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B-150090, DEC. 14, 1962

B-150090 Dec 14, 1962
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NORTHERN REGION: REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 5. IT IS STATED IN YOUR LETTER THAT THE CONTRACT HAS BEEN COMPLETED AND THAT THE VOUCHER REPRESENTS PAYMENT IN FULL OF THE AMOUNT DUE THE CONTRACTOR. THE VIEW IS EXPRESSED IN YOUR LETTER THAT IT MAY BE ADVISABLE TO WITHHOLD PAYMENT OF THE VOUCHER SINCE THE LIABILITY FOR THE DAMAGE CLAIMED CANNOT BE DEFINITELY DETERMINED UNTIL SOME FUTURE DATE IN THE SUMMER OF 1963. THAT ATTORNEYS FOR CERTAIN CREDITORS OF THE CONTRACTOR HAVE URGED THAT THE GOVERNMENT IS ADEQUATELY PROTECTED BY THE INSURANCE COVERAGE THE CONTRACTOR WAS REQUIRED TO OBTAIN UNDER THE CONTRACT. AS FOLLOWS: "16.4THE CONTRACTOR WILL HOLD AND SAVE THE GOVERNMENT HARMLESS FROM ALL LIABILITY FOR ANY DEATH OR INJURY TO ALL PERSONS (OTHER THAN GOVERNMENT EMPLOYEES WHEN.

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B-150090, DEC. 14, 1962

TO MR. H. A. EDD, AUTHORIZED CERTIFYING OFFICER, FOREST SERVICE, NORTHERN REGION:

REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 5, 1962, TRANSMITTING BUREAU VOUCHER DATED JULY 26, 1962, IN THE AMOUNT OF $49,784 IN FAVOR OF DEMING NATIONAL BANK, DEMING, NEW MEXICO, AS ASSIGNEE UNDER CONTRACT NO. 12-11- 261-2002 WITH CISCO AIRCRAFT, INC., BURBANK, CALIFORNIA, COVERING AERIAL SPRAYING OF FORESTED AREAS OF THE DEERLODGE NATIONAL FOREST, HELENA NATIONAL FOREST AND THE LEWIS AND CLARK NATIONAL FOREST, ALL LOCATED IN MONTANA.

IT IS STATED IN YOUR LETTER THAT THE CONTRACT HAS BEEN COMPLETED AND THAT THE VOUCHER REPRESENTS PAYMENT IN FULL OF THE AMOUNT DUE THE CONTRACTOR. YOU REQUEST THAT AN ADVANCE DECISION BE RENDERED AS TO WHETHER CERTIFICATION AND PAYMENT OF THE VOUCHER SHOULD BE WITHHELD PENDING DETERMINATION OF A CLAIM AGAINST THE FOREST SERVICE FOR AN UNDETERMINED AMOUNT OF DAMAGES APPARENTLY CAUSED BY THE SPILLAGE OF INSECTICIDE SOLUTION ON THE TAXIWAYS AND RUNWAYS OF THE AIRPORT BY CISCO AIRCRAFT IN CARRYING OUT THE SPRAYING OPERATIONS. THE VIEW IS EXPRESSED IN YOUR LETTER THAT IT MAY BE ADVISABLE TO WITHHOLD PAYMENT OF THE VOUCHER SINCE THE LIABILITY FOR THE DAMAGE CLAIMED CANNOT BE DEFINITELY DETERMINED UNTIL SOME FUTURE DATE IN THE SUMMER OF 1963. YOU ADVISE, HOWEVER, THAT ATTORNEYS FOR CERTAIN CREDITORS OF THE CONTRACTOR HAVE URGED THAT THE GOVERNMENT IS ADEQUATELY PROTECTED BY THE INSURANCE COVERAGE THE CONTRACTOR WAS REQUIRED TO OBTAIN UNDER THE CONTRACT.

