No Premium No Policy

Insurer Cancels Policy for Non Payment of Premium

Many people across the U.S. use debit cards, credit cards and access to checking account to pay ongoing debts automatically. For such a system to work the checking account must have sufficient funds to pay the debt, the debit card must have sufficient funds in its account, and the credit card must be viable and in effect.

When there is insufficient funds to pay an insurance premium the insurer has the right to cancel the policy for non-payment of premium.

In Juanita Hart and Devon Hart-Barron, Plaintiffs, v. Safeco Insurance Co., a subsidiary of Liberty Mutual Insurance Company; and First National Insurance Company of America…, United States District Court, D. South Carolina 2017 WL 603283 (02/14/2017) what appeared to be a frivolous suit was filed by plaintiffs who were upset that their insurers cancelled their policy because the debit card refused to pay the premium.


Plaintiffs Juanita Hart and Devon Hart-Barron allege that, in August 2015, Ms. Hart purchased an automobile insurance policy issued by Defendants from American Auto, an independent insurance agent. Effective December 31, 2015, Ms. Hart added a 2015 Nissan Sentra to the Safeco policy and Plaintiff Devon Hart-Barron as a named insured.  The undisputed facts show Ms. Hart setup a monthly debit card payment, with her premiums charged to a Visa card ending in 7047 and expiring in August 2019.

On February 1, 2016, Ms. Hart-Barron was involved in an automobile accident that rendered the 2015 Sentra a total loss. Plaintiffs notified Defendant Safeco and American Auto. On February 4, 2016, Defendants acknowledged coverage for the accident and offered to pay for the vehicle.  That offer was contingent on Plaintiffs executing a power of attorney authorizing Safeco to salvage the vehicle.

Ms. Hart called American Auto to ask for instructions regarding transfer of the vehicle to Defendants. At that time she was informed that the January premium payment was not processed and that her policy may be cancelled.

It was undisputed that the premium due on January 3, 2016 was not paid. Plaintiffs allege Defendants never executed the scheduled automatic draft and provided no notice of nonpayment. Defendants aver that Ms. Hart’s card was declined and that timely notice of nonpayment and cancellation were provided.

Despite the cancellation of coverage, Plaintiffs nonetheless executed the power of attorney and Defendants took possession of the vehicle on February 15, 2016. After Defendants took possession of the vehicle.  Plaintiffs conceded the vehicle was returned on July 8, 2016.

Plaintiffs sued asserting six causes of action: conversion, breach of contract, bad faith denial of insurance, negligent misrepresentation, promissory estoppel, and equitable estoppel. The insurers move for summary judgment on Plaintiffs’ claims of breach of contract and bad faith.


The insurer moved for partial summary judgment because there is no genuine dispute that Ms. Hart’s automobile insurance policy was cancelled for nonpayment of premium due January 3, 2016, after she received proper notice of cancellation. Plaintiffs contended that because Safeco set up the automatic premium payment plan using Mrs. Hart’s Wells Fargo routing number and checking account number, drafted the August 2015 through December 2015 payments but never drafted Mrs. Hart’s account in January or February 2016 pursuant to the automatic bill payment system it set up, the responsibility for any failure to pay a premium rests solely with Safeco.

That argument is misguided. Plaintiffs admit that Ms. Hart setup automatic payments to her checking account with her Visa debit card, not “Mrs. Hart’s Wells Fargo routing number and checking account number.” Wells Fargo does not charge fees for declined debit card transactions, so declining Ms. Hart’s January 3, 2016 insurance premium would not produce an NSF charge on her account. Thus, the absence of an NSF charge is not evidence that Defendants did not present Ms. Hart’s January premium for payment.

Further, on January 3, 2016, Ms. Hart’s account was overdrawn by $663.95 and it had been overdrawn for six days. Ms. Hart’s account did not have overdraft protection or a debit card overdraft service. There is no reason to believe that an attempted debit card charge of $379.91 (the amount of the January premium) to Ms. Hart’s account when it was overdrawn by $663.95 would not decline. Defendants submitted substantial evidence that they sought payment through the debit card. Defendants produced an affidavit from a receivables manager, swearing that Ms. Hart’s card declined a payment request for the January premium that Defendants submitted on January 3, 2016. Defendants also produced copies of the cancellation notice for non-payment of premiums sent to Ms. Hart on January 11, 2016, and certificates of mailing of that notice.

The Court found no genuine dispute that Defendants attempted to charge Ms. Hart’s debit card for her January premium and that the charge declined because Ms. Hart’s checking account was overdrawn. Defendants therefore were entitled to cancel Ms. Hart’s insurance coverage, subject to contractual and statutory notice requirements.

The policy plainly states, “We may cancel by mailing notice to the named insured shown in this policy.” There is no requirement to mail additional notices to additional insureds who are not named insured or to supplement mailed notice with email. Nor is proof of receipt of notice required.

Ms. Hart’s policy was cancelled effective January 31, 2016. She had no insurance contract in force with Defendant on February 1, 2016, when her accident occurred. Defendants’ failure to cover her February 1, 2016 accident therefore does not give rise to any claim for breach of contract or bad faith. Defendants therefore are entitled to judgment as a matter of law on Plaintiffs’ second cause of action (breach of contract) and third cause of action (bad faith) and the Court grants Defendants’ motion for summary judgment on those causes of action.

Although Defendants have not moved for summary judgment on Plaintiffs’ sixth cause of action—alleging Defendants are equitably estopped from denying coverage of the February 1, 2016 accident—the Court concludes they are entitled to summary judgment on that claim as well. There is no dispute that Ms. Hart would have had coverage had she paid the premiums, that Defendants did attempt to draft Ms. Hart’s bank account as agreed, and that Defendants did provide the required notice of nonpayment and cancellation.

The only remaining claims in this action concerns the salvage of Ms. Hart’s vehicle. It is undisputed that Defendants induced Ms. Hart transfer the vehicle to them by representing such transfer as a prerequisite for coverage—coverage which, as explained above, Ms. Hart in fact did not have. Plaintiffs admit the wreck was returned to Ms. Hart, but they assert that occurred after a delay of several weeks, and only after this action was filed.

If Plaintiffs’ allegation is true, Plaintiffs possibly could recover on their pleaded theories of conversion, negligent misrepresentation, or promissory estoppel. But those are state law causes of action and the undisputed salvage value of the vehicle was $2,055.

The District Court found a legal certainty that claims regarding a purported three-month conversion of a wrecked Nissan Sentra worth $2,055 cannot satisfy the $75,000 threshold for diversity jurisdiction. When the claims giving rise to federal jurisdiction in a case originally filed in state court are dismissed before trial, any remaining state law claims generally should be remanded back to state court for resolution.


Although the plaintiff’s lawyers were creative they could not get around the fact that the insured failed to pay her premium, the policy was cancelled because of the failure, and the insured was given statutory notice of cancellation. This suit, because of the obvious grounds for cancellation and a loss after a policy was cancelled, had no basis in fact or law.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

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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