Marianas Variety

Last updateSat, 23 Jun 2018 12am







    Thursday, June 21, 2018-11:47:19P.M.






Font Size


CPA takes insurance firm to court

THE Commonwealth Ports Authority filed a third-party complaint against an insurance company that provided a performance bond for a contractor that has sued CPA over a Saipan airport runway project dispute.

CPA, through attorney Robert Torres, is suing Fidelity and Deposit Company of Maryland for breach of contract, violation of the Consumer Protection Act, and for declaratory judgment.

CPA wants the Superior Court to hold Fidelity liable to pay CPA damages, interest, attorney’s fees and court costs.

As part of an effort to address the aging runway at the Saipan airport, CPA started a runway rehabilitation program dating back to 2002-2003 and resulting in the award of a construction contract to GPPC Inc. in 2009.

Torres said GPPC contracted with Fidelity for the company to act as the surety for the required payment and performance bonds required by the runway project contract.

Torres said under the terms of the payment and performance bonds, Fidelity was bound to CPA in the sum of $12.5 million and Fidelity’s obligation would be discharged if GPPC substantially and satisfactorily performed and fulfilled the contract and any amendments.

Torres said after the execution of the contract, the agreement was amended by a series of change orders and supplemental agreements.

The performance bond does not place any obligation upon CPA to notify Fidelity of minor modifications and change orders Torres added.

Hofschneider Engineering LLC, through Takagi & Associates, notified Fidelity in an email about CPA’s concerns with the condition of the runway pavement under the project on May 23, 2014. Fidelity acknowledged receipt of the email.

On Sept. 12, 2016 CPA issued a notice of termination and default to GPPC and copied Fidelity on the correspondence, terminating the contract with GPPC for default.

Through its claim counsel, Fidelity responded to CPA’s claim for coverage under the performance bond by stating that CPA modified the contract and dramatically increased the scope and value of the work to be completed without Fidelity’s consent.

Torres said the response from Fidelity emphasized a material alteration defense, which the insurance firm claimed eliminated any and all exposure loss with regard to Fidelity.

Fidelity said it had engaged Leo Daly & Associates to undertake its own investigation.

CPA responded to Fidelity’s Nov. 29, 2016 letter, requesting clarification and confirmation on whether Fidelity was disavowing and rejecting the surety bond coverage and demand including the original $12.4 million bond.

CPA also requested information on supplemental coverage for the change orders as to whether GPPC provided requests and, if not, for Fidelity to confirm that GPPC never provided supplemental bond coverage for those change orders.

In addition, CPA advised Fidelity that GPPC and CPA had already gone through the contract dispute resolution process, and GPPC continued to refuse to do the corrective work, and that CPA had terminated the contract for default.

According to Fidelity, after GPPC had performed a substantial portion of the work under the original contract, CPA stopped GPPC’s performance, changed the scope of the work, and thereafter entered into a series of change orders, which almost tripled the size of the original contract.

Fidelity said its investigation showed that the alleged runway defects related to the work added by CPA under the change orders without Fidelity’s consent, and therefore Fidelity was not liable for any coverage on the bond.

Torres said Fidelity also confirmed that GPPC had never secured additional coverage from the surety for the subsequent change orders, and ultimately denied CPA’s demand for Fidelity to complete the remedial work under the bond coverage

Fidelity rejected CPA’s claim for coverage based on GPPC’s default and breach of its payment and performance bonds.

CPA earlier filed a counterclaim against GPPC Inc., alleging breach of contract, breach of implied duty of good faith and fair dealing, negligent construction, violation of the Consumer Protection Act, and fraud.