and remand the case to that court with instructions to reinstate the trial court’s judgment entered on the jury verdict and to consider any other remaining unaddressed issues raised on appeal to that court.

Justice COATS concurs in the judgment only.

Justice COATS,

concurring in the judgment only.

While I do not suggest that the rationale of the court of appeals in Trimble III applies of necessity to first-party, bad-faith-breach-of-contract claims, nor even that the majority’s damages rule in this case transgresses any great principle of law, I can see no reason to gratuitously overturn an existing and eminently reasonable damage limitation in the third-party context that has governed the jurisdiction for more than fifteen years. I therefore concur only in the judgment of the court and not in its opinion.

After this court decided in Trimble II that the breach of an insurance contract, unlike the breach of any other kind of contract, can give rise to a claim for damages in tort, the court of appeals addressed the question whether those damages can include emotional distress, and if so, upon what showing. Because this court held in Trimble II, 691 P.2d at 1142, that a “bad faith” breach (nomenclature notwithstanding) could be premised upon nothing more than unreasonable (negligent) withholding of payment by an insurer, the court of appeals compared it to the tort of negligent infliction of emotional distress, noting that the latter required a showing of bodily harm or a substantial risk of bodily harm. See Trimble III, 768 P.2d at 1245-46 (citing Towns v. Anderson, 195 Colo. 517, 579 P.2d 1163 (1978), adopting the approach of the Restatement Second of Torts). In seeking a justification for the recovery of damages for emotional distress in “bad faith” breach cases that would not completely ignore the danger of wholly fictitious claims, the court of appeals adopted the California approach, sanctioning recovery for emotional distress, but only upon a showing of substantial property or economic loss. Id. at 1246; see also Gruenberg v. Aetna Ins., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973); Crisci v. Security Ins., 66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173 (1967).

Whether or not a similar damage limitation might prove useful in the first-party context, there is admittedly nothing inherent in the rationale of Trimble III requiring it. Unlike negligence, the reckless disregard required for first-party claims in Colorado arguably aligns them more closely with claims for intentional infliction of emotional distress, in which the proof of intent itself provides the necessary protection against fictitious and superficial claims. In the absence, however, of any obligation to prove fault greater than negligence, proof of economic loss, or at least a substantial risk of economic loss, apart from emotional distress may very well be essential to any realistic assessment of insurance claims and constructing a barrier against recovery for what may be little more than irritating delays or trivial slights. See Aetna, 9 Cal.3d at 579, 108 Cal.Rptr. 480, 510 P.2d 1032 (limiting recovery for “mere bad manners” and litigation in “the field of trivialities”); see also Gourley v. State Farm, 53 Cal.3d 121, 127-29, 3 Cal.Rptr.2d 666, 822 P.2d 374, 377-80 (1991) (“It is the financial loss or risk of financial loss which defines the cause of action....”); Kunkel v. U.S. Ins. Co., 84 S.D. 116, 132, 168 N.W.2d 723, 732 (1969) (damages for mental suffering based on showing of insurer's negligence permitted only upon evidence that insured suffered financial distress, property loss, loss of employment, or other pecuniary loss); cf. Anderson v. Continental Ins., 85 Wis.2d 675, 696, 271 N.W.2d 368, 378 (1978) (even upon showing of reckless disregard, recovery for emotional distress requires proof of substantial damages aside and apart from emotional distress itself).

