2013 QCCQ 15837, 2013 QCCQ 15837

Schwartz c. Bank of Montreal 2013 QCCQ 15837 COURT OF QUEBEC «Division of small claims» CANADA PROVINCE OF QUEBEC DISTRICT OF Montreal No: 500-32-128691-112 DATE: December 12, 2013 ______________________________________________________________________ BY THE HONOURABLE DAVID L. CAMERON, J.C.Q. _____________________________________________________________________ PETER SCHWARTZ […] , Montréal, Québec, […] v. BANK OF MONTREAL 119 St-Jacques, Montréal, Québec, H2Y 1L6 -and- MONDIAL ASSISTANCE 4273 King St.

E., Kitchener, ON, N2P 2E9 ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Peter Schwartz, a retired executive, avid traveller and teacher of bridge, sues his Mastercard issuer, Bank of Montreal, and Mondial Assistance, who represents the group insurer Allianz, seeking the payment of $ 3,861.00 representing the cost of a cruise trip which he was forced to cancel for medical reasons in 2010. [ 2 ] Mr Schwartz alleges that a medical condition that occurred suddenly in Toronto led to a medical recommendation to refrain from travelling.

He had already paid for a cruise on the Holland America line, where he was to act as a Bridge Director. As an expert teacher of the game of bridge he was to take

part in bridge courses given to passengers from March 12, 2011 to May 13, 2011. He had paid an intermediary the fare, as part of the arrangement of this employment. [ 3 ] The amount in question was to cover the lodging for himself and his wife during the voyage.

He had made the payment by check because the intermediary that arranged the trip did not permit payment by credit card. [ 4 ] When the claim was made to Mondial Assistance, it was denied on the basis that Mr Schwartz had not paid for the voyage in whole or in part using his BMO mastercard account, and that this is a central condition of the insurance coverage. [ 5 ] Mr Schwartz and his wife held a Bank of Montreal mastercard account for which an annual fee of $ 60 was charged for “Mosaik Travel Protection-Enhanced Plus”. [ 6 ] Mr Schwartz was aware that this protection, which he had also had at an earlier time under a BMO Platinum mastercard account would cover the cost of cancellation of a trip.

In the present case he forfeited the amount paid because he did not cancel with the cruise line early enough to benefit from a reimbursement of the fare.

ISSUES [ 7 ] The Court must determine whether Mr Schwartz has a claim either against Bank of Montreal or the Insurance Company, as represented by Mondial Assistance for the fare which he forfeited. [ 8 ] To do so, the Court must examine the contractual relationships existing between the parties. [ 9 ] The denial of coverage was made exclusively on the basis of a condition in the policy, requiring that, for coverage to apply, the credit account must have been used to pay for the trip. But, at trial, the representative of Mondial Assistance also questioned whether

there had actually been a medical recommendation not to travel. Mr Schwartz objected to the fact that this defence that was raised for the first time at the hearing, having never been part of the denial of coverage. ANALYSIS [ 10 ] The Court agrees with Mr Schwartz that it is rather too late for the Defendant to question the legitimacy of his medical claim as the denial was based exclusively on the payment condition.

Insurers must clearly state all of their reasons for denying coverage, failing which there may be a “ fin de non-recevoir ” to the position raised tardily. [ 11 ] In any event, Mr Schwartz’s testimony and the medical record produced was sufficient to demonstrate, on the balance of probabilities, that he had received a medical recommendation not to travel because of an incident that occurred in Toronto for which he was treated at the Mount Sinai hospital where he was admitted on February 16, 2011. [ 12 ] The issues are therefore reduced to those relating to the fact that he did not pay for the trip using his BMO credit account, as the intermediary that placed his contract with the cruise line insisted upon payment by cheque. [ 13 ] Mr Schwartz states, and the Court accepts the sincerity of his testimony, that he was unaware that his banking relationship with BMO required payment on the mastercard account as a condition of coverage under the insurance arrangement [ 14 ] Mr Schwartz had made some previous claims for travel insurance benefits, and, in those claims that he had provided proof of payment of the travel cost by providing proof of the payment on his credit-card Account [ 15 ] Nevertheless, the documentation provided did not show that he had been made aware that this was a specific condition of the coverage at the time he was making his claims.

