No-fault insurance

In its broadest sense, "no-fault insurance" is a term used to describe any type of insurance contract under which insureds are indemnified for losses by their own insurance company, regardless of fault in the incident generating losses. In this sense, it is no different from first-party coverage. However, the term no-fault is most commonly used in the context of state/provincial automobile insurance laws in the United States, Canada, and Australia, in which a policyholder (and his/her passengers) are not only reimbursed by the policyholder’s own insurance company without proof of fault, but also restricted in the right to seek recovery through the civil-justice system for losses caused by other parties.^{[citation needed]}

Description

No-fault insurance has the goal of lowering premium costs by avoiding expensive litigation over the causes of accidents, while providing quick payments for injuries. The victim's insurance company would only pay out the claim, while the driver-at-fault's insurance company would pay out a claim and charge that party a higher insurance premium as they are now higher risk. While this may disadvantage the victim's insurance company, as the at-fault driver's insurance company can recoup the claims quicker through raised premiums, accidents happen between drivers of both insurance companies with an equal chance of drivers from both sides being at fault, so this in theory should even out.

Critics of no-fault argue that it does not punish reckless or negligent drivers sufficiently, with only raised premiums and a higher risk rating, and no jury awards or legal settlements. Detractors of no-fault also point out that legitimate victims with subtle handicaps find it difficult to seek recovery under no-fault. In response, proponents of no-fault insurance point out that automobile accidents are inevitable and that at-fault drivers therefore should not necessarily be punished; moreover, they note that the presence of liability insurance insulates reckless or negligent drivers from financial disincentives of litigation. Also supporting no-fault insurance, in regions with high numbers of uninsured motorists, at-fault parties are often “judgment proof” (i.e., unable to pay their liability damages) in any case. Another criticism is that some no-fault jurisdictions have among the highest automobile-insurance premiums in the country, but this may be more a matter of effect than cause (i.e., the financial savings from no-fault may simply make it more popular in areas with higher automobile-accident risk).

Overview in United States

Most U.S. states have a "traditional tort" liability system for auto insurance in which recovery is governed by principles of provable negligence. However, twelve U.S. states and the Commonwealth territory of Puerto Rico require policyholders to operate under a "no-fault" scheme in which individuals injured in automobile accidents are limited in their ability to seek recovery from other drivers or vehicle owners involved in an accident.^{[citation needed]} In the case of economic (medical and wage-loss) damages, most no-fault systems permit injured parties to seek recovery only for damages that are not covered by available first-party insurance benefits. In the case of non-economic (pain-and-suffering) damages, most no-fault systems permit injured parties to seek compensation only in cases of exceptionally "serious" injury, which can be defined in either of two ways:

• A quantitative monetary threshold that sets a specific dollar (or other currency) amount that must be spent on medical bills before a tort is allowed. Disadvantages of this threshold are: (1) that it can encourage insureds (and their medical providers) to exaggerate medical costs through over-utilization, and (2) that, unless indexed, it can become ineffective over time because of inflationary effects on medical costs.

• A qualitative verbal threshold that states what categories of injuries are considered sufficiently serious to permit a tort (e.g., death, or permanent disability or disfigurement). The advantage of the verbal threshold is that it removes any incentive to inflate damage amounts artificially to meet some preset monetary loss figure. The primary disadvantage is that broad interpretation by the courts of the threshold can lead to over-compensation.

In three U.S. states – Kentucky, New Jersey, and Pennsylvania – policyholders are permitted to choose between traditional tort and no-fault recovery regimes. Under such systems, known as “choice” or “optional” no-fault, policyholders must select between “full tort” and “limited tort” (no-fault) options at the time the policy is written or renewed; once the policy terms are set forth an insured may not change his/her mind without rewriting the policy. In both Kentucky and New Jersey, policyholders who do not make an affirmative choice in favor of either full tort or limited tort are assigned the no-fault option by default; whereas in Pennsylvania, the full-tort option is the default.

Several U.S. states have experimented with and repealed their no-fault laws. Twenty-four states originally enacted no-fault laws in some form between 1970 and 1975. Colorado repealed its no-fault system in 2003. Florida's no-fault system sunset on October 1, 2007, but the Florida legislature passed a new no-fault law which took effect January 1, 2008.

States/Provinces with No-fault Laws

• Pure no-fault^{[citation needed]}

Quebec

Manitoba

• Qualitative threshold^{[citation needed]}

Ontario

Florida

Michigan

New Jersey

New York

Pennsylvania

• Quantitative threshold^{[citation needed]}

Saskatchewan

Hawaii ($5000 Threshold)

Kansas ($1000 Threshold)

Kentucky ($1000 Threshold)

Massachusetts ($2000 Threshold)

Minnesota ($4000 Threshold)

North Dakota ($2500 Threshold)

Utah ($2000 Threshold)

• Choice no-fault^[1]

Saskatchewan

New Jersey

Pennsylvania

Kentucky

See also

• Accident Compensation Corporation in New Zealand
• Transport Accident Commission in Victoria, Australia
• No-fault liability

External links

• Saskatchewan Government Insurance, Press Release - Choices in Auto Insurance.

References

1. ^ US Insurance Net Kentucky Car Insurance Regulations & Required Coverage

• Insurance Information Institute [1]
• Jost, K. (1992, May 22). Too many lawsuits?. CQ Researcher, 2, 433-456
• Randall R. Bovbjerg & Frank A. Sloan, No-Fault For Medical Injury: Theory and Evidence, 67 U. Cin. L. Rev. 53 (1998)