FILED

U.S. COURT OF APPEALS

ELEVENTH CIRCUIT

JUNE 16, 2009

THOMAS K. KAHN

CLERK

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

________________________

No. 08-14133

________________________

D. C. Docket No. 05-00334-CV-ORL-31-GJK

AUTO-OWNERS INSURANCE COMPANY,

Appellee,

versus

SOUTHEAST FLOATING DOCKS, INC.,

ALAN L. SIMPSON,

Appellants.

________________________

Appeal from the United States District Court

for the Middle District of Florida

_________________________

(June 16, 2009)

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

*

PER CURIAM:

 Honorable Gordon J. Quist, United States District Judge for the Western District of *

Michigan, sitting by designation.
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

2
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

Auto-Owners also moved for judgment as a matter of law, which the district court

1

denied because Auto-Owners failed to renew its Rule 50 motion before the case went to the jury.

Before the case was retried, the district court granted Auto-Owners’ motion for summary

judgment against Southeast as to Southeast’s liability for breaching the indemnity agreement,

leaving only the amount of damages to be established; damages included attorneys’ fees in

addition to the amount of the bond. With Southeast’s liability established, in August 2007 the

district court created a discovery schedule to determine the amount Southeast owed pursuant to

the indemnity agreement. Nine months later, in May 2008, Auto-Owners withdrew all pending

claims for attorneys’ fees and costs. The district court then entered a final judgment for

Auto-Owners in the amount of $1,135,658.89. Southeast timely appealed.

3
contrary to the great weight of the evidence). If the jury’s verdict is supported by

2

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. In the subsequent sections of this opinion, we will consider the

3

evidence the jury heard at trial and then determine whether reasonable inferences

that could be drawn from the evidence support the jury’s verdict.

 On the other hand, a deferential standard of review is appropriate if the district court’s 2

new trial order is precipitated by jury misconduct or other prejudicial trial events that

“contaminate” the jury’s deliberative process. See Redd, 934 F.2d at 1215 & n.3; Williams v.

City of Valdosta, 689 F.2d 964, 974 n.8 (11th Cir. 1982). In this case, there has been no

suggestion the jury’s deliberative process was contaminated. Thus, this deferential standard

does not apply in this instance. 

 We use the terms “bad faith” and “lack of good faith” interchangeably. 

3

4
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. The jury was also instructed to analyze whether Auto4

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., 838 A.2d 135 (Conn. 2004), which addressed a surety’s duty of good

 The jury was instructed: 4

[A] surety has a duty to use the same degree of care and diligence as a person

of ordinary care and prudence should exercise in the management of his own

business. The surety must handle the claim, and make all decisions with regard to

litigation and settlement, in good faith and with due regard for the interests of the

principal (here, the Defendants, Southeast Floating Docks and Alan Simpson). This

good faith duty of the surety covers the investigation of the claim, the decision to

defend or settle the claim and, if settlement is chosen, the decision as to the amount

for which to settle. The question of bad faith also involves analyzing whether the

surety’s conduct was reasonable under the circumstances, because unreasonable

conduct can be evidence of improper motive. 

A claim that the settlement was excessive, that the surety was merely

negligent or that the principal disagreed with the surety’s handling of the claim are

not sufficient to demonstrate bad faith. Instead, the principal must establish that the

surety acted with an improper motive or with a dishonest purpose. Along those same

lines, evidence that a surety settled a claim to protect its own interests, by itself, is

not sufficient to establish bad faith.

Neither party challenged the instruction the jury received on the surety’s duty of good

faith.

5
faith in handling a bond claim. We agree with the PSE Consulting court’s

5

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. Rather, to give rise to an inference of bad

6

 In PSE Consulting, a surety, National Fire Insurance Company of Hartford (National), 5

sought indemnification from the bond principal, Frank Mercede & Sons, Inc. (Mercede), for

payments the surety made under the bond to the obligee, PSE Consulting, Inc. (PSE). Mercede

defended on the ground the payments were not made in good faith due to National’s insufficient

investigation and self-interested settlement of the claim. A jury trial returned a verdict in favor

of Mercede and National appealed. PSE Consulting, 838 A.2d at 140. 