YOUR LETTER AND THE ACCOMPANYING DOCUMENTS DISCLOSE THAT UNDER THE TERMS OF CONTRACT NO. 12-11-261-2002 WITH CISCO AIRCRAFT THE FOREST SERVICE UNDERTOOK TO PROVIDE THE AIRSTRIPS REQUIRED FOR THE SPRAYING OPERATIONS AT NO COST TO THE CONTRACTOR AS STIPULATED IN SECTION 20 OF THE ,GENERAL REQUIREMENTS" OF THE CONTRACT. SECTION 16 RELATING TO THE "LIABILITY" OF THE PARTIES PROVIDED IN MATERIAL PART, AS FOLLOWS:

"16.4THE CONTRACTOR WILL HOLD AND SAVE THE GOVERNMENT HARMLESS FROM ALL LIABILITY FOR ANY DEATH OR INJURY TO ALL PERSONS (OTHER THAN GOVERNMENT EMPLOYEES WHEN, BUT ONLY WHEN, COMPENSATION HAS BEEN PAID TO THEM UNDER THE FEDERAL EMPLOYEE'S COMPENSATION ACT AND THERE IS NO LIABILITY ON THE PART OF THE CONTRACTOR FOR THEIR INJURY OR DEATH BY REASON OF WHICH SUCH COMPENSATION WAS PAID) OR FOR DAMAGE, LOSS, OR DESTRUCTION OF PROPERTY WHICH RESULTS FROM THE OPERATION OF, OR ACCIDENT TO, THE AIRCRAFT OR FACILITATING EQUIPMENT.

"CONTRACTOR SHALL PROCURE AND MAINTAIN AT ALL TIMES DURING THE PERFORMANCE OF SERVICES UNDER THIS CONTRACT AIRCRAFT PUBLIC LIABILITY INSURANCE, INCLUDING COVERAGE OF LIABILITY TO PASSENGERS, INCLUDING EMPLOYEES OF THE UNITED STATES OF AMERICA, AGAINST BODILY INJURY AND PROPERTY DAMAGE. SUCH INSURANCE SHALL BE PROCURED AND MAINTAINED IN LIMITS OF NOT LESS THAN $50,000 WITH RESPECT TO ANY ONE PERSON INJURED OR KILLED AND, SUBJECT TO THAT LIMIT PER PERSON, AN AGGREGATE LIMIT OF $100,000 WITH RESPECT TO ANY NUMBER OF PERSONS INJURED OR KILLED AS THE RESULT OF ANY ONE ACCIDENT, AND $50,000 PER ACCIDENT WITH RESPECT TO PROPERTY DAMAGE (INCLUDING CROPS). THIS REQUIRED INSURANCE COVERAGE SHALL BE CARRIED UNDER TERMS AND CONDITIONS WHICH WILL PROTECT THE CONTRACTOR, OR ANY OTHER PERSON USING OR RESPONSIBLE FOR THE USE OF AIRCRAFT IN PERFORMANCE OF THIS CONTRACT WITH THE CONSENT OF THE CONTRACTOR, EXPRESSED OR IMPLIED. EACH INSURANCE POLICY EVIDENCING THIS REQUIRED INSURANCE SHALL BEAR APPROPRIATE ENDORSEMENTS WHEREBY THE INSURANCE CARRIER WAIVES ANY RIGHT OF SUBROGATION ACQUIRED AGAINST THE UNITED STATES OF AMERICA BY REASON OF ANY PAYMENT UNDER SUCH POLICY, AND SUCH POLICY SHALL FURTHER PROVIDE THAT THE CONTRACTING OFFICER WILL BE GIVEN 30 DAYS' PRIOR NOTICE BEFORE CANCELLATION OF SUCH POLICY OR REDUCTION OF COVERAGE THEREUNDER CAN BE EFFECTIVE. THE CONTRACTOR SHALL, PRIOR TO INITIATION OF AIRCRAFT SERVICES UNDER THIS CONTRACT, SUBMIT TO THE CONTRACTING OFFICER AN INSURANCE CERTIFICATE ISSUED BY THE CARRIER WRITING THE INSURANCE CERTIFYING TO THE EXISTENCE OF THE REQUIRED INSURANCE COVERAGE IN CONFORMITY WITH THIS CLAUSE.

