No Fault Insurance
In most states, auto insurance functions under a traditional fault-based system. Insurance companies make payments based on each person's degree of fault in a particular motor vehicle accident. However, long and costly court battles are often required to determine who is at fault in many accidents. In an attempt to reduce this problem, certain states have adopted an alternative no-fault system of insurance. The "no-fault" states include Colorado, Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah.
When you have an accident under a no-fault system, your insurer automatically pays for your damages, regardless of fault, but only up to the specified policy limit, which in most cases is 50,000 dollars. In exchange for this guaranteed payment, you must give up some of your rights to sue the other driver involved in the accident. There are elements of no-fault in all auto insurance coverage. For example, medical payments and property damage are typically paid regardless of fault.
No-fault insurance is intended to reduce auto insurance premiums by reducing the number of automobile accident cases in the courts, by restricting recovery for pain and suffering damages, and by providing limited payment for losses.
Pure no-fault vs. modified no-fault
Under a pure no-fault system, your insurer would pay for any economic damages (such as medical bills, lost wages, etc.) up to the policy limit, and you would be completely prohibited from suing a negligent driver for "non-economic" damages (such as pain and suffering, loss of companionship, etc.). Presently, no states function under a pure no-fault system.
Instead, all no-fault states have adopted a modified no-fault system. This means that your insurer still pays for your economic damages up to the policy limit, but you may be allowed to sue for non-economic damages if the amount of these damages exceeds a specified tort threshold. The threshold can be either verbal or monetary (or a combination), and is designed to limit lawsuits to only the more serious injuries.
- Verbal threshold: In states that have a verbal threshold, lawsuits for non-economic injuries are limited to "serious" injuries or death. Serious is defined differently in each state, but it often includes broken bones, severed limbs, etc. Unless you meet the defined criteria for a "serious" injury, you are precluded from bringing a lawsuit against the other driver. Drawback: you may sustain a very serious injury that is not included in the defined verbal threshold.
- Monetary threshold: In states that have a monetary threshold, lawsuits for non-economic injuries are precluded unless a certain dollar amount in medical bills is reached.
Benefits of a no-fault system
Supporters of no-fault insurance argue that a no-fault system offers many benefits, including the following:
- Quicker payment of claims by eliminating costly and time-consuming litigation over liability.
- No splitting of fees with lawyers.
- Lower insurance rates because expensive non-economic damage awards and legal fees required to defend liability claims are eliminate.
- Reduction in the number of lawsuits.
- Lower rates mean that auto insurance is accessible to people of lesser means.