Sprinkle liver with salt and pepper; dredge in flour. Brown liver on both sides in hot bacon drippings in a large skillet. Remove liver to a 10- x 6- x 2-inch baking dish, reserving pan drippings in skillet.
Sauté onion, green pepper, and garlic in pan drippings. Add flour, tomato sauce, water, and bay leaf. Bring to a boil, stirring constantly. Remove from heat; pour over liver.
Bake, uncovered, at 325° for 30 minutes. Remove and discard bay leaf. Sprinkle with cheese; bake an additional 10 minutes or until cheese melts.