No-fault auto insurance is a relatively straightforward concept, though the reasons why State’s have chosen to enact no-fault laws are a bit more complicated. Essentially, no-fault auto insurance means that a policyholder is indemnified for losses suffered during a loss event (e.g. an auto accident) by their own insurance provider (not the other driver’s company), regardless of who was at-fault for the loss event. While no-fault insurance is principally related to State laws governing auto insurance, it has also been deployed with other “tort” related activities (though limited in use). States with no-fault auto insurance laws generally restrict individuals involved in an accident (or other loss event) from seeking damages through the civil-justice system.
In an accident (or similar loss event, but for the sake of this article, we’ll assume the loss event is an auto accident), each parties’ insurance providers pay their respective policyholder’s claim. However, only the policyholder who is found to be at-fault is penalized by their insurance provider through increased premiums. The driver who is not at-fault (aka “the victim”), is not penalized (their insurance provider is not allowed to increase their insurance premiums). These simple rules help expedite the payment of insurance claims since the payment is not dependent on expensive or time-consuming litigation. Rather, claims can be processed at the same time that fault is being considered. Once determined, the driver who is found to be at-fault would be considered higher-risk and their premiums increased.
Obviously, this is detrimental to the victim’s insurance company, who was required to pay damages, but can’t recuperate that loss through higher premiums. While this seem unfair, in theory, over the long-term the balance of payments is even since all insurance companies should effectively have an even balance of policyholders who cause accidents and policyholders who are victims of accidents. The avoidance of time-consuming litigation reduces the costs for both insurance companies, which in turn results in lower-cost car insurance for all policyholders in State’s that enact no-fault insurance legislation. This doesn’t always hold true in-practice, since State’s with a higher incidence of accidents (which causes premiums to increase for all drivers in the State) are more likely to enact no-fault insurance to reduce congestion in the courts and the burden that accident litigation can place on justice resources.
Opponents of no-fault insurance argue that avoiding additional civil-justice proceedings results in drivers who are not adequately punished. Since those individuals are not subject to additional civil-justice proceedings, juries do not have the opportunity to penalize reckless or negligent drivers with additional civil settlements. Additionally, without redress from civil court proceedings, victims may find that they have trouble with claims beyond obvious damages. Juries and the jury system allow claimants to have their case presented to a jury of their peers, where they can press their claim. Without this opportunity, drivers have to “sue” their own insurance providers in order to press a claim (not nearly as straightforward as suing the individual who caused the accident or that individual’s insurance company).
While damages that are directly related to auto accidents are immediately covered by each driver’s insurance policy (property damages, serious medical injuries, etc.) other damages may not be as straightforward. For damages associated with lost wages and minor medical injuries, most States allow victims to seek coverage only where claims are not covered by available first-party insurance. Other damages, such as lost wages, pain and suffering, etc. allow the victims to seek damages from the other party if the losses or injury are serious. Again, the purpose is to limit costly and time-consuming legal activities, so the claim must be relatively extensive to the consumer to justify the cost of additional civil-justice proceedings. States either enact qualitative or quantitative statutes, whereby they limit additional civil action to either a minimum claim amount or a significant claim category (death, dismemberment, etc.).
Proponents of no-fault legislation argue that the benefits associated with avoiding legal action resulting from no-fault insurance statutes far outweigh the costs of the relatively few claims where claimants may have to take legal action to achieve redress. Additionally, no-fault insurance laws allow drivers to select their own level of coverage. Since their own insurance policy covers their claim, they’re liability coverage limits extend to them, rather than the other driver’s liability levels. While a victim who is involved in an accident with an under-insured motorist can always make a claim against their own insurance policy to cover any deficiency in the at-fault driver’s policy, the no-fault chain of events eliminates this bureaucracy.
Many States have either enacted no-fault insurance laws and repealed them, or have flirted with enacting them. Legislatures struggle with the benefits associated with the simplicity of legal proceedings related to most accidents and the circumventing of the tort legal structure that address other similar non-auto incidents.
Most States in the Union do not have no-fault insurance laws; only twelve States and the Commonwealth of Puerto Rico require have no-fault insurance laws. Other States operate under the tort liability system, which allows victims involved in auto accidents to pursue claims through civil-justice proceedings, by proving negligence of the other driver. The State’s that require no-fault insurance include:
Whether you live in a no-fault insurance State or not, the benefits of having your own, adequate liability insurance coverage levels are obvious. Even in a State that follows a traditional tort liability system, ultimately you may be reliant on your own insurance policy. Therefore, it is valuable to ensure that you are comfortable with the level of your own insurance policy, since you may end up relying on it in the event that the other motorist is under insured, or doesn’t even carry a policy.