Arch Insurance Company v. Douglas Asphalt Company

FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
JAN 15, 2010
JOHN LEY
ACTING CLERK
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 09-13528
Non-Argument Calendar
________________________
D. C. Docket No. 07-00038-CV-5
ARCH INSURANCE COMPANY,
Plaintiff-Counter-
Defendant-Appellee,
versus
DOUGLAS ASPHALT COMPANY,
JOEL SPIVEY,
KYLE SPIVEY,
Defendants-Counter-
Claimants-Appellants.
________________________
Appeal from the United States District Court
for the Southern District of Georgia
_________________________
(January 15, 2010)
Before DUBINA, Chief Judge, CARNES and ANDERSON, Circuit Judges.

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PER CURIAM:
The Georgia Department of Transportation (“GDOT”) contracted with
Douglas Asphalt Company (“Douglas”) to perform work on interstate construction
projects. Arch Insurance Company (“Arch”) executed performance and payment
bonds in connection with Douglas’s work on the projects, and Douglas, along with
Joel Spivey and Kyle Spivey (“the Spiveys”), executed an indemnification
agreement in favor of Arch for all losses sustained as a result of having issued
bonds on behalf of Douglas. In August 2006, GDOT determined that Douglas was
in default on three projects known collectively as the “Southern Triangle” projects,
all of which were bonded by Arch, and Arch became responsible for remedying
Douglas’s default. After the GDOT determined that Douglas was in default on a
number of other Arch-bonded projects, on February 2, 2007, Arch exercised its
right under the indemnification agreement and ordered Douglas to cease work on
all Arch-bonded projects.
Arch filed suit against the Appellants, Douglas and the Spiveys, to recover
its losses. Following a four-day bench trial, the district court entered a judgment in
favor of Arch in the amount of $88,892,128.15 plus post-judgment interest. The
district court also ordered Douglas to comply with the collateral deposit clause of
the indemnification agreement and immediately deposit another $40,000,000.00 in
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collateral.
The Appellants appeal the Bench Trial Ruling and the judgment entered in
favor of the Appellee, Arch, by the district court. The Appellants contend that the
district court erred by failing to find that they were relieved from their duty to
indemnify Arch based on Arch acting in bad faith in paying claims under the
performance and payment bonds it issued on behalf of Douglas. We affirm.
This court reviews the district court’s conclusions of law de novo. Fischer v.
S/Y Neraida, 508 F.3d 586, 592 (11th Cir. 2007). The district court’s findings of
fact, including determinations of the credibility of witnesses and weight of the
evidence, are reviewed for clear error. Id.
The parties agree that the indemnification agreement is enforceable absent
the Appellants demonstrating that Arch exhibited bad faith in paying the claims
under the performance and payments bonds. See Nguyen v. Lumbersmen Mut.
Case. Co., 261 Ga. App. 553, 555 (2003). Under Georgia law, a finding of bad
judgment or negligence is generally not enough to show bad faith. Id. Bad faith
“imports a dishonest purpose or some moral obliquity, and [it] implies conscious
doing of wrong, and means breach of known duty through some motive of interest
or ill will.” Id. (alteration in original). The Appellants assert three examples of
Arch acting in bad faith: First, Arch completed the bonded projects at a cost well
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above the amount which the Appellants claim that they could have performed the
work. Second, Arch failed to contest Douglas’s default and bond obligations.
Finally, Arch did not allow Douglas to remain involved in the projects following
its default.
Arch’s completion of the projects at a higher cost does not demonstrate bad
faith. The district court factually found that Douglas was invited to all meetings
between Arch and construction company being considered to complete projects,
but that Douglas failed to send representatives to the meetings. Arch also hired a
consulting firm to assist in evaluating and soliciting competitive bids on the
projects and only considered other construction companies after determining that
Douglas would not be able to complete the projects. The district court specifically
found the testimony regarding Arch’s good faith efforts in seeking competitive
bids credible. Further, the Appellants have not presented any evidence to show
that the costs were unreasonable, except to claim that they could have done it for
less.
Second, the Appellants have not demonstrated that Arch acted in bad faith
by failing to contest the defaults. Under the indemnification agreement, Arch had
full discretion in determining whether to defend, settle or pay claims against its
bonds. The agreement also provided that if the Appellants wanted Arch to defend
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a claim, they were required to deposit collateral to pay any judgment rendered in
the course of contesting the default plus interests, costs and attorneys fees. The
Appellants have not pointed to any default they properly requested Arch to defend
that was not defended by Arch.
Arch’s failure to allow Douglas to remain involved in the projects is
likewise not evidence of bad faith. The district court made the factual finding that
Douglas was involved in the projects through January 2007, and was only excluded
following a series of events indicating that Douglas was not financially equipped to
complete the projects. Those events included Douglas’s default on seven
additional GDOT projects bonded by Arch, Douglas’s announcement that it was
having trouble funding its payroll, and Douglas’s failure to post any collateral with
Arch, despite its contractual obligation to post $40,000,000.00 in collateral to
match the amount of reserve established by Arch. Arch also hired a consulting
company to investigate the financial condition of Douglas, and Douglas failed to
respond to requests to provide plans to demonstrate that it was capable of
completing the projects. Thus, the district court did not err in concluding that
Arch’s decision to exclude Douglas was not made in bad faith. Accordingly, we
find no error and affirm the district court’s judgment.
AFFIRMED.
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