In upholding the verdict on the bad faith claim, the Supreme Court of Connecticut found

the evidence from which the jury reasonably could have concluded that National performed an

inadequate investigation included (1) National’s failing to put in writing, as required by the

surety contract, those portions of PSE’s claim it considered undisputed; (2) engaging in only a

superficial review of PSE’s claim; and (3) waiting almost two years before referring the case to

an in-house engineering expert for valuation. Id. at 153-54. Additionally, the jury could have

inferred a self-interested settlement from evidence showing National settled the PSE claim to

avoid an investigation from the Connecticut insurance commissioner, rather than to fulfill its

contractual obligations to Mercede. Id. at 156.

 While bad faith requires more than a merely negligent investigation, a surety who 6

purposefully remains ignorant of facts that would likely indicate the investigation is inadequate

may be found to have acted in bad faith. See PSE Consulting, 838 A.2d at 155; see also Cmty.

Bank v. Ell, 564 P.2d 685, 691 (Or. 1977) (“Although mere negligence or failure to make the

inquires which a reasonably prudent person would make does not of itself amount to bad faith, if

6
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) (“[N]either lack of diligence nor negligence is

7

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 selfinterested 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 AutoOwners, 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

a party fails to make an inquiry for the purpose of remaining ignorant of facts which he believes

or fears would disclose a defect in the transaction, he may be found to have acted in bad faith.”).

 In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), this 7

Court adopted as binding precedent all decisions of the former Fifth Circuit handed down prior

to close of business on September 30, 1981.

7
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 AutoOwners, 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 AutoOwners settled the claim with Rivermar in bad faith, we will review the evidence

presented at trial.

8
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

9
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, hired Tim Traster to represent Auto-Owners in the state court litigation.

Smith later agreed to allow Hayes to also represent Auto-Owners, with Traster

assuming a monitoring role and reporting to Smith and Bob Kamp, an in-house

attorney at Auto-Owners.

According to Hayes, the litigation with Rivermar was extremely contentious

with Rivermar fighting “tooth and nail” over “every single piece of paper.” Over

1,100 pleadings were filed in the state court action, and Hayes explained she had to

obtain a court order “basically to do anything.” For example, Rivermar steadfastly

refused Southeast access to the Marina to inspect the allegedly defective docks, and

after Southeast obtained a court order for access, it discovered upon arrival at the

Marina the specific finger pier that featured prominently in Rivermar’s case against

10
Southeast had been moved offsite. Hayes also stated that, in addition to requiring

court orders to do “anything,” Rivermar would not cooperate in scheduling the

hearings held in the case. Hayes testified that in her twenty years of experience, she

had never seen a case with so many hearings or amended counterclaims.

Traster and Hayes discussed the litigation often. Of the thirty hearings,

Traster attended all but one of them. Traster was also present for mediation and

joined in Southeast’s private caucus. Traster was seated behind Southeast’s

counsel’s table the day trial was set to begin. In Traster’s status reports to Smith he

never indicated Hayes was inappropriately handling the litigation. In fact, Traster’s

reports stated there was nothing he would do differently. Traster agreed with Hayes

that there was no merit to Rivermar’s claim and informed Smith and Kamp in

September 2003 that he did not see any exposure on the part of Southeast or AutoOwners. In April 2004, Traster reported to Smith there had been settlement talks

between Southeast and Rivermar. Consistent with Traster’s and Hayes’

impressions of the weakness of Rivermar’s case, Auto-Owners did not require

collateral from Southeast and maintained an internal reserve of only $5,000 through

more than three years of litigation. Indeed, Auto-Owners did not raise its reserve or

demand collateral even after Rivermar, in July 2003, filed a civil remedy notice

11
with the Florida Department of Insurance claiming Auto-Owners was acting in bad

faith in refusing to settle its bond claim.

With respect to the factual strength of Southeast’s defense, Alan Simpson,

Southeast’s president, testified regarding other likely causes for Rivermar’s claimed

defects in the dock system. Simpson testified the floating dock system must be

8

maintained for the life of the marina. The rods and bolts connecting the dock

segments must be periodically retightened, as the treated lumber of the walers on

top of the concrete floats would often shrink. The rods should be tightened with

hand pressure rather than an air gun because overtightening the bolts could cause

the concrete to crack. Simpson testified the dock system at the Marina was not

properly installed, was left incomplete, and was not properly maintained. In

response to opposing counsel’s questioning about a dock report in 2003 that found

excessive cracking, Simpson testified: “I wouldn’t doubt it if it had been sitting

there without any maintenance or ever being installed, through hurricanes and all

that. They’re lucky they’ve got it at all.”

