02 Jan What is “No-Fault” Auto Insurance?

No-Fault Automobile Insurance is designed to reduce the overall cost of insurance by making quick payments to individuals injured in an accident regardless of fault and by limiting the right to file lawsuits after the accident. Though relatively straightforward, the concept of No-Fault insurance is commonly misunderstood because there is a lack of uniformity among the minority of states that operate under a No-Fault system.

In its purest form, No-Fault Automobile Insurance, which is also known as Personal Injury Protection (PIP) or First-Party Benefits, allows policyholders to recover damages directly from their insurance companies even if the accident was their fault. In exchange for automatic insurance benefits, those injured in the accident cannot sue for damages under tort law.

This “pure” form of No-Fault insurance does not exist. Instead, approximately a quarter of the states adopted their own laws by adding No-Fault type provisions into their traditional insurance system.

In these states, individuals injured in an accident can typically recover damages from their own insurance company even if they were at fault, but the amount they can recover is limited by statute. The kinds of damages are generally limited to medical reimbursements, lost wages and other out-of-pocket expenses. Non-pecuniary damages, such as pain and suffering, cannot be recovered.

These states also allow lawsuits if the injuries meet a minimum threshold of severity. The minimum severity required to file a lawsuit, which can vary by state, can be expressed as a verbal threshold that defines the seriousness of the injury (“severe and permanent”) or a monetary threshold based on medical costs incurred.

Other states have their own variations of No-Fault Automobile Insurance, such as:

• Add-On: Some states allow drivers to add insurance coverage allowing them to receive benefits from their own insurance company regardless of fault while preserving their right to sue in tort.
• Choice: In these states, drivers may choose a No-Fault Automobile Insurance policy or a traditional policy.

With all the possible variations, including changes to existing laws, it is easy to see why No-Fault Automobile Insurance is often misunderstood. Nevertheless, when it comes to automobile insurance, it is important to know what the law requires and what the law provides.

If you would like more information about No-Fault Automobile Insurance, or if you would like to discuss your insurance needs, contact us.

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