Court File and Parties

COURT FILE NO.: CV-21-00663692-00CL DATE: 20220425 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: 908593 ONTARIO LIMITED, operating as Eagle Travel Plaza by its Court appointed receiver, BDO CANADA LIMITED, Plaintiff and ATRADIUS CRÉDITO Y CAUCIÓN S.A. DE SEGUROS Y REASEGUROS, Defendant

BEFORE: Conway J.

COUNSEL: Steven Graff, Dennis M. O’Leary and Max Muñoz, for 908593 Ontario Limited, operating as Eagle Travel Plaza by its Court appointed receiver, BDO Canada Limited Steven Stieber and Sam R. Susso, for Atradius Crédito y Cauciõn S.A. de Seguros y Reaseguros

HEARD: April 12, 2022

Reasons for Decision

[1] 908593 Ontario Limited, operating as Eagle Travel Plaza (“Eagle Travel”), by its Court appointed receiver BDO Canada Limited (the “Receiver”), brings this motion with respect to its coverage under a credit risk insurance policy (the “Policy”) issued by Atradius Crédito y Cauciõn S.A. de Seguros y Reaseguros (“Atradius”).

[2] Prior to its receivership and bankruptcy in 2019, Eagle Travel carried on business as a fuel and fleet service provider. As part of its business, Eagle Travel operated a fleet member reward card program through which it provided its customers (truck transportation companies and proprietorships) (the “Buyers”) with fleet cards that drivers could use to purchase fuel and other items on credit at participating gas stations and truck stops.

[3] In September 2018, Atradius issued the Policy to Eagle Travel. Under the Policy, Atradius agreed to indemnify Eagle Travel for covered losses if Eagle Travel did not receive full payment from its Buyers for fuel and other items purchased by them. The Policy was renewed by Eagle Travel on June 1, 2019.

[4] After its appointment on September 30, 2019, the Receiver discovered that Eagle Travel had millions of dollars in outstanding accounts receivables relating to non-payment for fuel and other items purchased by its Buyers. The Receiver made a claim for indemnity under the Policy with respect to those accounts receivable. It then commenced this action seeking damages of $5.94 million and a declaration that Eagle Travel is validly insured such that coverage is owed under the Policy. Atradius defended the action on the basis, inter alia, that the Policy contains an aggregate limit applicable to certain Buyers that limits its liability during the one-year term of the Policy to $100,000.

The Policy

[5] As noted, the Policy is a credit risk insurance policy that provides coverage to Eagle Travel in the event of non-payment by Buyers. The Policy consists of, among other things, a Policy Schedule, an Overview of Conditions, and Conditions.

[6] Under the Policy, Atradius covers “Insured Receivables”. To fall within the definition of Insured Receivables, there must be a valid “Credit Limit” established for the Buyer that specifies the maximum amount and conditions on which Atradius accepts liability for each Buyer.

[7] The Credit Limit may be established in one of two ways.

[8] The first is for Eagle Travel to apply for a Credit Limit for the amount it requires for any particular Buyer. Atradius responds and sets the Credit Limit that it is prepared to accept for that Buyer. This is referred to as a “Credit Limit Decision”. There is a cost to applying for a Credit Limit Decision.

[9] The second is for Eagle Travel to establish a “Discretionary Credit Limit” itself, without applying to Atradius for a Credit Limit Decision. The Discretionary Credit Limit may be based on credit reports obtained by Eagle Travel or its own payment experience with the Buyer. The maximum Discretionary Credit Limit that Eagle Travel can provide to a Buyer (a “DCL Buyer”) is $50,000.

[10] The Policy provides coverage for a Buyer’s failure to pay an Insured Receivable to Eagle Travel within a six-month waiting period, a “Protracted Default”. The Policy is for a one-year term. The annual premium for the Policy is $181,170.

[11] Atradius’ maximum liability under the Policy is described in Article 23300.00 (“Article 23300”) of the Conditions: [1]

The maximum amount which we shall be liable to pay per insurance year shall be either the amount of the insurer's maximum liability or the multiple of the premium (net of any applicable tax) paid in respect of the insurance year, whichever is higher, notwithstanding that the insurer's maximum liability may be less than the insured percentage of any individual Credit Limit or aggregate of Credit Limits.