 Southeast manufactured a number of other docks including the Naval Academy at 8

Annapolis, Maryland; a submarine base at New London, Connecticut; the Eco-swim with

dolphins at Freeport, Bahamas; Grandview Hotel in Tampa, Florida; and Maritime Trade Center

in Savannah, Georgia. Simpson testified that prior to Rivermar’s claim of poor quality control

and defective docks there had not been any quality control problems with Southeast’s docks. 

12
The trial of the state court action was set to begin May 14, 2004. Hayes

testified she was prepared to try the case for Southeast. However, as the jury was

being selected, Rivermar requested a continuance. Hayes opposed the continuance

arguing it was not necessary. Nonetheless, the trial was continued.

Auto-Owners shifted its position on the Rivermar claim in September 2004.

Tom Froman, assistant vice president in Auto-Owners’ legal department, received a

call from Fred Pinckney, general counsel for Rivermar’s parent company, ASI,

regarding Rivermar’s claim. Pinckney criticized Hayes’ handling of the state court

case and warned Froman that Auto-Owners faced a significant bad faith claim from

Rivermar. Froman had not been involved in the litigation between Rivermar and

Southeast and was unaware of the matter, even though Southeast’s bond was a

construction bond and Froman was involved in most of Auto-Owners’ construction

bond litigation. In fact, Froman testified he first learned of the Rivermar claim

from Pinckney. After the initial phone call, Pinckney and Froman began

communicating with each other via letter. Pinckney continued to complain to

Froman about Hayes’ handling of the case. On October 26, 2004, four days after

9

 In one of the letters Pinckney sent to Froman, Pinckney included excerpts of a transcript 9

of one of the hearings in the case. Froman testified he did not contact Traster about Pinckney’s

assertions, did not request a copy of the complete transcript to determine the context of the

statements, and did not know Traster had attended the hearing and had reported on it to Smith. 

13
receiving additional correspondence from Pinckney and without performing an

investigation of his own, Froman raised the reserve from $5,000 to $800,000.

From his discussions with Pinckney, Froman became concerned about

Rivermar’s bad faith claim. Froman hired Tom Crafton, an attorney with expertise

in bad faith litigation, to investigate Rivermar’s claim. Crafton, however, had

substantial connections with ASI. He represented ASI in litigation in 2002 and

2003. For years, Crafton had been co-counsel with an attorney who litigated for

ASI in federal court around the country. A partner in Crafton’s law firm

represented a company owned by Fred Treadway, the largest shareholder of ASI, in

asbestos litigation. Another of Crafton’s law partners represented a company

owned by Mark Mueller, the president of Rivermar and ASI’s second largest

shareholder, in more than twenty cases.

In October 2004, Kamp called Hayes to tell her Auto-Owners would be

sending someone to her office to review her case file. Hayes agreed, but she

testified she was curious why Auto-Owners would be sending someone to review

her files at this time, because Rivermar had been offering to pay Southeast to settle

the case. Kamp told Hayes that Pinckney at ASI contacted Auto-Owners about the

bad faith claim and Auto-Owners wanted to send someone to review Hayes’ files.

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Crafton arrived at Hayes’ office in mid-November 2004. Hayes had

assembled her case files, including depositions, transcripts, notebooks, pleading

clips, and correspondence. Hayes talked with Crafton for about an hour, explaining

Southeast’s theory of the case as well as the case history. During the discussion,

Hayes asked Crafton if he had ever heard of ASI, Rivermar’s parent company.

Hayes testified that in response, Crafton shook his head no.

Hayes left Crafton alone in the conference room to review the materials and

determine what files he wanted to have copied. Hayes believed it would have taken

someone two or three days to go through all of the materials; however, Crafton

emerged from the room thirty minutes later, after flagging several items, including

deposition transcripts and pleadings, he wanted copied. Crafton also wanted a copy

of Southeast’s current financial statements, which indicated to Hayes that AutoOwners was assessing Southeast’s ability to indemnify Auto-Owners if it paid on

the bond. Hayes testified she was convinced “the entire reason Mr. Crafton came to

my office was because there was a bad-faith claim potential by Rivermar.”

