Insurance

What is No-Fault Car Insurance?

Reviewed by David Goguen, J.D., University of San Francisco School of Law
In some states, and in certain situations, it won’t matter that you’re at-fault for purposes of car insurance coverage after an accident.

When you get into a car accident, you probably think whoever caused the accident should have to pay for any damages and harm resulting from it (or at least the responsible driver’s car insurance company should pay). Most states have written their car insurance laws to reflect this way of thinking, but not all of them.

In a minority of states, regardless of who was at fault for a crash, each driver will recover certain kinds of losses from their own respective car insurance companies. This is called no-fault car insurance. Why does this no-fault system exist and how does it work? Read on for the details.

No-Fault Car Insurance Basics

No-fault car insurance (also called Personal Injury Protection coverage or PIP) refers to a certain set of rules that determine how car insurance claims are handled and paid after an accident. Under a no-fault system, the car insurance company will pay for most economic damages (such as medical expenses and lost wages) suffered by a policyholder (within certain limits), regardless of who was responsible for causing the accident.

In most states, PIP protection is extended to the policyholder's family members, and anyone riding in the covered vehicle (unless they have their own PIP coverage). It may even cover pedestrians who are struck by the covered vehicle, depending on the specific rules in place in the state.

In return for this ability to recover car accident damages quickly without regard to who was at fault, injured drivers and passengers may not sue the at-fault party for non-economic damages (such as pain and suffering) except when the individual's claim meets certain thresholds. In theory, this no-fault system should result in lower car insurance premiums for all drivers, and result in fewer car insurance lawsuits.

Twelve states have some form of no-fault car insurance laws:

  • Florida
  • Michigan
  • New York
  • New Jersey
  • Hawaii
  • Kansas
  • Kentucky
  • Massachusetts
  • Minnesota
  • North Dakota
  • Utah
  • Pennsylvania

The states not listed here are “at-fault” or tort states that allow the individuals injured in a car accident to sue whoever is responsible for the accident, without restriction.

Because each of the no-fault states has their own rules, there are several differences among these states with regard to exactly how no-fault claims work. These differences are typically based on three common factors.

Factor #1: Liability Claim Thresholds

No state has a "true" no-fault car insurance system, where those involved in a car accident are never allowed to sue a driver who was responsible for causing the accident. Instead, states that require no-fault coverage will allow an injured person to sue an at-fault driver, but only if the injuries meet a statutory threshold. No-fault states have two types of thresholds: monetary and verbal.

A monetary threshold refers to a set dollar amount (usually between $1,000 and $4,000) in medical expenses that must be met before the individual may sue the person responsible for causing the accident.

A verbal threshold refers to a particular type or category of injury that must be present before the individual may sue the person responsible for causing the injuries. This verbal threshold usually revolves around significant injuries, such as death, dismemberment or physical disability.

Factor #2: Economic Losses and Property Damage

In almost all no-fault states, the no-fault requirements apply to personal injuries and lost wages suffered as a result of the car accident (and perhaps the cost of "replacement services" like the performance of household chores), but not property damage. So, vehicle damage claims are still controlled by traditional tort legal concepts, where individuals can sue the responsible driver to get payment for the repair or replacement of a damaged or destroyed vehicle.

Factor #3: The Ability to Choose Not to Have a No-Fault Policy

Of the 12 states that have no-fault car insurance laws, a handful allow drivers to opt out of the no-fault legal framework and follow the traditional tort rules. This allows victims of car accidents to sue who they believe is responsible for their injuries and damages, regardless of any injury thresholds.

So What’s the Best System, No-Fault or Tort?

That’s up to much debate. Unless you’re in a "choice" no-fault state (like Kentucky, New Jersey, or Pennsylvania) you’ll have to accept what your state mandates. But if you’re in of these three states that give you the option of choosing your car insurance, you’ll need to make a decision. What’s best for you will depend on many factors, but if you choose to opt out of your state’s no-fault laws, there are two things that may happen. First, you might have to pay higher car insurance premiums. Second, if you get into an accident, you may have to wait longer for your insurance company to pay for the injuries and damages you’ve experienced.

Learn more about what's covered and what's not under no-fault car insurance.

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