The amount of the insurer's maximum liability and the multiple are specified in the Policy Schedule.

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 100000. This amount is included within the insurer's maximum liability or the multiple of premium paid and is not in addition to such amounts.

The amount of the insurer's maximum liability and the multiple are specified in the Policy Schedule. [2]

[12] According to the Policy Schedule, the insurer's maximum liability is $5,940,000 and the and the multiple is 33 times the current insurance year premium.

Factual Background

[13] Akhil Kapur, Director of Business Development at Atradius, swore an affidavit on behalf of Atradius. He says that he met with the four principals and a senior employee of Eagle Travel (Mandhir Dhillon, Mandeep Dhillon, Simran Dhillon, and Gary Thind) prior to binding the original Policy in 2018. Mandhir Dhillon filled out a Trade Credit Insurance Application that showed the number of Buyers of Eagle Travel. Five hundred Buyers had receivables in the range of $25,000-50,000 and there were 700 Buyers in total. The top ten Buyers had receivables between $300,000 and $1.3 million.

[14] Mr. Kapur said that he discussed the difference between Buyers with Credit Limit Decisions and Discretionary Credit Limits with the principals of Eagle Travel. He explained that the highest risk category to Atradius was Buyers that are not specifically vetted and monitored by Atradius and that he advised them of the $100,000 aggregate limit applicable to DCL Buyers.

[15] On May 2, 2018, Mr. Kapur sent an internal email to Andrew Perkins and Chris Short at Atradius reporting on his April 27, 2018 meeting with Mandhir Dhillon. Mr. Kapur stated: “I have advised them that the maximum discretionary limit we usually consider is 50k which should take care of over 500 of their buyers. Since it’s a big buyer pool, I have advised them that we will be putting a cap on the discretionary credit limit.”

[16] On May 11, 2018, Mr. Mandhir Dhillon signed Atradius’ Indication of Terms that listed “Maximum aggregate DCL claims” as $100,000. A similar Indication of Terms listing “Maximum aggregate DCL claims” was signed by Mandeep Dhillon on May 27, 2019, before the renewal Policy took effect.

[17] Both Mandhir Dhillon and Mandeep Dhillon swore affidavits on behalf of Eagle Travel. On cross-examination, they confirmed that they had knowledge of the two ways they could secure Credit Limits under the Policy. Mandeep Dhillon also said that Mr. Kapur had discussed how the Discretionary Credit Limit worked: “I think there might have been, like, a maximum amount of liability that Atradius would undertake for the DCL buyers. But I don’t recall what those amounts were.” Mandeep Dhillon admitted that he did not read the terms of the renewal Policy before he signed it in May 2019.

[18] Christopher Mazur is the Senior Vice-President of the Receiver. His evidence is that the Receiver obtained accounting spreadsheets showing that Eagle Travel had established Discretionary Credit Limits for hundreds of Buyers of over $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. It made three claims with an aggregate value of $491,000 for Buyers with Credit Limit Decisions. Atradius has not paid any of those claims. It says that it is prepared to provide Eagle Travel with the coverage available pursuant to the terms, conditions, exclusions, and limitations of the Policy.

Applicable Legal Principles

[19] The primary interpretive principle applicable to insurance policies is that when the language of the policy is unambiguous, the court should give effect to that clear language, reading the contract as a whole: Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at para. 71; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 49.

[20] Where, however, the policy’s language is ambiguous, courts must rely on general rules of contract construction. In that case, courts should prefer an interpretation that is consistent with the parties’ reasonable expectations, so long as that interpretation is supported by the policy’s underlying text. Courts should also avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties when the policy was concluded. In addition, courts should ensure that similar insurance policies are construed consistently: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at para. 23.

[21] That said, before a court resorts to the general rules of contract construction, it must first be satisfied that the insurance policy at issue is truly ambiguous. In other words, the rules of construction can only be used to resolve ambiguity. They do not create ambiguity where none exists: Progressive Homes, at para. 23. See also, Chilton v. Co-Operators General Insurance Co., [1997] O.J. No. 579 (C.A.), at para. 26. The mere presence of imprecise language does not necessarily mean that there is ambiguity when the policy is construed as a whole. Further, for ambiguity to exist there must be two reasonable meanings that each make sense within the policy when read as a whole: Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, [2017] 1 S.C.R. 121, at para. 42.