Hayes meanwhile continued her representation in the state court case. She

had obtained a court order, over Rivermar’s objections, allowing her to depose

Rivermar’s engineer who had knowledge of the maintenance and remedial work

performed on the docks. Hayes testified the engineer’s deposition was important

15
because Rivermar had completely denied Southeast any access to the dock site and

Southeast had not seen any of the repairs that were allegedly performed on the

docks or their current condition. On December 7, 2004, in preparing for the

deposition, Hayes reviewed the engineer’s log on the daily activities at the dock

site, which Hayes received pursuant to a court order. She was surprised to learn

that a week earlier, on December 1, Crafton and an engineer, Greg McLellan, had

visited the dock site. Hayes was surprised because she did not know anything about

the meeting and she “never could get anywhere near the site.” The engineer’s log

also revealed the inspection was attended by Mueller, Treadway, and ASI’s New

York attorney, Ken Bloom. Hayes asked Rivermar’s engineer about the inspection.

He said he could not tell Hayes anything about the inspection, including what

occurred, what was discussed, or if any tests had been performed, because those in

attendance had signed confidentiality agreements. Hayes attempted to contact

Crafton and Froman about the December 1 meeting, but they did not return her

phone calls.

After learning about the December 1 site visit and the confidentiality

agreement, and because of the difficulty Hayes experienced in contacting AutoOwners, Hayes started to become “deeply concerned” about Crafton. Based on the

connections between ASI, Crafton, and others in Crafton’s firm, Hayes testified she

16
“was deeply concerned that [Crafton] had ulterior motives” and was “concerned

that [Auto-Owners] had brought Mr. Crafton in this in an attempt to settle the case.”

Hayes sent a letter to Traster alerting him to her concerns with Crafton.

Hayes later learned Rivermar had listed McLellan, Auto-Owners’ engineer

who accompanied Crafton to the dock site inspection, as an expert and lay witness

for Rivermar in the state court case. Hayes was never able to obtain McLellan’s

opinions or findings. She subpoenaed McLellan to appear for deposition, but

counsel for Auto-Owners instructed him not to answer her questions. Southeast

first learned McLellan’s opinions at trial on the indemnity claim, at which time he

testified he neither performed any calculations or evaluations of the free board (the

distance between the top of the floating dock segment and the water level) of his

own on the docks nor reviewed any of Rivermar’s dock maintenance records.

Rather, he reviewed the calculations in another engineering report, and he inspected

the docks while walking around the Marina with Crafton and representatives from

Rivermar and ASI on December 1, 2004.

McLellan visited the dock site three years after the docks were installed by

another contractor and after three hurricanes had come through Florida. During his

site visit McLellan noted an unspecified amount of the dock had been renovated or

replaced because he saw another manufacturer’s name on a pier segment. His only

17
structural analysis of the dock was performed on one cross section of (what

Rivermar told him was) a Southeast floating dock, which had been removed from

the water and dissected by Rivermar under unspecified conditions.

A month after the site visit, in January 2005, McLellan gave Crafton his

preliminary opinions based on the documents he had reviewed, but he said he had

wanted more information. McLellan’s preliminary opinion was that the problems

with the docks were manufacturing defects. Moreover, based on his review of the

other engineering report, McLellan concluded the docks were not constructed to the

contract specifications and thus were defective.

Froman, in January 2005, again raised the reserves, this time to $956,987, the

full amount of Southeast’s bond. Also, for the first time, Froman demanded

collateral from Southeast in the amount of the bond. According to the indemnity

agreement between Auto-Owners and Southeast, Auto-Owners could settle any

claim against the bond unless Southeast requested in writing that Auto-Owners

litigate the claim and Southeast, simultaneously with the request, deposited

collateral with Auto-Owners. When Auto-Owners made a written demand for

10

 Paragraph 6 of the indemnity agreement provides liability extends to any and all 10

amounts “paid in good faith by the surety” in settlement of any claim, “under the belief” that it

was liable, whether liable or not. While a surety generally has wide discretion in settling the

claims made on a bond, even when the principal is not liable for the underlying claim, such

discretion is not unfettered. Under the terms of the indemnity agreement, Auto-Owners would

be entitled to indemnification only for payments made in good faith. 

18
collateral in January 2005, Hayes and Traster discussed a number of options for

posting collateral; Southeast offered to post a bond, offered a letter of credit, offered

to deposit monies in Traster’s trust account, and offered to give Auto-Owners a lien

on property. The collateral discussions continued over several months, and AutoOwners did not accept any of these options. Meanwhile, Pinckney continued to

correspond with Froman about the state court action and about the bad faith claim.