In any event, no third party claim, premised solely on a theory of negligence, is before us, and we are therefore not called upon to resolve that question, much less overrule well-established case law already purporting to resolve it. In my opinion, the majority’s choice to do so, along with its rationale accommodating damages for emotional distress in breach of insurance contract claims generally, comfortably situates this holding within a line of recent holdings by this court deviating from traditionally accepted principles of tort and contract law, all with the practical effect of facilitating and enhancing recoveries from insurance providers. See, e.g., Trimble II, 691 P.2d at 1141 (despite duty of good faith and fair dealing implied in all contracts, only breach of insurance contract gives rise to claim for damages in tort); Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1270-72 (1985)(expanding rule of Trimble to include worker’s compensation insurer); Scott Wetzel Servs., Inc., v. Johnson, 821 P.2d 804, 812 (Colo.1991) (expanding rule of Savio to include tortious damages against independent worker’s compensation claims adjuster); Transamerica Premier Ins. Co. v. Brighton Sch. Dist. 27J, 940 P.2d 348, 352 (Colo.1997)(expanding insurer/insured relationship to include relationship of surety and beneficiary); Giampapa v. Am. Fam. Mut. Ins. Co., 64 P.3d 230, 237 (Colo.2003)(allowing recovery for 'willful and wanton breach of insurance contract, over and above statutory treble damage award for willful and wanton breach of PIP coverage, and expanding recovery for emotional distress resulting from willful and wanton breach of contract); Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 469 (Colo.2003) (expanding Trimble to permit tort claim against agent of insurer for its role in insurer’s decision to withhold payment).

As I have indicated elsewhere, see Cary, 68 P.3d at 496-72 (Coats, J., dissenting); Giampapa, 64 P.3d at 255-56 (Coats, J., dissenting), I would leave regulation of the insurance industry, and all of the public policy choices that implies, to a primarily deliberative, rather than adjudicative, process. I therefore join only in the judgment of the court.

      . We granted certiorari on the following issue:
      1. Whether emotional distress damages in bad faith cases can only be awarded upon a showing of "substantial property or economic loss.”

      . Insureds can plead multiple alternative claims against insurers, including but not limited to the following: a contract action for ordinary and/or willful breach of the insurance contract; a tort action for bad faith breach of the insurance contract; outrageous conduct; fraud, misrepresentation, or deceit; civil conspiracy; and prior to July 1, 2003, violation of the No-Fault Act, §§ 10-4-701 to -725, 3 C.R.S. (2002) (repealed effective July 1, 2003).

      . The court of appeals addressed the remaining issues as follows: (1) American Standard's appeal regarding its motions for a directed verdict and judgment notwithstanding the verdict were moot because American Standard claimed that the evidence of emotional distress was insufficient to support the verdict, but the question of damages would be reconsidered on remand; (2) Goodson's appeal regarding her motion to increase the exemplary damages awarded by the jury to three times the actual damages was moot because the damages award would be reconsidered on remand; and (3) Goodson's appeal regarding the accrual date for prejudgment interest was without merit because the decision to award costs is within the trial court's sound discretion, which the trial court did not abuse in reaching its decision.

      . The present case involves a first-party claim because Goodson and her children are "insureds” pursuant to the language of the policy that she seeks to enforce.

      . We address both first and third-party claims in this opinion because the case the court of appeals relied on in this case, Trimble III, involved a third-party claim and because our holding in this case applies equally to both types of claims.

      . Farmers Group, Inc. v. Trimble, 768 P.2d 1243 (Colo.App.1988).

      . Farmers Group, Inc. v. Trimble, 691 P.2d 1138 (Colo.1984).


author: Judge GRAHAM.

text:
    In the Matter of the ESTATE OF Jake SCHLAGEL, Jr., Deceased. Kayla Thacker and Cassandra Thacker, Interested Persons-Appellants, v. Martha J. Teegarden, as personal representative of the estate of Jake Schlagel, Jr., and individually, Appellee.
    No. 01CA2545.
    Colorado Court of Appeals, Div. I.
    March 13, 2003.
    Rehearing Denied April 10, 2003.
    Certiorari Denied May 10, 2004.

      The Law Office of James D. Thorburn, James D. Thorburn, Richard A. Walker, Elizabeth, Colorado, for Interested Persons-Appellants.
    Wade, Ash, Woods, Hill & Farley, P.C., Herbert E. Tucker, David M. Swank, Denver, Colorado, for Appellee Martha J. Tee-garden as personal representative of the estate of Jake Schlagel, Jr.
    Godfrey & Lapuyade, P.C., Gregory B. Washington, Englewood, Colorado, for Ap-pellee Martha J. Teegarden, individually.
   Opinion by

Judge GRAHAM.

