Auto-Owners Ins. Co. v. Southeast Floating Docks, Inc., No. 08-14133.

• Decision Date: 16 June 2009
• Docket Number: No. 08-14133.
• Citation: 571 F.3d 1143
• Parties: AUTO-OWNERS INSURANCE COMPANY, Appellee, v. SOUTHEAST FLOATING DOCKS, INC., Alan L. Simpson, Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

571 F.3d 1143

AUTO-OWNERS INSURANCE COMPANY, Appellee, v. SOUTHEAST FLOATING DOCKS, INC., Alan L. Simpson, Appellants.

No. 08-14133.

United States Court of Appeals, Eleventh Circuit.

June 16, 2009.

Kevin Gregory Meeks, Jaime L. Theriot, Troutman Sanders, LLP, Atlanta, GA, Richard A. DeTar, Miles & Stockbridge, PC, Easton, MD, for Appellants.

Peter M. Gannott, Thomas E. Crafton, Alber Crafton, PSC, Louisville, KY, Robert E. Bonner, Meier Bonner Muszynski Doyle, O'Dell & Harvey, P.A., Orlando, FL, for Appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before BLACK and MARCUS, Circuit Judges, and QUIST,^* District Judge.

PER CURIAM:

The issue in this appeal is whether the district court erred when it granted a surety's motion for new trial after the jury found the surety settled a claim in bad faith. The surety, Auto-Owners Insurance Company (Auto-Owners), issued a bond in favor of Rivermar Contracting Company (Rivermar) securing the performance of Southeast Floating Docks, Inc., and its president, Alan Simpson (collectively Southeast). In connection with the bond, Southeast executed an indemnity agreement in favor of Auto-Owners. Rivermar made a claim on Southeast's bond, and Auto-Owners subsequently settled with Rivermar and paid the full amount of the bond. Auto-Owners filed suit against Southeast for indemnification for its losses resulting from what it maintained was a good faith payment of the bond to Rivermar. Southeast defended on the ground it was not required to indemnify Auto-Owners because Auto-Owners had settled with Rivermar in bad faith. The jury returned a verdict in favor of Southeast, finding by a preponderance of the evidence that Auto-Owners did not settle Rivermar's claim against the bond in good faith. The district court subsequently granted Auto-Owners' motion for a new trial, concluding Southeast failed to produce any credible evidence contradicting Auto-Owners' evidence that it acted in good faith and the jury's conclusion on the issue of bad faith was against the great weight of the evidence.¹ We reverse and reinstate the jury's verdict because it is supported by the evidence.

I. STANDARD OF REVIEW

Our review of a district court's grant of a new trial is "extremely stringent" when the district court discards the verdict on the ground it is against the great weight of the evidence. Redd v. City of Phenix City, 934 F.2d 1211, 1215 (11th Cir.1991). While it is within a district court's discretion to grant a new trial if it finds a jury's "verdict is against the great, not merely the greater weight of the evidence," our application of this more rigorous standard of review ensures the district court does not simply substitute its own credibility choices and inferences for the reasonable choices and inferences made by the jury. Id. at 1214-15; see also Hardin v. Hayes, 52 F.3d 934, 938 (11th Cir.1995) (noting the scope of discretion is narrower when the district court concludes the jury verdict was contrary to the great weight of the evidence).² If the jury's verdict is supported by the evidence, then it is immaterial that we or the district judge would have arrived at the same verdict because it is not our place to substitute our judgment for that of the jury. See Redd, 934 F.2d at 1215; Griffin v. Swim-Tech Corp., 722 F.2d 677, 679 n. 1 (11th Cir. 1984) ("The question is whether or not reasonable jurors could have concluded as this jury did based upon the evidence presented.").

In our "extremely stringent" review, we will examine the legal standard by which the jury was instructed to evaluate Auto-Owners' duty of good faith in handling and settling of the claim, along with Southeast's theory of Auto-Owners' bad faith.³ In the subsequent sections of this opinion, we will consider the evidence the jury heard at trial and then determine whether reasonable inferences that could be drawn from the evidence support the jury's verdict.

II. BACKGROUND

A. The Legal Standard

The jury was instructed that for Southeast to prove Auto-Owners settled the claim with Rivermar in bad faith, Southeast had the burden to establish by a preponderance of the evidence Auto-Owners acted with an improper motive or with a dishonest purpose.⁴ The jury was also instructed to analyze whether Auto-Owners' conduct was reasonable under the circumstances, because unreasonable conduct can be evidence of an improper motive. Both parties and the district court relied on a factually analogous case, PSE Consulting, Inc. v. Frank Mercede & Sons, Inc., 267 Conn. 279, 838 A.2d 135 (2004), which addressed a surety's duty of good faith in handling a bond claim.⁵ We agree with the PSE Consulting court's conclusion that "a surety's failure to conduct an adequate investigation of a claim upon a . . . bond, when accompanied by other evidence, reflecting an improper motive, properly may be considered as evidence of the surety's bad faith." Id. at 155.