"LIABILITY INSURANCE REQUIRED BY A STATE TO COVER AERIAL SPRAY OPERATION MAY BE USED TO SUBSTITUTE FOR INSURANCE REQUIRED ABOVE IF THE COVERAGE IS SATISFACTORY TO THE CONTRACTING OFFICER. IF THE STATE REQUIREMENTS ARE LESS THAN THE AMOUNT SPECIFIED, ADDITIONAL LIABILITY INSURANCE MUST BE SECURED TO BRING THE TOTAL COVERAGE TO THE REQUIRED AMOUNTS.'

CERTIFICATES OF VERIFICATION OF INSURANCE WERE SUBMITTED BY CISCO AIRCRAFT IN CONFORMANCE WITH THE CONTRACT REQUIREMENTS AND WERE APPARENTLY ACCEPTED BY THE CONTRACTING OFFICER.

UNDER THE PROVISIONS OF CONTRACT NO. 12-1, ENTERED INTO JUNE 25, 1962, BETWEEN THE JOINT CITY-COUNTY AIRPORT BOARD, HEREINAFTER REFERRED TO AN AIRPORT BOARD, AND THE FOREST SERVICE, U.S. DEPARTMENT OF AGRICULTURE, "AGREEMENT FOR USE OF CITY-COUNTY AIRPORT RUNWAYS, TAXIWAYS AND GROUNDS," THE FOREST SERVICE WAS GRANTED UNRESTRICTED USE OF AIRCRAFT TAXIWAYS AND LANDING AND TAKEOFF AREAS THEN IN PLACE OR LATER TO BE CONSTRUCTED WITH THE CITY-COUNTY AIRPORT NEAR HELENA, MONTANA, HEREINAFTER REFERRED TO AS THE HELENA AIRPORT, BY AIRCRAFT OF THE FOREST SERVICE AND ITS CONTRACTORS. IT WAS EXPRESSLY STIPULATED IN PARAGRAPH 6 OF THIS AGREEMENT THAT THE FOREST SERVICE WOULD MAKE A "CONDITION SURVEY" AT THE BEGINNING AND END OF EACH SEASON OR PERIOD OF USE TO DETERMINE THE EXTRAORDINARY WEAR AND TEAR ATTRIBUTABLE TO THE USE OF HEAVIER AIRCRAFT THAN OTHERWISE AUTHORIZED FOR THE AIRPORT AND THAT THE FOREST SERVICE WOULD MAKE THE NECESSARY REPAIRS BASED ON SUCH CONDITION SURVEYS. UNDER PARAGRAPH 7 IT WAS STIPULATED THAT THE EXTENT OF THE REPAIRS WOULD BE DETERMINED BY THE FOREST SERVICE BASED ON THE CONDITION SURVEYS AND A PROCEDURE WAS PRESCRIBED IN PARAGRAPH 9 FOR THE FINAL DETERMINATION OF DISPUTES BY WRITTEN DECISION OF THE FOREST SUPERVISOR SUBJECT TO APPEAL WITHIN 30 DAYS TO THE "HEAD OF THE DEPARTMENT.' THE PROVISIONS OF THIS CONTRACT, HOWEVER, WERE NOT MADE A PART OF THE CONTRACT WITH CISCO AIRCRAFT.