Less than a week after one such communication, Froman instructed Kamp and

Smith not to talk with Hayes.

Thereafter, Auto-Owners’ attorney (Crafton) and ASI’s attorney (Bloom)

coordinated a meeting between representatives from Auto-Owners and

representatives from Rivermar and its parent company, ASI, at Crafton’s office in

Louisville, Kentucky, on March 28, 2005. This meeting between Auto-Owners and

Rivermar was kept secret from Hayes and Southeast. E-mail exchanges between

Crafton and Bloom prior to this meeting suggest Hayes was excluded from the

meeting so she did not “throw a monkey wrench into it.” Froman indicated the

meeting in Louisville was a “civil meeting” between the parties. The day after the

meeting, McLellan made a note regarding his upcoming review of the mooring

analysis and calculations on the dock system that stated “Discussed with Tom

Crafton. Not needed at this time.”

19
On April 4, 2005, Hayes sent a letter to Auto-Owners requesting, pursuant to

the indemnity agreement, that Auto-Owners not settle with Rivermar and continue

defending the state court action. At the time of Hayes’ April letter, Auto-Owners’

collateral demand from January stood at $956,987, the full amount of the bond, and

Southeast offered to put the full amount into escrow in Traster’s trust account.

Three days later, on April 7, 2005, Froman responded by increasing the demand for

collateral from $956,987 to $3 million.

Auto-Owners settled with Rivermar the following month by paying Rivermar

the full amount of the bond. According to Froman, the settlement with Rivermar

was motivated mainly by the claim on the docks and the claim for attorneys’ fees,

but also by Rivermar’s bad faith claim. Auto-Owners received a release of all

claims against it, including a withdrawal of the bad faith claim Rivermar had

asserted with the Florida Department of Insurance. The settlement, for which AutoOwners sought indemnification from Southeast, did not release Southeast from any

of Rivermar’s claims. Froman testified he was not aware Rivermar had offered to

pay $100,000 to Southeast to settle the case, and testified it would “not necessarily”

have made any difference to him. ASI’s attorney, Bloom, testified Rivermar had

indeed offered to pay Southeast to settle the dispute.

11

 In February 2007, eight months after the trial on Auto-Owners’ indemnity claim, 11

Rivermar settled all claims in the state court case with Southeast by paying it $499,999.

20
IV. DISCUSSION

Based on these facts the jury heard, we next consider the reasonable

inferences the jury could have drawn that would support the jury’s verdict. In

determining whether or not reasonable jurors could have concluded Auto-Owners

settled with Rivermar in bad faith, we consider whether the evidence supports an

inference of an unreasonable and inadequate investigation, as well as a selfinterested settlement of the claim.

We begin by observing Southeast presented no smoking gun evidence AutoOwners settled with Rivermar in bad faith. Southeast presented only circumstantial

evidence of Auto-Owners’ bad faith. Nevertheless, the jury could reasonably have

aggregated inferences from this circumstantial evidence to find by a preponderance

of the evidence Auto-Owners did not settle with Rivermar in good faith.

A. Reasonableness of Auto-Owners’ Investigation and Handling of the

Rivermar Claim

The jury heard evidence from which it could have concluded Auto-Owners

performed an unreasonable and inadequate investigation. Froman ignored the

assessment of those who had been involved with the claim for more than three

years, including Auto-Owners’ independent monitoring attorney (Traster), in-house

attorney (Kamp), and claims manager (Smith). The collective impression of those

who had been involved in the case since its inception was that there was no

21
exposure on the bond. Froman disregarded the investigation performed by AutoOwners’ representatives and credited Rivermar’s investigation and assessment of

the case.

Also, the Rivermar claim against the bond was not likely to succeed, and it

was unreasonable for Auto-Owners to settle for the full amount of the bond when

Auto-Owners was advised Rivermar would end all of the litigation for the payment

of money to Southeast. On the eve of trial that was scheduled for May 2004, but

was continued at the last minute, Rivermar offered to pay money to Southeast to

settle the case. Southeast’s attorney and ASI’s attorney both testified Rivermar had

offered to pay Southeast to settle the dispute. Southeast’s attorney and AutoOwners’ monitoring attorney both concluded there was no exposure on the part of

Southeast or Auto-Owners from Rivermar’s claim.