Kayla and Cassandra Thacker appeal the trial court’s order upholding the appointment of Martha J. Teegarden as personal representative of the estate of Jake Schlagel, Jr. and denying recovery of probate assets. We affirm.

Schlagel was married to Ethel Schlagel. Both are now deceased. They had three children, and the Thackers are their grandchildren.

When Mrs. SchlagePs health declined, Schlagel was no longer able to care for her without outside assistance. Teegarden was hired as a caregiver in 1994. A few months later, Mrs. Schlagel was placed in a nursing home, but Teegarden continued to live in the Schlagel home and to care for Mrs. Schlagel during her frequent visits to the nursing home.

At that time, the Schlagel children began to question the relationship between Schlagel and Teegarden, which by late 1996 had become intimate and romantic, and family relationships became strained. Thereafter, Schlagel determined to disinherit his children. He purchased real estate and recorded it in Teegarden’s name alone or in joint tenancy. These actions were taken after Schlagel consulted with counsel.

In 1998, two of the Schlagel children filed a copetition for conservatorship of Mrs. Schla-gel, who was suffering from Pick’s disease, a condition similar to Alzheimer’s disease. Schlagel and his children resolved the petition with a stipulation, which appointed the children as coguardians and Schlagel as conservator and required him to continue to provide financially for Mrs. Schlagel and to account for such finances. This litigation exacerbated the strained relationship between Schlagel and his children.

Schlagel subsequently revised his will to provide for a life interest for Mrs. Schlagel, with any remainder to their grandchildren. He left the balance of his estate to Teegar-den, or, if she did not survive him, equally to his living grandchildren.

In 1999, Teegarden quitclaimed to Schlagel her entire interest in the property he had purchased for her.

Schlagel died in August 1999, and Mrs. Schlagel died in October 1999.

In 2001, the Thackers filed a petition for recovery of probate assets and an assessment of a surcharge against Teegarden for breach of fiduciary duty. After an evidentia-ry hearing, the trial court denied the petition, finding no breach of fiduciary duty or undue influence by Teegarden and ruling that Tee-garden should remain as personal representative. This appeal followed.

I. Per Se Undue Influence

The Thackers argue that the trial court failed to consider Teegarden’s undue influence on Schlagel resulting from their illicit relationship. Specifically, the Thackers argue that Teegarden should not be permitted to benefit from her adulterous relationship with Schlagel and that in denying their petition, the court ignored the principles espoused in Taylor v. Taylor, 79 Colo. 487, 247 P. 174 (1926), and Lamborn v. Kirkpatrick, 97 Colo. 421, 50 P.2d 542 (1935). The effect of these decisions, according to the Thackers, is to disqualify conveyances to beneficiaries who are engaged in an illicit relationship with the grantor. We disagree.

Schlagel and Teegarden’s intimate relationship is not disputed. Under the holdings of Taylor and Lambom, however, neither that relationship nor the fact that it arguably-violated laws prohibiting adultery or bigamy automatically voids the conveyances Schlagel made to Teegarden. Those cases are distinguishable on their facts.

Taylor involved a deed of real property to a married woman who acquired influence over Taylor during a “meretricious” relationship. The court held that the relationship “requires the conclusion that at least part of her influence over him was due to that relation.” According to the court, “We are all of the opinion that the mistress of a grantor has the burden of proving that a conveyance to her was uninfluenced by that relationship.” In Taylor, the mistress had not met that burden, “but the contrary ha[d] been rightly concluded from the evidence.” Taylor v. Taylor, supra, 79 Colo. at 490, 247 P. at 176.

In Lambom, the testator’s mistress penned the will while present at his deathbed. The court “deemfed] it proper to attach to illicit cohabitation the same effect where undue influence is charged to have brought about the execution of a will as where a ease involves the execution of a deed.” Lamborn v. Kirkpatrick, supra, 97 Colo. at 426, 50 P.2d at 544.

We do not read either Taylor or Lambom to stand for the principle that conveyances to mistresses are per se void or voidable as a matter of law or that any conveyance must be proved to have been wholly uninfluenced by the parties’ relationship. Instead, we read those decisions to say that, in light of the facts presented there, a presumption of undue influence arose.