We draw from PSE Consulting that bad faith requires an improper motive or dishonest purpose on the part of the surety. Id. at 152. Moreover, improper motive can be evidenced by unreasonable conduct on the part of the surety. Id. at 153. However, unreasonable conduct, including a negligent investigation of a claim, does not by itself constitute bad faith.⁶ Rather, to give rise to an inference of bad faith, such conduct must be accompanied by other evidence of improper motive, such as a self-interested settlement. Id. at 155; see also Engbrock v. Fed. Ins. Co., 370 F.2d 784, 787 (5th Cir.1967)⁷ ("[N]either lack of diligence nor negligence is the equivalent of bad faith: and improper motive, which is not alleged, is an essential element of bad faith."); U.S. Fid. & Guar. Co. v. Feibus, 15 F.Supp.2d 579, 585 (M.D.Pa.1998) ("[A] lack of diligence or negligence is not the equivalent of bad faith, indeed even gross negligence cannot support a finding of bad faith."). While neither evidence of an inadequate and unreasonable investigation nor a self-interested settlement standing alone would be sufficient to support a finding of bad faith, when coupled together a jury could reasonably infer a surety's improper motive. See PSE Consulting, 838 A.2d at 154-55.

B. Southeast's Theory of Auto-Owners' Bad Faith

A bad faith settlement requires an improper motive on the part of Auto-Owners, which can be shown by Auto-Owners' unreasonable conduct coupled with a self-interested settlement. Southeast argued to the jury Auto-Owners paid Rivermar the full amount of the bond, after performing an inadequate and unreasonable investigation of Rivermar's claim, with the self-interested motive of releasing itself from Rivermar's bad faith claim. Southeast demonstrated that for more than three years Auto-Owners supported Southeast's defenses to Rivermar's claim that the concrete floating dock system was defective. Auto-Owners abruptly shifted its assessment of the dock system after an in-house attorney of Auto-Owners, who was previously unfamiliar with the case, became aware of Rivermar's bad faith claim against Auto-Owners. Auto-Owners then hired an attorney, who had previously represented Rivermar's parent company, to re-examine the Rivermar claim. With only an incomplete re-examination, Auto-Owners secretly met with Rivermar and settled the claim for the full amount of the bond. Auto-Owners received a release of all claims against it, including a withdrawal of Rivermar's bad faith claim, whereas the settlement (for which Auto-Owners seeks indemnification from Southeast) did not release Southeast from any of Rivermar's claims. Southeast argued this self-interested settlement, accompanied by an unreasonable handling of Rivermar's claim, is evidence Auto-Owners did not settle in good faith.

Before turning to whether the jury reasonably could have inferred Auto-Owners settled the claim with Rivermar in bad faith, we will review the evidence presented at trial.

III. FACTS PRESENTED AT TRIAL

Southeast manufactured and sold concrete floating docks. In August 2000, Southeast and Rivermar contracted for a concrete floating dock system for a marina project at Harbour Village Marina in Ponce Inlet, Florida (the Marina), for which Southeast was bonded by a performance bond from Auto-Owners. The concrete floating dock system was composed of billets of Styrofoam encased in a concrete shell. The billets had connecting wood walers that would rise up and down on pilings as the tide ebbed and flowed. Southeast's contract with Rivermar was only for the manufacture and delivery of the dock system, not its installation. Southeast submitted a proposal to install the dock system for $85,000, but Rivermar gave the job to another installer for $20,000.

After the dock segments were delivered and while installation was underway, Rivermar produced to Southeast a punch list of items that it claimed were defects with the dock system. Items on the punch list included improper alignment of the billets, cracking in the billets, and an insufficient amount of dock floating above the water level (insufficient "free board"). Southeast concluded the punch list items were installation issues and recommended Rivermar contact the installer. Southeast also attempted to show the installer how to remedy some of the installation issues, but the installer failed to do so because it was already paid by Rivermar and had another job opportunity elsewhere. Citing the unresolved problems mentioned in the punch list, Rivermar refused to pay Southeast the unpaid balance of its materials, totaling $82,000. Southeast filed suit in state court for the unpaid balance in July 2001. Rivermar counterclaimed against Southeast for breach of contract and added Auto-Owners as an additional counterclaim defendant by virtue of Southeast's performance bond.

Southeast's attorney in the state court litigation was Rosemary Hayes, who had a long-standing relationship with Southeast. Stan Smith, Auto-Owners' claims manager,...