Mr Schwartz established that he normally does use the credit-card account to pay for travel, but this does not mean that he was aware that this was a condition of the insurance policy. [ 16 ] To establish the presence of the condition in the policy, the Defendants provided copies of the typical insurance certificate issued from time to time.

Although the exact wording has changed from time to time, all of the examples shown have in common the presence of clauses refrain pertaining to whether or not it is necessary to use the credit card in order to obtain benefits. [ 17 ] For example in the BMO travel protection with trip cancellation certificate of insurance, there is a clause on the heading “4.3.1 Trip cancellation benefits (prior to departure)” that read as follows: “ covers illegibility coverage apply only when you charge the forecast of your trip to the primary or family cardholders mastercard when booking your trip ”. [ 18 ] Another version (D-1) in a booklet titled “Mosaik Travel Protection Enhanced Plus, reads, under the heading “Trip Cancellation Insurance”: Should you have to cancel a trip before your scheduled departure date and you have paid the entire amount with your Platinium mastercard, you must cancel your trip with a travel agent and notify emergency assistance within 48 hours of the event which caused you to cancel your trip.

You will be reimbursed for the prepaid portion of your trip which is non refundable or non transferable to another travel date up to a maximum of $4,000 per Certificate of Insurance. […] [ 19 ] Another version of the clause provides that the coverage depends upon at least part of the trip being paid for with the BMO mastercard. [ 20 ] Somewhat surprisingly, the insurance for which Mr Schwartz received the certificate was group insurance, not individual insurance.

Because it is a group insurance, there are actually three parties to the contract: the insurer, the client (in this case BMO), and the participant, the participant being the cardholder and his family. [ 21 ] In the rules concerning the formation of the insurance contracts, the applicable provisions are as follows: 2400. In non-marine insurance, the insurer shall remit the policy to the client, together with a copy of any application made in writing by the client or on his behalf.

In case of discrepancy between the policy and the application, the latter prevails unless the insurer has, in a separate document, indicated the particulars in respect of which there is discrepancy to the client. 1991, c. 64, a. 2400. 2401. In group insurance, the insurer issues the group insurance policy to the client and remits to him the insurance certificates, which he shall distribute to the participants.

Participants and beneficiaries may examine and make copies of the policy at the place of business of the client and, in case of discrepancies between the policy and the insurance certificate, they may invoke either one according to their interest. 1991, c. 64, a. 2401. [ 22 ] If this had been a contract of an individual insurance, Mr Schwartz may well have benefited from

article 2400, which affords the insured the benefit of any discrepancy between the policy and the application. In such a situation, if the bank had not pointed out in a separate document that the policy contained this specific provision requiring payment on the credit card, he would have the benefit of his application, which, presumably, because the bank did not produce it, did not contain such a condition. [ 23 ] But because it is group Insurance, he would not have this benefit. He is not the client; he is simply a participant.

In that situation, his right would be restricted to examining a copy of the policy in order to compare it with the insurance certificate. There is no reason to believe that Allianz’ Insurance arrangement with BMO would contradict the certificate that was issued.

[ 24 ] Mr Schwartz did not have a copy of the policy certificate on hand, and believed he never received it. [ 25 ] This is somewhat unlikely, as the testimony of the representative of BMO clearly established that these policy documents are sent out to cardholders at the issuance of a card and whenever any conditions change.

He probably received it in the normal course. [ 26 ] Therefore, from the point of view of the insurance contract, Mr Schwartz does not have a valid claim, because of the application of the condition which is validly part of the insurance contract. [ 27 ] The Court must however look at the situation as well from the point of view of Mr Schwartz’ contractual relationship with the bank. This is not truly an insurance contract, because the bank, despite appearances, is not an insurer. Its contractual relationship depends upon the cardholder agreement.

The Court was shown the version issued September 2010, which Mr Schwartz had in his possession (P-6). The agreement makes no reference to the insurance agreement except very obliquely in clause 4 through the reference to “extra benefits or services”: Other card benefits and services The terms and conditions of your cards benefits and services are contained in this agreement. If any extra benefit or services are added to your card, we’ll send you separate terms and conditions, relating to those extra benefits and services.

We may change or withdraw any card benefit or service at any time without telling you in advance. You may receive information about other products and services offered by us or selected third parties, including our affiliates. We are responsible only for products and services that we offer. [ 28 ] This is an example of the contractual technique referred to in the Civil Code of Quebec as the “external clause”. 1435 . An external clause referred to in a contract is binding on the parties.