Even though Schlagel and Teegarden were in an intimate relationship, it does not automatically follow, as the Thackers suggest, that as a matter of law the conveyances and devise to Teegarden were the product of undue influence. Taylor and Lambom required the beneficiaries to meet the burden of going forward with evidence to establish that the transfers or the devises were fairly received. We therefore conclude that, at most, even in light of Schlagel and Teegarden’s relationship, Teegarden is not automatically disqualified as a beneficiary of Schlagel’s estate or as a transferee of real property.

II. Rebuttable Presumption

We also conclude that, to the extent a presumption of undue influence arose, it was rebutted. Thus, we reject the Thackers assertion that the trial court erred in holding that the logic of Taylor and Lamborn was “archaic” and in failing to place a burden on Teegarden to disprove that the nature of her relationship with Schlagel established undue influence.

The trial court indeed characterized the logic employed by Taylor and Lambom as “archaic.” However, we do not perceive that in making that comment, the trial court ignored those decisions. In fact, the trial court “carefully considered the effect” of those cases in reaching its conclusion that Teegar-den carried her burden. In contrasting the principles of Taylor and Lamborn with the law that has evolved since, the trial court referred to CJI-Civ. 4th 34:14 (1998), the instruction on presumption of undue influence when a beneficiary is in a confidential or fiduciary relationship. The notes to that instruction state, in relevant part:

Under the language in several older cases, the presumption of undue influence created by the active participation of a beneficiary in the preparation or execution of a will not only shifted the burden of going forward to the proponent, but also shifted the burden of proof to the proponent to disprove undue influence by establishing the “transaction was in fact fair, just and reasonable.”
Consistently, however, with CRE 301 ... the provisions of the Probate Code now clearly establish that the presumption only shifts to the proponent the burden of coming forward with rebutting evidence. The presumption does not shift to the proponent the “ultimate” burden of disproving undue influence.

CJI-Civ. 4th 34:14 cmts. 3-4 (emphasis added and citations omitted).

Similarly, § 15-12-407, C.R.S.2002, which addresses the burden on will contestants claiming undue influence, provides, in relevant part: “Contestants of a will have the burden of establishing ... undue influence. ... Parties have the ultimate burden of persuasion as to matters with respect to which they have the initial burden of proof.”

Here, any presumption of undue influence based upon Teegarden and Schlagel’s relationship was rebuttable, and the ultimate burden of persuasion remained with the Thackers. Teegarden presented sufficient evidence to rebut the claim of undue influence.

The trial court concluded, “[T]he parties loved one another and had an intimate relationship. Mr. Schlagel trusted Ms. Teegar-den more than his children, his attorney, his account broker, or any other person about whom I heard testimony.” Additionally, the trial court concluded Schlagel was “not vulnerable” when he made the transfers to Tee-garden, noting, “He was fully able to protect himself and did so.” Further, Teegarden “never asked, demanded, or insisted that Mr. Schlagel transfer any property or cash to her.” The court found:

Mr. Schlagel without any undue influence from Ms. Teegarden made all decisions to engage in the transactions and/or transfers to Ms. Teegarden based upon his own counsel. Ms. Teegarden did not play an active and direct role in any of Mr. Schla-gel’s estate planning or the documents related thereto.

The trial court ultimately concluded “from all the evidence that Ms. Teegarden has overcome that presumption and that there was no undue influence.”

A trial court’s finding of fact will not be disturbed unless it is so clearly erroneous as to find no support in the record. Peterson v. Ground Water Commission, 195 Colo. 508, 579 P.2d 629 (1978). A finding is also clearly erroneous when the court, on reviewing the entire evidence, is left with the definite and firm conviction that a mistake has been committed. See Quintana v. City of Westminster, 56 P.3d 1193 (Colo.App.2002).

We are satisfied that there is ample support for the trial court’s findings, and we will not disturb them on review. The record also refutes the suggestion that the court ignored the principles of Taylor and Lambom. To the extent those principles continue to have vitality in light of § 15-12-407, the trial court correctly held that the presumption was rebutted.