The jury could reasonably have concluded that it was not only unreasonable

for Auto-Owners to summarily disregard its own initial investigation that indicated

the Rivermar claim was not likely to succeed, but also unreasonable for AutoOwners to conduct an inadequate investigation before settling with Rivermar. First,

the attorney Froman enlisted in November 2004 to investigate the claim was tainted

by a conflict of interest and therefore unreliable. Hayes testified Crafton himself, as

well as other partners in his law firm, had a preexisting attorney-client relationship

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with ASI or its principal shareholders. Hayes also testified Crafton indicated to her

he had never heard of ASI. Crafton attended trial before the district court as

counsel for Rivermar, but did not testify in rebuttal of Hayes’ testimony. The jury

reasonably could have concluded Hayes’ testimony was true and Crafton

disingenuously denied familiarity with ASI.

Second, Crafton’s investigation was cursory. In November 2004 Crafton and

Hayes talked about the case for about an hour, and then Crafton reviewed Hayes’

files for half an hour. Hayes testified it would have taken someone two or three

days to thoroughly go through all of the files and “the entire reason Mr. Crafton

came to my office was because there was a bad-faith claim potential by Rivermar.”

In mid-November 2004 Crafton contacted McLellan and arranged to have him visit

the dock site and inspect the docks. Crafton never informed Hayes of this site

inspection, and the parties at the inspection signed a confidentiality agreement

prohibiting disclosure of any information exchanged at the meeting. As of

December 1, 2004 when Crafton and McLellan visited the dock site, Rivermar had

not allowed Hayes or Southeast’s experts on the premises to inspect the docks. The

jury could have inferred Crafton gained access to the dock site and met with ASI

representatives, when Hayes had experienced substantial resistance, because

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Crafton had a preexisting and favorable relationship with ASI and, consequently,

his investigation and assessment of the claim was tainted by that relationship.

In addition to concluding Auto-Owners’ investigation of the claim was

colored by Crafton’s friendliness with ASI, the jury could have concluded it was

also inadequate. McLellan testified he did not perform any calculations or

evaluations of his own on the docks and he never reviewed Rivermar’s dock

maintenance records. Southeast’s president testified maintenance was critical

because during the first year all rods holding the docks in place must be retightened

because of shrinkage of treated lumber. A review of Rivermar’s dock maintenance

records by McLellan would have been important because those records would have

established if Rivermar performed any maintenance of the docks after they were

installed. The jury could have inferred Auto-Owners secretly settled with Rivermar

before its engineer had fully and adequately investigated the claim and thus it was

unreasonable for Auto-Owners to rely on its engineer’s incomplete investigation of

the docks as a pretext for settling the claim with Rivermar.

The jury could have inferred Auto-Owners’ demands for collateral from

Southeast were intended to thwart and undermine Southeast’s attempt to litigate the

claim, which would have impeded Auto-Owners’ settlement of the bad faith claim.

During the first three years of Auto-Owners’ investigation of Rivermar’s claim,

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Auto-Owners concluded there was no reasonable risk of liability and did not seek

any collateral from Southeast. In January 2005, Auto-Owners demanded Southeast

deposit cash equal to the full penal sum of the bond in the amount of $956,978

within five days. Hayes testified she had many discussions during that time about

posting collateral and Auto-Owners did not respond to Southeast’s offers. Three

months later, on April 4, 2005, Hayes asked Auto-Owners if it was attempting to

settle the Rivermar claim, and at that time Southeast offered to put the full sum of

the bond in Traster’s trust account. Three days later, Auto-Owners demanded

Southeast post $3 million in cash with Auto-Owners. Auto-Owners offered no

explanation why its demand for collateral increased more than threefold to $3

million when Southeast offered to satisfy its demand for collateral equal to the sum

of the surety bond. The jury could have inferred Auto-Owners’ collateral demands

were precipitated by Auto-Owners and Rivermar’s agreement in principle to settle

the claim at the March 28th meeting in Louisville, and if Southeast had satisfied the

demand for collateral, Auto-Owners could not have settled the claim without

Southeast’s consent. Thus, the jury could have concluded Auto-Owners’ collateral

demands were unreasonable and in bad faith.