In a consumer contract or a contract of adhesion, however, an external clause is null if, at the time of formation of the contract, it was not expressly brought to the attention of the consumer or adhering party, unless the other party proves that the consumer or adhering party otherwise knew of it. 1991, c. 64, a. 1435. [ 29 ] This is, of course, an adhesion contract, because the customer does not have any role in negotiating the terms of the agreement. [ 30 ] Mr Schwartz was aware he was paying a specific amount of $ 60 per year for the Mosaik Travel Protection enhanced Plus , what he understood to be travel insurance.

As far as he could see, this service was being provided by the card issuer, the Bank of Montreal.

Nothing in the documentation provided by the bank concerning its credit-card agreement refers to the specifics of the arrangement, that it involves a third-party insurer nor this very central feature of the insurance contract, that the insurer will require proof of purchase of the travel cost on the credit-card account. [ 31 ] If this had been a benefit for which the customer does not pay a specific fee, which is simply given as a perk, it might have been more natural for the customer to realize, without being told, that the coverage depended upon using the credit card to pay for the trip.

Otherwise, why would BMO mastercard give the benefit, having received nothing in return? [ 32 ] In our situation, however, were the customer is paying a fee specifically for the insurance protection, it would not necessarily occur to him as a self-evident fact that he must use the card in order to benefit from the protection.

Why should the bank insist on this when they are receiving a fee, which is like and insurance premium? [ 33 ] It would have been normal for him to understand, because he was paying an insurance premium, that he would have the benefit of insurance whether or not he used his card to pay for the trip. [ 34 ] For him to be aware of such a clause, it would have had to be pointed out to him, specifically, during a conversation with the bank manager or in the bank’s documentation provided at the time the contract was formed, or in very prominent advertising given to him at the bank branch or that he received in the mail prior to agreeing to be bound by the credit-card agreement, or something of the sort. [ 35 ] There is no evidence in the file that at the time of the formation of the contract, it was brought to Mr Schwartz’s attention that this external clause was stipulated in other documentation that he would eventually receive, and it was not proved that he otherwise was aware of this condition.

Therefore, as far as Mr Schwartz’s relationship with the bank is concerned, he was not made aware of the clause, even if in his insurance relationship with the insurer, he can be deemed to be bound by the policy through the somewhat artificial rules of formation of contract that apply there. [ 36 ] In the Court's view therefore, Bank of Montreal, under its separate contractual relationship with its customer, had a duty to make the customer aware of this rather fatal limitation in the policy they were putting in place for his benefit. [ 37 ] It would have been wise for the bank to make him aware that it was a group policy containing limitations that went beyond his contractual relationship with the bank since he was simply a participant in a pre-existing arrangement the bank had made for its own benefit. [ 38 ] Because the bank failed in its duty to bring this limitation to Mr Schwartz’s attention, it has a liability similar to that of an insurance booker acting as an intermediary between a consumer of insurance services and an insurance underwriter.

It was up to the bank, in furtherance of it’s obligation of information, to make sure that its customer was not ignorant of this important clause. That duty existed and was to be carried out at the time of formation, which was prior to the eventual sending of the insurance documentation.

[ 39 ] This obligation was therefore not met by the routine mailing of the insurance template containing the copy of the certificate after the formation of the credit-card contract. Although this mailing complied with the requirements of the insurance

section of the Civil Code it did not measure up to the Code's requirements for the formation of the prior and distinct contractual relationships arising from BMO's contract of adhesion with it’s customer. [ 40 ] This lack of information led to Mr Schwartz not having any travel insurance, a situation he could have avoided, if he had been given the information, either by insisting upon paying by credit card, or by placing another similar coverage. FOR THESE REASONS, THE COURT: CONDEMNS Bank of Montreal to pay to the Plaintiff the sum of $ 3,861.00, with interest at the legal rate of 5% per annum and the additional indemnity provided at

article 1619 of the Civil Code of Quebec , calculated from the date of the institution of the tenant; CONDEMNS the Defendant, Bank of Montreal, to pay to the Plaintiff judicial fees of $ 129; DISMISSES the action against Mondial Assistance without costs. __________________________________ DAVID L. CAMERON, J.C.Q. Date of hearing: August 28, 2013