Finally, although we reject the Thackers’ public policy argument that, by allowing Tee-garden “to keep the spoils of the illegal relationship, the Courts will effectively” give “aid to an enemy of society,” we decline Teegar-den’s request to award sanctions in accordance with C.A.R. 38(d).

The order is affirmed.

Judge JONES and Judge VOGT concur.


author: Judge TAUBMAN.

text:
    1745 WAZEE LLC, Plaintiff-Appellant, v. CASTLE BUILDERS INC., Defendant-Appellee.
    Nos. 01CA2560, 02CA0303.
    Colorado Court of Appeals, Div. I.
    July 17, 2003.
    As Modified on Denial of Rehearing Dec. 18, 2003.
    Certiorari Denied May 17, 2004.

      Edward 0. Byrne & Associates, P.C., Edward 0. Byrne, Denver, Colorado, for Plaintiff-Appellant.
    Senter Goldfarb & Rice, L.L.C., John D. Hayes, Denver, Colorado, for Defendani>-Ap-pellee.

       Sitting by assignment of the Chief Justice under provisions of Colo. Const, art. VI, § 5(3), and § 24-51-1105, C.R.S.2002.

   Opinion by

Judge TAUBMAN.

In this consolidated appeal, plaintiff, 1745 Wazee LLC (Wazee), appeals the trial court’s orders denying its motion to vacate an arbitration award in favor of defendant, Castle Builders Inc. We affirm.

This dispute arises out of a fire in a loft project in lower downtown Denver. The trial court found the following facts were undisputed. Wazee entered into a contract with Castle for the construction of a building. Castle subcontracted with DRD & Associates to install a boiler in the building. After the boiler was installed, a fire damaged the building. Wazee alleged the cause of the fire was the negligent installation of the boiler.

Pursuant to the contract, Wazee filed a request for arbitration, seeking damages against Castle for loss of use as a result of the fire. Wazee did not seek damages for its cost of repair. DRD was also joined as a respondent in the arbitration based on the contract between it and Castle. In the arbitration proceeding, Castle filed a motion for summary judgment, which was joined by DRD.

Wazee objected to the motion for summary judgment on the basis that the Colorado Rules of Civil Procedure should not be followed in arbitration proceedings. However, Wazee also filed a response to the motion for summary judgment.

The arbitrator granted the motion for summary judgment and ruled that the exculpatory clause of the contract between Wazee and Castle applied to Wazee’s claim for loss of use damages. Finding the exculpatory clause valid, the arbitrator dismissed Wazee’s claims. Under the exculpatory clause in the contract between Wazee and Castle, Wazee waived all rights of action against Castle for loss of use, including all consequential damages resulting from fire. Although Castle refers to this same clause as the “subrogation waiver clause,” we will refer to it as the exculpatory clause for ease of reference.

Wazee filed a complaint in the trial court seeking to vacate the arbitration award on the basis, as pertinent to this appeal, that the award violated the public policy of the State of Colorado. The trial court treated the complaint in part as a motion to vacate under the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. (2003), and denied Wazee’s request to vacate the arbitration award. This appeal followed.

At the outset, we note that Wazee initially filed its notice of appeal including DRD as a party. However, Wazee later moved to dismiss DRD as a party, and that motion was granted.

I. Governing Law

First, we reject Castle’s argument that the Colorado Uniform Arbitration Act (CUAA), § 13-22-201, et seq., C.R.S.2002, governs our analysis. See Minto v. Lambert, 870 P.2d 572 (Colo.App.1993).

The parties may agree in certain circumstances that an arbitration dispute will be governed by a state arbitration law rather than the FAA. See Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989).

In Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995), the agreement at issue contained an arbitration provision and a choice of law provision. The choice of law provision specified that the contract shall be governed by New York law. There, New York law allowed courts, but not arbitrators, to award punitive damages. The agreement provided that arbitration should be conducted in accordance with the rules of the National Association of Securities Dealers or the boards of directors of the New York Stock Exchange and the American Stock Exchange. However, the agreement did not contain an express reference to claims for punitive damages. The Supreme Court stated:

We think the best way to harmonize the choice-of-law provision with the arbitration provision is to read “the laws of the State of New York” to encompass substantive principles that New York courts would apply, but not to include special rules limiting the authority of arbitrators. Thus, the choice-of-law provision covers the rights and duties of the parties, while the arbitration clause covers arbitration; neither sentence intrudes upon the other.

