The No-Fault System

If you live in a no-fault state, this section applies to you. Each state must implement either a tort system or a no-fault system. The system your state has implemented will determine what kind of insurance is available to you.

There are many variations on the no-fault system that make it difficult to provide accurate information on a national basis. This booklet provides a basic overview of no-fault, but for specific questions about your state's no-fault law contact your state insurance department.

In a no-fault state individuals need not go through the court system to have their financial loss paid if the loss results from an injury. Two individuals who have a traffic accident may file claims with their own insurance company. Each insurance company pays the claim for the personal injury to their policyholder regardless of fault.

First of all, under a no-fault system your insurance company pays you directly for your losses as a result of injuries sustained in an accident, regardless of who is at fault. Similarly, the other driver collects losses for his or her injuries from his or her insurance company. Under a no-fault law there is no need to determine who is at fault to receive payment for injury claims.

No-fault does not completely eliminate the risk of your being sued. However, no-fault laws do place restrictions on when a suit can be brought. This means that you can be sued but only under specific conditions. Since no-fault laws do not completely eliminate a person's right to sue, the possibility of your being sued is very real, especially in the event that you are the driver at fault in an accident that causes serious injury to others.

The most basic no-fault benefit is personal injury protection coverage (PIP). This coverage will pay you, your relative or any other person riding in your car a minimum benefit amount per person for injury regardless of fault. The level of benefits varies widely among states.

The following are types of coverages that may be extended to you under typical personal injury protection coverage:

  • Medical Expense Benefits. This benefit includes all reasonable charges for medical, hospital, surgical, professional nursing, dental, optometric, ambulance, prosthetic services and X-rays.
  • Rehabilitation Expenses Benefit. This benefit includes charges for psychiatric, physical and occupational therapy, and rehabilitation.
  • Work Loss Benefit. This benefit includes coverage for loss of wages up to a specific limit for a specific time period following injury.
  • Funeral Expense Benefit. This benefit covers all reasonable charges up to a specific amount for funeral services including burial and cremation expenses.
  • Survivors Loss Benefit. This benefit provides a payment to your surviving spouse or dependents up to a specific amount for a specific time period.

Under no-fault policies, most injury claims are covered under your PIP benefits. If there is a situation where those benefits are not enough and there is a possibility of your being sued, many states include residual bodily injury liability coverage. This coverage will protect your family and anyone else while in your car with your permission in the event you are sued because of injuries caused to others.

What are the situations under which you can be sued? Again, no-fault laws will vary greatly from state to state, but each no-fault state has defined certain thresholds that if exceeded, open the possibility of a suit. These thresholds can be based on specific dollar amounts, clearly defined injuries and/or a death resulting from an accident.

In most states, the no-fault law specifically excludes property damage liability for damage that you cause to the property of others. If you are at fault in such an accident, you will be held liable and can be sued for these losses.

Only in a limited number of states does the no-fault law extend some coverage to damage you may cause another driver's automobile. Furthermore, even in these limited cases, property damage liability coverage does not extend to your car. You must buy a separate collision coverage to take care of this risk.

Once again, you should be aware that this booklet can only give you a general overview of no-fault laws governing insurance. For specific information about the no-fault law and insurance in your state, contact your state insurance department. Most state insurance departments have written consumer information that will outline the specific limits and responsibilities for auto insurance in their state.