[22] Where the general rules of contract construction fail to resolve the ambiguity, courts will proceed to an additional analytical step and construe the policy against the insurer pursuant to the contra proferentem principle: Progressive Homes, at para. 24; Ledcor, at para. 51. In Progressive Homes, the Supreme Court of Canada noted that one corollary of the contra proferentem rule is that coverage provisions will be interpreted broadly, whereas exclusion clauses will be interpreted narrowly: at para. 24.

Analysis

[23] The sole issue on this motion is whether the Receiver’s claims in respect of all DCL Buyers are subject to the $100,000 maximum amount set out in Article 23300.

[24] The Receiver makes two broad arguments. First, it says that the wording of Article 23300 imposes a clear $100,000 limit for each DCL Buyer, not an overall limit for all DCL Buyers. Second, it submits that, in the alternative, Article 23300 is ambiguous and should be interpreted in favour of Eagle Travel pursuant to the contra proferentem principle.

[25] In support of these arguments, the Receiver notes that the Policy Schedule makes no reference to the $100,000 limit. It also argues that Article 23300 does not include the word “aggregate” in outlining Atradius’ liability, even though that word is used elsewhere in the Policy. In addition, the Receiver submits that Atradius knew that Eagle Travel had a large number of DCL Buyers and, as such, knew that it required a limit in excess of $100,000. Finally, it argues that it would be unreasonable for Atradius to collect a premium of $181,710 despite limiting claims for the hundreds of DCL Buyers to $100,000.

[26] I reject these submissions.

[27] In my view, reading the Policy as a whole, the language of Article 23300 is clear and unambiguous.

[28] The first paragraph of Article 23300 sets out the maximum amount that Atradius is liable to pay per insurance year. It does not use the word “aggregate”, nor does it need to. It refers to the “maximum amount” payable under the Policy and cross-references the definitions of insurer’s maximum liability and multiple of premium in the Policy Schedule. This is the maximum that Atradius must pay out under the Policy in any insurance year, for all Insured Receivables.

[29] The second paragraph, starting with “However”, qualifies that first paragraph of Article 23300. It goes on to state that “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 100000.” It is specific to DCL Buyers and imposes a limit for those Buyers that is less than the maximum that Atradius would otherwise have to pay under the Policy.

[30] The language of Article 23300 is in plural terms. 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 Article 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.

[31] Further, the $100,000 limit applies per insurance year, not per DCL Buyer. That is consistent with the first paragraph setting out the maximum amount that Atradius must pay under the Policy per insurance year. Neither paragraph refers to payment of a maximum amount per Buyer. It is clear that they both refer to payment of a maximum amount under the Policy per insurance year.

[32] In my view, given the unambiguous language of the Policy, the Receiver’s submission that the $100,000 applies to each DCL Buyer would amount to a re-writing of the Policy.

[33] The Receiver’s interpretation also does not reflect the structure of the Policy read as a whole. As described above, the Policy provides for two categories of Buyers — those that have been reviewed by Atradius and for which a Credit Limit Decision has been made, and those with Discretionary Credit Limits that are made by Eagle Travel without the input of Atradius. In the former category, Atradius has the opportunity to review the Buyer and decide on the amount of the Credit Limit and the extent of the risk it is prepared to assume. In the latter category, Atradius has no role in evaluating the credit of the Buyer and is prepared to allow Eagle Travel to set a Discretionary Credit Limit, provided it is less than $50,000.