YOU STATE IN YOUR LETTER THAT IT BECAME APPARENT DURING THE OPERATING PERIOD OF THE CONTRACT, JUNE 29 TO JULY 23, 1962, THAT CONSIDERABLE SPILLAGE OF INSECTICIDE WAS OCCURRING; AND THAT LATER THE AIRPORT BOARD ASKED FOR A MEETING OF ALL INTERESTED PARTIES TO CONSIDER THE MATTER, WHICH WAS CONVENED AT THE HELENA AIRPORT ON AUGUST 10, 1962, FOR THE PURPOSE OF ESTABLISHING THE EXTENT OF THE OVER-ALL DAMAGE TO THE AIRPORT ATTRIBUTABLE TO THE PERFORMANCE OF CONTRACT NO. 12-11-261-2002 BY CISCO AIRCRAFT. YOU STATE FURTHER THAT A FULL REPORT ON THE ENTIRE MATTER IS INCLUDED IN THE ,STATEMENT OF FACTS" PREPARED BY THE CONTRACTING OFFICER ATTACHED TO AND MADE A PART OF THE VOUCHER. IT APPEARS THAT THE "BOARD OF SURVEY" WAS COMPOSED OF 11 PERSONS WHICH INCLUDED THE CHAIRMAN OF THE AIRPORT BOARD, THE AIRPORT MANAGER, THE ACTING FOREST SUPERVISOR, THE CONTRACTING OFFICER AND A GOVERNMENT CONTRACT SPECIALIST, AN ENGINEER FROM THE ASPHALT INSTITUTE OF AMERICA AND FROM THE FOREST SERVICE, AS WELL AS A REPRESENTATIVE ACCOMPANIED BY AN ENGINEER FROM THE AIRPORT CONSTRUCTION CONTRACTOR, AND MR. W. D. CONEHAN, REPRESENTING THE INSURANCE CARRIER OF CISCO AIRCRAFT. FOLLOWING A TOUR AND INSPECTION OF THE AIRPORT THE BOARD MEMBERS WERE OF THE OPINION THAT DIESEL FUEL OIL HAD BEEN DEPOSITED ON THE RUNWAYS AND TAXIWAYS CAUSING DISCOLORATION AND OTHER UNDETERMINED DETERIORATION AND DAMAGE WHICH WOULD REQUIRE REMOVAL AND REPLACEMENT OF THE AFFECTED SEAL COAT AND UNDERLYING COURSES. THE BOARD MEMBERS CONCURRED IN THE RECOMMENDATION OF ITS ENGINEER MEMBERS THAT FURTHER SURVEYS SHOULD BE MADE, THAT BECAUSE OF WEATHER CONDITIONS THE JOB OF REPAIRING WOULD HAVE TO BE DELAYED UNTIL THE SUMMER OF 1963, AND THAT IT WAS IMPOSSIBLE TO ARRIVE AT A REASONABLE AND ACCURATE ESTIMATE OF THE COST OF REPAIRING THE DAMAGE, PARTICULARLY IN VIEW OF THE PROBABILITY THAT ADDITIONAL CONCEALED DAMAGES MIGHT DEVELOP DURING THE NEXT TWO YEARS. IS REPORTED THAT MR. CONAHAN STATED HIS PURPOSE IN COMING WAS TO ASCERTAIN THE EXTENT OF THE DAMAGE INVOLVED AND THE COST TO REPAIR IT WHICH HE REALIZED WERE IMPOSSIBLE, AND FURTHER, THAT HE WAS NOT IN A POSITION TO SAY TO WHAT EXTENT, IF ANY, THE INSURANCE CARRIER FOR CISCO AIRCRAFT WOULD BE LIABLE.

THE OPINION AND RECOMMENDATIONS OF THE "BOARD OF SURVEY" WERE ALSO OUTLINED BY THE REGIONAL FISCAL AGENT IN HIS LETTER OF AUGUST 17, 1962, TO CISCO AIRCRAFT, BUT THE ADMINISTRATIVE DETERMINATIONS IN ACCORDANCE WITH THE PROCEDURES PRESCRIBED BY THE CONTRACTS HAVE NOT BEEN MADE. THAT COMPLIANCE WITH THE PRESCRIBED PROCEDURE IS MANDATORY UPON THE CONTRACTING PARTIES SEEMS BEYOND QUESTION. SEE UNITED STATES V. CALLAHAN WALKER CO., 317 U.S. 56; UNITED STATES V. BLAIR, 321 U.S. 730; AND UNITED STATES V. BEUTTAS, 324 U.S. 768. CF. CONTINENTAL ILLINOIS NATIONAL BANK V. UNITED STATES, 121 CT.CL. 203 AND ACORN DECORATING CORPORATION V. UNITED STATES, 146 CT.CL. 394.

