Court sides with Atradius in $5.94-million credit insurance dispute

Ontario’s Superior Court upheld a $100,000 sublimit in an Atradius credit insurance policy dispute, in which the receiver for the bankrupt Eagle Travel Plaza, BDO Canada, claimed the full policy limit of $5.94 million.

Before it went bankrupt in 2019, Eagle Travel was a fuel and fleet service provider. It operated a fleet member reward card program that provided its customers, the ‘buyers’ (truck transportation companies and proprietorships), with fleet cards that drivers could use to purchase fuel and other items on credit at participating gas stations and truck stops.

In September 2018, Atradius issued a policy to Eagle Travel that covered losses if Eagle didn’t receive full payment from its buyers for fuel and other items purchased. After its appointment as receiver in September 2019, BDO Canada discovered Eagle Travel had millions of dollars in outstanding accounts receivables relating to non-payment for fuel and other items purchased by its buyers.

BDO made a claim and then sued the insurer for $5.94 million, saying Eagle was entitled to the full coverage in the policy.

Atradius defended the action, arguing, among other things, the policy contained an aggregate limit applicable to certain buyers that limited its liability during a one-year term to $100,000.

Central to the policy is a distinction between credit limits for two different classes of ‘buyers.’

In the first example, Eagle Travel could apply for a credit limit for the amount it required for any particular buyer. The insurer, Atradius, would then set the credit limit it was prepared to accept for that particular buyer. The policy refers to this option as a Credit Limit Decision by the insurer.

Under the second option, Eagle Travel could establish its own Discretionary Credit Limit [DCL], without applying to Atradius for a credit-limit decision. The DCL could be based on credit reports obtained by Eagle Travel or its own payment experience with the buyer.

The limits in the insurance policy are described in the policy schedule. There, the insurer’s maximum liability is set at $5.94 million, representing a multiple of 33 times the current insurance year premium ($181,170).

Then the following language appears: “However, where you establish Discretionary Credit Limits for your buyers, the maximum amount we shall be liable to pay in respect of such buyers per insurance year shall be $100,000. This amount is included within the insurer’s maximum liability or the multiple of premium paid and is not in addition to such amounts.”

BDO Canada obtained accounting spreadsheets showing Eagle Travel had established DCLs for hundreds of buyers for more than $9 million in total. The receiver made 175 claims under the policy with an aggregate value of over $4 million in respect of DCL buyers. Atradius did not pay the claim, pointing to the $100,000 sublimit for DCL buyers in the policy.

Ontario’s Superior Court found no ambiguity in the policy.

“The language of [the DCL sublimit] is in plural terms,” the court found. “It refers to ‘Discretionary Credit Limits,’ in the plural form. It refers to ‘your buyers,’ again in plural form. It then says that the maximum amount applies ‘in respect of such buyers’ — meaning the buyers to whom the Discretionary Credit Limits have been established. The [sublimit clause] does not say that the $100,000 limit is per DCL buyer. It does not refer to ‘a buyer for whom a Discretionary Credit Limit’ has been established.

“It applies to the pool of DCL buyers for whom Discretionary Credit Limits have been established. Given the use of the plural form, the inclusion of the word ‘aggregate’ was unnecessary and would have been superfluous.”

 

Feature photo courtesy of  iStock.com/Stouffer