[34] The Receiver’s interpretation would essentially collapse the two categories of Buyers into one. Atradius would face the same exposure for both categories. Its maximum liability for Buyers with Credit Limit Decisions would be $5,940,000 (or 33 times the current insurance year premium, whichever is higher). Its maximum liability for DCL Buyers would also be $5,940,000 (or 33 times the premium). For example, on the Receiver’s interpretation, if Eagle Travel had 500 DCL Buyers, and Atradius had to pay $100,000 per DCL Buyer, that would equal $50 million, subject to the maximum limit of $5,940,000 (or 33 times the premium). Article 23300 expressly contemplates a different maximum limit for DCL Buyers than the maximum liability under the Policy. The Receiver’s interpretation would impose the same limit for both categories of Buyers and would eliminate the lower maximum limit for DCL Buyers.

[35] As noted, the Receiver submits that the $181,710 premium makes no sense if the maximum limit is $100,000 for DCL Buyers. In my view, this submission also fails to reflect the structure of the Policy. Eagle Travel paid for credit insurance under the Policy up to a maximum of $5,940,000 (or 33 times the premium). It was always entitled to avail itself of that coverage if it applied for Credit Limit Decisions and obtained approval from Atradius. The premium did not apply solely to DCL Buyers — rather, it applied to both DCL Buyers and Buyers possessing a Credit Limit Decision. It was up to Eagle Travel to decide whether to apply for a Credit Limit Decision or pursue the DCL Buyer route. The fact that it chose the latter does not render the premium disproportionate to the coverage available to Eagle Travel under the Policy.

[36] At the hearing, the Receiver’s counsel submitted that there was a cost and potentially time-consuming application process that Eagle Travel would need to pursue to obtain a Credit Limit Decision for its Buyers. With respect, that is exactly how the Policy works. In order for Atradius to review a Buyer, make a Credit Limit Decision, and expose itself to the maximum liability under the Policy, Eagle Travel had to pay a cost and comply with any conditions imposed. If it chose not to and instead opted to pursue the DCL Buyer route, it saved the time and cost of pursuing the application process. However, it was then subject to the lower maximum limit for those DCL Buyers.

[37] The fact that the $100,000 limit is not listed on the Policy Schedule is also not determinative. The Overview of Conditions clearly refers the reader to the section of the Conditions that sets out the maximum liability provisions under the Policy.

[38] Even if I accept the Receiver’s submission that the language of Article 23300 is ambiguous and proceed to apply general rules of contract construction, its claim still cannot succeed. The reasonable expectations of the parties are informed by the fact that there were two categories of Buyers, one in which Atradius set a Credit Limit for a Buyer after doing its own credit risk assessment (Credit Limit Decision Buyers) and one in which Atradius had no involvement with the Buyer in question (DCL Buyers). Eagle Travel had hundreds of DCL Buyers. To use the language of Progressive Homes, it is “unrealistic” to accept that Atradius agreed to expose itself to the same maximum limit under the Policy for both categories of Buyers, despite its vastly different level of input for the two categories.

[39] Moreover, it is clear from Article 23300 that the intention of the parties was to differentiate between the two categories of Buyers and establish a lower maximum limit under the Policy for DCL Buyers than that which would otherwise apply. This makes sense given the lack of involvement of Atradius in evaluating the credit of the DCL Buyers. The Receiver’s interpretation would eliminate that difference and effectively read out the lower maximum limit for DCL Buyers contained in the third paragraph of Article 23300. This, in turn, would permit the Receiver “to achieve recovery which could neither be sensibly sought nor anticipated at the time of contract formation”, something which “courts should be loath to support”: Consolidated-Bathurst v. Mutual Boiler, [1980] 1 S.C.R. 888, at pp. 901-902.

[40] In my view, the Receiver’s interpretation ignores the distinction between the two categories of Buyers, does not reflect the different levels of Atradius’ input and assumption of credit risk, and is contrary to the structure of both the Policy and Article 23300. Its submissions produce an unrealistic result that is contrary to the reasonable expectations of the parties.

Decision and Costs

[41] For the reasons set out above, the Receiver’s motion is dismissed.

[42] If the parties are unable to come to an agreement on costs, they shall schedule a half hour case conference before me (through the Commercial List office) to discuss the process for determining them.

Conway J.

Date: April 25, 2022

[1] The Overview of Conditions refers to the applicable section of the Conditions. The “insurer’s maximum liability” is listed under “Claims” on p. 2 of the Overview and refers to Article 23300. [2] This sentence appears twice in Article 23300.