THE CONTRACTING OFFICER HAS EXPRESSED THE OPINION IN HIS "STATEMENT OF FACTS" THAT THE COST OF REPAIRING THE DAMAGE DUE TO THE OIL SPILLAGE MAY APPROXIMATE THE NEXT SUM REMAINING DUE CISCO AIRCRAFT UNDER ITS CONTRACT AND HE HAS RECOMMENDED THEREIN THAT "THE GOVERNMENT WITHHOLD PAYMENT OF ALL MONEYS DUE CISCO AIRCRAFT, INC., UNDER THE SAID CONTRACT UNTIL SUCH TIME AS THE "SAVE THE GOVERNMENT HARMLESS FROM ALL LIABILITY" PROVISION OF THE CONTRACT HAS BEEN OTHERWISE SECURED OR SATISFIED.'

WE HAVE RECEIVED A LETTER DATED NOVEMBER 26, 1962, FROM LAWRENCE A. MERRYMAN, ESQUIRE, LOS ANGELES, CALIFORNIA, ATTORNEY REPRESENTING NATIONAL CITY AIRCRAFT LEASING COMPANY, A SUBSIDIARY OF NATIONAL CITY LINES AND ALSO A COMMITTEE OF THE MAJOR CREDITORS OF CISCO AIRCRAFT, INC. IN BRIEF, IT IS POINTED OUT IN THIS LETTER THAT CISCO OBTAINED THE INSURANCE COVERAGE REQUIRED BY THE CONTRACT AND THAT THIS COVERAGE IS ADEQUATE UNDER THE TERMS OF THE CONTRACT. THE CONTENTION IS ADVANCED THAT CISCO AIRCRAFT HAS NOT VIOLATED THE HOLD HARMLESS CLAUSE OF ITS CONTRACT SINCE THIS CLAUSE MERELY REQUIRES THE CONTRACTOR "TO PAY ALL THE EXPENSE IN RELATION TO THE CLAIM BY THE AIRPORT, IF AND WHEN THERE ARE SUCH EXPENSES.' SEE IN THIS CONNECTION NEW YORK CENTRAL RAILROAD CO. V. GENERAL MOTORS CORP., D.C. OHIO, 182 F.SUPP. 273, AT 290, AND THE AUTHORITIES CITED. IT IS ALLEGED IN THIS LETTER THAT PAYMENT OF THE AMOUNT NOW CLAIMED ON THE VOUCHER WAS DUE MORE THAN FOUR MONTHS AGO AND THAT BECAUSE OF THE DELAY IN MAKING THIS PAYMENT CISCO AIRCRAFT IS IN A DIFFICULT FINANCIAL POSITION. IT IS URGED THEREIN THAT THE "LIFE OR DEATH OF THIS COMPANY PROBABLY HINGES UPON WHETHER OR NOT THERE WILL BE PAYMENT OF THIS OBLIGATION BY THE GOVERNMENT WITHIN A SHORT PERIOD OF TIME.'