Mastrobuono v. Shearson Lehman Hutton, Inc., supra, 514 U.S. at 63-64, 115 S.Ct. at 1219.

The FAA applies where there is an arbitration provision in “a contract evidencing a transaction involving commerce.” 9 U.S.C. § 2 (2003). This statutory mandate has been interpreted broadly to apply to all contracts to which the congressional power under the Interstate Commerce Clause might apply. See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). Under the FAA, the definition of commerce includes “commerce among the several States or with foreign nations.” 9 U.S.C. § 1 (2003). “For the FAA to apply, a court must conclude that a contract containing an arbitration clause evidences a transaction involving commerce. This is not a rigorous inquiry. The contract need have only the slightest nexus with interstate commerce.” Grohn v. Sisters of Charity Health Servs. Colo., 960 P.2d 722, 725 (Colo.App.1998).

Here, the arbitration clause did not specify whether the FAA or CUAA applies. However, the contract contained a governing law clause that provided, “The [cjontract shall be governed by the law of the place where the contract is located.” Nevertheless, the complaint alleged that the action was brought under the FAA. As in Mastro-buono, we conclude the choice of law clause between Wazee and Castle relates only to the substantive law in Colorado. See Mastrobuono v. Shearson Lehman Hutton, Inc., supra; see also J. Criswell, The “Mandatory” Arbitration of Employees’ Statutory Claims, 30 Colo. Law. 71 (Nov.2001)(a general choice of law clause in an agreement designating a particular state’s laws as those to govern the entire agreement will not be treated as an election by the parties to have their agreement governed by state law rather than the FAA). Because Castle did not dispute that the contract involved interstate commerce in the trial court, and the contract at issue evidences a transaction involving interstate commerce, we conclude the FAA applies with respect to arbitration procedures. See Grohn v. Sisters of Charity Health Servs. Colo., supra. Accordingly, we address Wazee’s public policy argument.

Castle relies on Byerly v. Kirkpatrick Pettis Smith Polian, Inc., 996 P.2d 771, 775 (Colo.App.2000), in support of its argument that the CUAA governs this case. There, a division of this court held that, although the FAA was applicable, it would not consider the applicability of federal cases holding that an arbitration award could be vacated if it was predicated on manifest disregard of the law. However, Byerly did not consider the applicability of the public policy exception under the FAA. Thus, Byerly is distinguishable. Further, to the extent Byerly conflicts with our analysis, we decline to follow it.

II. Public Policy

Wazee contends the trial court erred in denying its motion to vacate the arbitration award because the public policy of Colorado bars Castle from relying on the exculpatory clause in Castle’s contract with Wazee. We disagree.

Although the trial court appears to have applied both the FAA and the CUAA in denying Wazee’s motion to vacate the arbitration award, it addressed Wazee’s public policy argument, and so do we.

We review a trial court’s factual findings on a motion to vacate an arbitration award for clear error and its legal conclusions de novo. Denver & Rio Grande W. R.R. v. Union Pac. R.R., 119 F.3d 847, 849 (10th Cir.1997).

A trial court may vacate an arbitration award under the FAA only for the reasons enumerated in § 10 of that act or a “handful of judicially created reasons,” such as violations of public policy, manifest disregard of the law, and denial of a fair hearing. Sheldon v. Vermonty, 269 F.3d 1202, 1206 (10th Cir.2001).

The violation of public policy exception is at issue in this appeal. To be overturned on the ground that it violates public policy, an arbitration award must create an “explicit conflict with other ‘laws and legal precedents,’ keeping in mind the admonition that an arbitration award is not to be lightly overturned.” Seymour v. Blue Cross/Blue Shield, 988 F.2d 1020, 1024 (10th Cir.l993)(quoting United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 43, 108 S.Ct. 364, 373, 98 L.Ed.2d 286 (1987) (citations omitted)). The public policy exception is narrow and must satisfy the principles articulated by Supreme Court precedent. E. Associated Coal Corp. v. United Mine Workers, 531 U.S. 57, 63, 121 S.Ct. 462, 467, 148 L.Ed.2d 354 (2000).