In sum, the jury could have found from the evidence (1) Froman

unreasonably ignored the investigation and assessment of Auto-Owners’ own

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employees as to the merits and strength of the claim on the bond, (2) Rivermar’s

claim against the bond was weak and therefore settlement for the full amount of the

bond was unreasonable, (3) Crafton had a bias friendly to Rivermar and relying on

his investigation and assessment of the claim was unreasonable, (4) McLellan never

completed his investigation and reliance on his preliminary opinion was

unreasonable, and (5) Auto-Owners’ demand for a threefold increase in collateral,

without explanation, was unreasonable. While evidence of an unreasonable and

inadequate investigation and handling of a claim, standing alone, may be

insufficient to support a finding of bad faith, the jury in this case also heard

evidence to support an inference Auto-Owners had an improper and self-interested

motive to settle the claim.

B. Auto-Owners’ Motive for Settling the Rivermar Claim

The jury heard evidence to support an inference Auto-Owners intended to

eliminate its risk of a bad faith claim, with Southeast’s money. Auto-Owners

shifted its position on the bond claim immediately following the direct threat of

Rivermar’s bad faith claim. Froman, Auto-Owners’ in-house attorney responsible

for reviewing all surety bond claims, first learned of the claim in September 2004

when Pinckney, the general counsel of Rivermar’s parent company, ASI, called.

Froman did not know about Rivermar’s claim against the bond or Rivermar’s bad

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faith claim against Auto-Owners until the phone call from Pinckney. Because of

this direct communication, Froman became concerned about the bad faith claim by

Rivermar. Froman increased Auto-Owners’ reserve from $5,000 to $800,000 in

October 2004, after Pinckney’s contact with Froman, but prior to Auto-Owners’ reinvestigation of the claim. Auto-Owners initially supported Southeast’s defenses

against Rivermar’s claims on the bond, and their position changed only after

Froman learned of the bad faith claim. The jury could have concluded AutoOwners’ change of position and settlement of the claim on the bond was prompted

by its self-interested concern about Rivermar’s bad faith claim.

The secretive nature of the negotiations between Auto-Owners and Rivermar

also lends support for the jury’s verdict. The jury heard evidence that would

support an inference Auto-Owners’ and Rivermar had reached a settlement in

principle at the March 28, 2005 secret meeting in Louisville. The day after,

McLellan was instructed to abandon his review of the mooring analysis and

calculations on the dock system. The jury could have concluded Auto-Owners and

Rivermar had reached a settlement in principle and Auto-Owners excluded Hayes

and Southeast so they would not “throw a monkey wrench” into the settlement.

The jury also heard that Auto-Owners and Rivermar’s settlement excluded

Rivermar’s claims against Southeast, while it released the claims of bad faith

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against Auto-Owners. The jury could have concluded Auto-Owners would have

obtained a release of claims against both it and Southeast if the payments made to

Rivermar indeed had been in settlement of Rivermar’s claim against the bond, as

opposed to settlement of Rivermar’s bad faith claim. The jury reasonably could

have concluded the failure to obtain a release of claims against Southeast, by

payment of money Auto-Owners intended to recoup from Southeast, is evidence the

settlement reached was not for the claims against the bond.

Whether a surety has settled a claim in good faith or not, of course, depends

on the particular facts of the case. See Dadeland Depot, Inc. v. St. Paul Fire &

Marine Ins. Co., 483 F.3d 1265, 1276 (11th Cir. 2007). It is the province of the

factfinders to assess the credibility of witnesses and draw reasonable and logical

inferences from the evidence. See Combs v. Plantation Patterns, 106 F.3d 1519,

1538 (11th Cir. 1997). As outlined above, the verdict reached by the jury was

supported by the evidence presented at trial.

V. CONCLUSION

Based on the evidence presented to the jury, the district court’s grant of a new

trial was an abuse of discretion. The jury reasonably could have found AutoOwners settled the claim to avoid an exposure greater than the full sum of the bond

due to the bad faith claim by Rivermar. The jury also reasonably could have found

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Crafton’s investigation was tainted by his preexisting relationship with Rivermar’s

parent company and was simply a sham to mask the settlement of the bad faith

claim. We therefore REVERSE the grant of a new trial and REMAND to the

district court to enter a judgment reinstating the jury verdict in favor of Appellants

Southeast Floating Docks, Inc., and Alan Simpson.

12

REVERSED AND REMANDED.

 Because we find the motion for new trial was improperly granted, we need not reach 12

Appellants’ argument that the district court erred in granting Auto-Owners’ motion for summary

judgment as to Southeast’s liability. 

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