The Quebec Superior Court has upheld a clause in a credit insurance policy allowing the insurer to cancel or amend approved credit coverage. The plaintiff, IOC, was insured by Export Development Canada (“EDC”) for risks inherent in its foreign market transactions. The insurance policy provided that EDC would indemnify IOC for 90% of the losses sustained with respect to the sale and shipping of ore to customers whose credit was pre-approved. However, section 3 of the policy stated that EDC could at any time cancel or amend the approved credit limit of a customer by giving written notice transmitted in person, by mail or by any other means. EDC used this clause to cancel the credit approval of one of IOC’s customers and sent the requisite notice by fax. IOC continued to export ore to the customer for several months until the date when it claimed it was duly informed of the cancellation. The customer subsequently became insolvent and IOC asked its insurer to pay out the coverage. EDC refused, arguing that the insurance policy had been duly cancelled before the losses were incurred.
Although the Court held that the insurance policy constituted a contract of adhesion, it rejected IOC’s argument that section 3 of the policy was abusive and unreasonable. The Court held that it was legitimate for EDC to evaluate the solvency of IOC’s customers. Moreover, the possibility of cancelling a credit limit was found to be standard in the credit insurance field and an essential element of the insurance policy. Although the Court concluded that EDC did not commit an abuse of right in cancelling the approved credit, it nonetheless ordered EDC to indemnify IOC for its losses. It held that EDC had the burden of proving receipt of the written notice of cancellation. Since the fax coversheet did not prove the content of the notice and the presumption of receipt was countered by the testimony of IOC’s director that he did not receive the notice, EDC was ordered to pay approximately $4.5 million to IOC. This part of the Superior Court’s judgment stands as a stark reminder that means of communication that ensure proof of receipt must be used for important notices. François Fontaine and Emmanuelle Demers of the Montreal office successfully acted for IOC.