A North Haven contractor that walked away from a state Department of Transportation project almost two years ago must have felt it was more important to pay off luxury vehicles than make the construction company solvent.

According to a lawsuit filed in US District Court on Wednesday, L.G. Defelice, the contractor that walked away from several state road projects including the I-84 project in Waterbury and another in West Haven, paid-off loans on a 2004 Mercedes Benz E320 owned by Kathleen Hallberg, a 2003 BMW 745LI owned by William McGee, and a 2003 Mercedes Benz s500 owned by Victor Hallberg, while on the cusp of insolvency.

The lawsuit filed by the contractor’s insurance company, United States Fidelity and Guaranty Company, alleges the contractor engaged in a number of financial transactions that were done for the benefit of the individuals in the company.

For example Defelice lent $1.6 million to Claremont Investment Trust so CIT could pay off an existing line of credit and establish a new one. CIT consists of four family trusts. The benefactors of the trust were the children of Victor Hallberg. Hallberg and his children are listed as defendants in the case.

Defelice also advanced $870,795 to Eastern Bridge, LLC, a New Hampshire company. “There is no evidence of any repayment by Eastern Bridge or of any attempt by Defelice to secure repayment,” the lawsuit states. CIT owns 54 percent of Eastern Bridge.

“Upon information and belief, the monies were lent in most instances merely because the other entity needed money or to otherwise further the business and personal interests of the individual defendants.”

It’s these transactions that weakened the financial health of Defelice and others in December 2005. Defelice officially walked off the I-84 project in May 2006 and it wasn’t until almost five months later internal Department of Transportation memos revealed some of the problems with the project.

“The numerous types of deficiencies, the particular as well as the general defects and omissions in the work, were and are stunning,” Arthur Gruhn, chief engineer of highway operations, wrote in one memo.

The state estimated it will cost $27 million to repair the defective drains and tears up portions of I-84 in Waterbury. According to the lawsuit there has been $26.35 million in claims against Defelice. The original project was estimated to cost $52 million in 2002 when Defelice was awarded the project. Gov. M. Jodi Rell promised an audit of the project in a press release on Oct. 2.