Thus, to determine whether the exculpatory clause at issue here violates public policy, we must first determine whether the clause conflicts with other laws and legal precedents. Wazee does not contend that the exculpatory clause conflicts with any statutory provision. Rather, it maintains that the exculpatory clause is invalid under Jones v. Dressel, 623 P.2d 370 (Colo.1981). We are not persuaded.

Under Jones, courts consider four factors to determine whether an exculpatory clause violates public policy: “(1) the existence of a duty to the public; (2) the nature of the service performed; (3) whether the contract was fairly entered into; and (4) whether the intention of the parties is expressed in clear and unambiguous language.” Jones v. Dressel, supra, 623 P.2d at 376.

The exculpatory clause in the contract between Wazee and Castle provided:

Loss of Use Insurance. [Wazee], at [Waz-ee’s] option, may purchase and maintain such insurance as will insure [Wazee] against loss of use of [Wazee’s] property due to fire or other hazards, however caused. [Wazee] waives all rights of action against the contractor for loss of use of [Wazee’s] property, including consequential losses due to fire or other hazards however caused.

(Emphasis added.)

Here, Wazee has not established the existence of a public duty because Castle was providing a building service in a large commercial loft project. Second, the nature of the service performed by Castle, while important, was not an essential service to members of the public. Third, it is undisputed that the contract between Wazee and Castle was fairly entered into and resulted from arm’s length bargaining. Fourth, the intention of the parties was clearly expressed in the contract between Wazee and Castle that Wazee waived all rights of action against Castle for damages resulting from a fire. Therefore, we conclude, under the circumstances presented here, that the trial court properly determined that the exculpatory clause at issue was valid.

Our conclusion is supported by Commercial Union Assurance Co. v. Brown Co., 120 N.H. 620, 625, 419 A.2d 1111, 1114 (1980), in which the New Hampshire Supreme Court held that a contract clause identical to that at issue here operated to “allocate the insurance burdens of the parties” and did not violate public policy. See also Chadwick v. CSI, Ltd., 137 N.H. 515, 629 A.2d 820 (1993)(identical exculpatory clause held valid in construction dispute).

Therefore, because the exculpatory clause here does not conflict with other laws and legal precedents, we conclude that it does not violate public policy. See United Paperworkers Int’l Union v. Misco, Inc., supra, 484 U.S. at 43, 108 S.Ct. at 373.

III. Willful and Wanton Conduct

Wazee next contends the trial court erred in applying Jones v. Dressel because it alleged that Castle’s conduct was willful and wanton. Again, we disagree.

Here, Wazee relies on the language in Jones v. Dressel, supra, 623 P.2d at 376, that “in no event will [an exculpatory agreement] provide a shield against a claim for willful and wanton negligence.”

However, Wazee did not allege willful and wanton conduct in the statement of claim to the arbitrator or in its complaint in the trial court. In fact, Wazee’s statement of claim to the arbitrator alleged, “The fire was caused [by] the negligent installation of the boiler for which [Castle] is responsible.” Thus, the validity of the exculpatory clause at issue here may properly be analyzed under Jones, as we have done.

In any event, even if we assume that the issue of willful and wanton conduct was properly raised by Wazee, neither the arbitrator nor the trial court found that either Castle or DRD engaged in such conduct. In these circumstances, we may assume that the arbitrator concluded that there was no willful and wanton conduct. See McNaughton & Rodgers v. Besser, 932 P.2d 819 (Colo. App. 1996). Absent a factual finding of willful and wanton conduct, Wazee’s argument fails.

In light of this disposition, we do not address Wazee’s remaining contention that the trial court erred in not reviewing the public policy issues on the merits.

The orders are affirmed.

Judge STERNBERG and Judge CRISWELL concur.