WE HAVE ALSO RECEIVED A LETTER DATED DECEMBER 10, 1962, FROM CISCO AIRCRAFT, TOGETHER WITH A COPY OF THE INSURANCE POLICY OBTAINED PURSUANT TO THE CONTRACT. IT IS POINTED OUT IN THIS LETTER AND IN A SUPPORTING STATEMENT BY MR. MERRYMAN THAT UNDER THE PROVISIONS OF THE POLICY COVERAGE B" PROVIDES PROTECTION AGAINST LOSS FROM PROPERTY DAMAGE CAUSED BY ANY ONE ACCIDENT OR OCCURRENCE OR SERIES OF ACCIDENTS OR OCCURRENCES IN THE AMOUNT OF $50,00O FOR EACH AIRPLANE INVOLVED, AND THAT FIVE AIRPLANES WERE USED, WITH A LIMIT FOR EACH AIRPLANE OF $100,000 PER INCIDENT; THAT THE HOLD HARMLESS AGREEMENT BETWEEN CISCO AND THE FOREST SERVICE IS SPECIFICALLY RECOGNIZED AND THE COVERAGE IS EXTENDED TO INCLUDE SPECIFICALLY INJURY OR DESTRUCTION OF PROPERTY CAUSED BY THE USE OF CHEMICALS, ETC. IT IS POINTED OUT FURTHER THAT FOUR SEPARATE MAJOR MISHAPS OCCURRED FOR WHICH A TOTAL COVERAGE OF AT LEAST $200,000 IS PROVIDED BY THE INSURANCE CARRIER, AND THERE IS NO INDICATION THAT THE LIABILITY TO THE HELENA AIRPORT WILL BE IN EXCESS OF THIS INSURANCE COVERAGE.

IN HIS SUPPLEMENTAL LETTER OF DECEMBER 10, 1962, THE CONTRACTOR CONTENDS FURTHER THAT "ANY DAMAGE DONE TO THE HELENA AIRPORT AS A RESULT OF SPILLAGE OF DIESEL OIL ON THE SURFACE MAY BE REPAIRED BY REPLACEMENT OF THE DAMAGED MATERIAL AT A COST NOT TO EXCEED $3,000.00.' "IN ORDER TO SECURE IMMEDIATE PAYMENT OF THE VOUCHER ON CONTRACT NUMBER 12-11-2002 AND PREVENT THE BANKRUPTCY OF THE COMPANY," THE CONTRACTOR HAS SUGGESTED IN THIS LETTER THAT "PAYMENT BE MADE OF ALL BUT $5,000.00 OF THE AMOUNT DUE," I.E., THAT "THE GOVERNMENT MAY WITHHOLD SUCH SUM UNTIL SETTLEMENT OF ALL CLAIMS INVOLVED IN THIS CONTRACT.'

IT SEEMS CLEAR, IN THE ABSENCE OF ANY INFORMATION TO THE CONTRARY, THAT THE INSURANCE OBTAINED BY CISCO AIRCRAFT PROVIDES ADEQUATE COVERAGE IN COMPLIANCE WITH THE CONTRACT REQUIREMENTS AS URGED ON BEHALF OF THE CONTRACTOR. FURTHERMORE, THERE IS NOTHING IN THE RECORD WHICH WOULD INDICATE THAT CISCO AIRCRAFT HAS CONTRIBUTED IN ANY WAY TO THE DELAY IN DETERMINING THE AMOUNT OF THE DAMAGES ALLEGED BY THE AIRPORT BOARD. FACT, FULL COOPERATION APPARENTLY HAS BEEN EXTENDED AS EVIDENCED BY LETTER DATED AUGUST 24, 1962, FROM PACIFIC INSURANCE ADJUSTERS ADVISING CISCO OF ITS EFFORTS TO EVALUATE THE MATTER, AND ALSO BY CISCO'S LETTERS DATED NOVEMBER 28, 1962, TO THE REGIONAL FORESTER, MISSOULA, MONTANA, AND TO THE BOARD OF AIRPORT COMMISSIONERS OF THE HELENA AIRPORT EXPRESSING READINESS TO REACH A SETTLEMENT OF THE DAMAGES CLAIMED. IN OUR OPINION, THE INSURANCE COVERAGE OF THE CONTRACTOR AND THE AGREEMENT OF CISCO TO A WITHHOLDING OF $5,000 PENDING DETERMINATION AND SETTLEMENT OF THE DAMAGES TO THE HELENA AIRPORT WILL ADEQUATELY PROTECT THE INTERESTS OF THE UNITED STATES. YOU ARE ADVISED, THEREFORE, THAT PAYMENT OF THE VOUCHER IN THE REDUCED AMOUNT OF $44,784 IS AUTHORIZED, IF OTHERWISE CORRECT.

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