The Purpose of No-Fault Insurance
- The issue of fault versus no-fault has to do with whether blame is assigned to one driver or another when an accident occurs. Under U.S. law, blame entails acts of negligence or misconduct, which fall within the area of tort law, or tort liability. Most states follow a tort liability system when settling auto insurance claims. This system seeks out the person responsible for an accident as the one held accountable for the costs. Once held accountable, the driver's insurance company handles its part of the costs, while the driver pays the remainder. In many cases, drivers resort to litigation as a way to avoid paying costs or to justify their actions and prevent unfair charges from being levied against them.
- Much like the rest of the insurance industry, auto insurance laws can vary from state to state. And while the majority of states use a tort liability system, as of 2011, 12 states within the U.S. have implemented a form of the no-fault insurance system. In a no-fault insurance state, when an accident occurs, each driver's insurance company automatically picks up the costs for its insured driver. No fault coverage --- also known as personal injury protection, or PIP --- pays for medical costs and wage replacement costs in cases where a person is injured and unable to work. In return, a driver forfeits his right to sue another driver for pain and suffering or inconvenience except under extreme circumstances.
- Part of the reason many states have implemented no-fault auto insurance laws has to do with the time and expense involved with settling cases in court. States that follow the tort liability system leave it to the courts to decide who is at fault in an auto accident. And while the negligent party should be held accountable, the number of cases filed can put a financial strain on state and local courts and take up significant amounts of time. In addition, even non-negligent drivers pay a cost in terms of the time it takes to actually collect the money needed to pay lost wages and medical bills. Claimants must also pay court costs and legal fees in the process. States that implement a no-fault system also set minimum coverage guidelines for medical costs and lost wages.
- In states that use no-fault guidelines, costs for physical damages to a car or property are not covered under no-fault insurance. Drivers who have collision insurance can recoup any costs related to car or property damage up to their coverage limit. Any costs over and above policy limits must be settled in court regardless of whether a particular state uses the no-fault system. In most no-fault coverage states, drivers can file lawsuits in cases where the medical costs for bodily injuries exceed a certain limit or significantly impair a person's ability to function. These limits are set by each individual state.