No Premium, No Consideration, No Insurance

Why Wasn’t it Obvious that Failure to Pay Premium Fatal to Claim?

Insurance is nothing more than a contract. For a contract to be formed there must be evidence of an offer, acceptance of the offer and payment of consideration. To acquire a policy of insurance the consideration required is called the premium. If the premium is not paid there can be no insurance.

In the lengthy named case of Debra Allyn Nowakowski, Executrix Of The Estate Of Jesus Santiago, t/a Car Craft Audio And Car Craft Auto Corp. v. Selective Way Insurance Company, a New Jersey Corporation, and Richards & Summers, Inc., a New Jersey Corporation; The Lynoxx Group, LLC, a New Jersey Limited Liability Corporation; Town Of Dover, a Municipal Corporation, Allen Bell, Jr., ire Chief Jon Filosa, and Town Of Dover Fire Department, Docket No. A-5416-15T1, Superior Court Of New Jersey Appellate Division (December 12, 2017) Debra Allyn Nowakowski (a/k/a Debra Allyn Koeppel) (Koeppel), Executrix of the Estate of Jesus Santiago (Santiago), t/a Car Craft Audio and Car Craft Auto Corp. (Car Craft) (collectively plaintiffs) appeal from a December 4, 2015 order granting summary judgment to defendant Selective Way Insurance Company (Selective).

The trial judge determined that Selective had properly canceled a policy of insurance for non-payment of premiums and, as a result, he dismissed the complaint in its entirety.

When reviewing an order granting summary judgment, the appellate court must apply the same standard governing the trial court and it owes no deference to the motion judge’s conclusions on issues of law. The appellate court must look at the facts in the light most favorable to plaintiffs.


Selective issued a commercial insurance policy to Santiago for the period of February 19, 2011 through February 19, 2012. On or about February 28, 2012, Selective prepared an invoice for the renewal of the policy for one additional year. The invoice notified plaintiffs that a renewal premium was due on March 19, 2012.

Koeppel had been married to Santiago. Koeppel acted as Santiago’s operations manager and handled Car Craft’s insurance needs. She testified that she and Santiago knew payment was due on March 19, 2012. Plaintiffs, however, intentionally failed to make the payment.

On March 24, 2012, Selective issued a cancellation notice to plaintiffs. The notice stated that Selective would “continue [the insurance] coverage without lapse if full payment is received prior to [April 10, 2012].” Koeppel testified that she and Santiago received the cancellation notice and intended not to make the payment. Koeppel corroborated this intention by candidly admitting in her deposition testimony that “we were letting all policies lapse.”

Selective declined insurance coverage on the fire loss for non-payment of premiums.

Plaintiffs sued alleging four causes of action against Selective: improper cancellation of the policy; interference with Santiago’s ability to secure insurance on the date of loss; breach of the covenant of good faith and fair dealing; and violation of the Consumer Fraud Act (CFA).

Selective cross-moved for summary judgment contending that the undisputed facts demonstrated that it was entitled to judgment as a matter of law. The judge agreed and entered the orders under review.


Ordinarily, the cancellation of an insurance policy must strictly comply with the statutory requirements. An insured need not actually receive a cancellation notice in order for it to be effective, provided that the statutory proof of mailing has been satisfied.  The determinative factor is the mailing of the notice, not its receipt.

In general, courts have not required such compliance where the insured admits receipt of the cancellation notice. Here, plaintiffs admitted they purposefully declined to pay the premiums. According to Koeppel, the failure to pay the premiums meant Santiago and Car Craft were “out of insurance.” She further testified that “I understand that th[e] policy . . . was no longer paid. Policy No. S1757545 was no longer my policy. [Selective was] not going to help me if anything had happened.”

The record reflects that plaintiffs concede on appeal, that plaintiffs chose not to pay the premium knowing that Selective would cancel the policy.

Plaintiffs were uninsured on the date of loss because they decided to let the policy lapse, and because they declined payment for insurance from another insurance company. Likewise, there is no credible evidence on this record that Selective engaged in bad faith, and plaintiffs have failed to make out a prima facie case of a violation under the CFA, assuming it even applies to the facts of this case.


Statutes requiring proof of mailing is to protect the insured. Here, it was not necessary since the plaintiff admitted she received the notice of cancellation and did nothing. It is amazing to me that a lawyer was willing to take this case up on appeal considering the facts recited by the appellate court. The plaintiff admitted that she received the notice of cancellation and affirmatively decided not to pay the premium. Without consideration there can be no policy of insurance and the insurer properly refused to pay the claim.

© 2017 – Barry Zalma

This article, and all of the blog posts on this site, digests and summarizes cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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2 Responses to No Premium, No Consideration, No Insurance

  1. I read your articles and enjoy them. I am also following fraud in the P&C insurance brokerage industry but only that which is related to mismanagement or fraudulent handling of insurance agencies’ trust accounts. I am also teaching two CDI-approved CE classes on insurance fiduciary duty and P&C trust financial solvency management. I’d like to know if you are familiar with this topic and whether you have ever reported related cases prosecuted by various Departments of Insurance. My only sources of information are Insurance Journal and Agency Equity website. I’d appreciate your help. Thank you.

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