Ontario’s Superior Court upheld a $100,000 sublimit in an Atradius credit insurance coverage dispute, in which the receiver for the bankrupt Eagle Journey Plaza, BDO Canada, claimed the total coverage restrict of $5.94 million.
Earlier than it went bankrupt in 2019, Eagle Journey was a gasoline and fleet service supplier. It operated a fleet member reward card program that offered its prospects, the ‘patrons’ (truck transportation corporations and proprietorships), with fleet playing cards that drivers might use to buy gasoline and different objects on credit at taking part fuel stations and truck stops.
In September 2018, Atradius issued a coverage to Eagle Journey that coated losses if Eagle didn’t obtain full cost from its patrons for gasoline and different objects bought. After its appointment as receiver in September 2019, BDO Canada found Eagle Journey had thousands and thousands of {dollars} in excellent accounts receivables regarding non-payment for gasoline and different objects bought by its patrons.
BDO made a declare after which sued the insurer for $5.94 million, saying Eagle was entitled to the total protection in the coverage.
Atradius defended the motion, arguing, amongst different issues, the coverage contained an mixture restrict relevant to sure patrons that restricted its legal responsibility throughout a one-year time period to $100,000.
Central to the coverage is a distinction between credit limits for 2 completely different courses of ‘patrons.’
Within the first instance, Eagle Journey might apply for a credit restrict for the quantity it required for any specific purchaser. The insurer, Atradius, would then set the credit restrict it was ready to simply accept for that specific purchaser. The coverage refers to this selection as a Credit Restrict Determination by the insurer.
Underneath the second possibility, Eagle Journey might set up its personal Discretionary Credit Restrict [DCL], with out making use of to Atradius for a credit-limit choice. The DCL may very well be based mostly on credit stories obtained by Eagle Journey or its personal cost expertise with the customer.
The boundaries in the insurance coverage are described in the coverage schedule. There, the insurer’s most legal responsibility is about at $5.94 million, representing a a number of of 33 occasions the present insurance yr premium ($181,170).
Then the next language seems: “Nevertheless, the place you determine Discretionary Credit Limits on your patrons, the utmost quantity we will be liable to pay in respect of such patrons per insurance yr shall be $100,000. This quantity is included throughout the insurer’s most legal responsibility or the a number of of premium paid and isn’t in addition to such quantities.”
BDO Canada obtained accounting spreadsheets displaying Eagle Journey had established DCLs for tons of of patrons for greater than $9 million in whole. The receiver made 175 claims underneath the coverage with an mixture worth of over $4 million in respect of DCL patrons. Atradius didn’t pay the declare, pointing to the $100,000 sublimit for DCL patrons in the coverage.
Ontario’s Superior Court discovered no ambiguity in the coverage.
“The language of [the DCL sublimit] is in plural phrases,” the courtroom discovered. “It refers to ‘Discretionary Credit Limits,’ in the plural type. It refers to ‘your patrons,’ once more in plural type. It then says that the utmost quantity applies ‘in respect of such patrons’ — which means the patrons to whom the Discretionary Credit Limits have been established. The [sublimit clause] doesn’t say that the $100,000 restrict is per DCL purchaser. It doesn’t seek advice from ‘a purchaser for whom a Discretionary Credit Restrict’ has been established.
“It applies to the pool of DCL patrons for whom Discretionary Credit Limits have been established. Given using the plural type, the inclusion of the phrase ‘mixture’ was pointless and would have been superfluous.”
Characteristic picture courtesy of iStock.com/Stouffer
