Auto insurance laws are made at a state level in the United States, with a state able to choose between being a tort liability state, a no-fault state, or a combination of these two approaches.
Whether you are getting auto insurance for the first time or you’re looking to switch providers, knowing the difference between no-fault and tort mandates will make your life easier and ensure you get the protection you need.
What are no-fault states?
In a no-fault state, drivers must have insurance in place to cover any damages and injuries they sustain in an auto accident. Insurance in these states is not intended to cover damages to third parties.
In states utilizing the no-fault insurance model, everyone is required to file a claim with their own insurance carrier after an accident, regardless of who was to blame. There are rigid rules in place – threshold conditions – which concern the severity of injuries relative to compensation.
Most states with no-fault insurance also require drivers to take out personal injury protection (PIP) coverage as part of their coverage. Property damages are apportioned to the responsible party.
In fault states, also known as tort states, the party deemed responsible for the accident is also responsible for the damages caused as a result. This is known as a tort liability system.
Which states utilize the no-fault system?
There are 11 no-fault states in the US:
- New York
- New Jersey
- North Dakota
Puerto Rico also adheres to the no-fault insurance system.
In addition to PIP coverage and liability, some states also mandate underinsured/uninsured coverage. This protects drivers against crashes with any underinsured or uninsured parties.
The highest PIP minimums and liability are found in the state of Michigan. Puerto Rico has the lowest requirements for no-fault insurance.
The states and US territory above implemented a no-fault auto accident system to help reduce the volume of frivolous lawsuits.
How is this achieved?
Well, though monetary and verbal thresholds in place, certain standards must be satisfied in these states before you can file an auto accident suit.
In Pennsylvania, New Jersey, and Kentucky, a “choice no-fault” system is in operation. This system allows motorists to reject the threshold requirements in place and file suit.
How are damages assessed in no-fault states, then?
Who pays for damages in a no-fault state?
What no-fault auto insurance means is that all parties involved in the accident file a claim with their own insurance carriers.
The personal injury protection coverage mandated in most states operating a no-fault insurance system covers damages for personal injuries.
As mentioned above, property damages are payable by the insurance provider of the responsible party.
How do no-fault laws impact car insurance coverage?
PIP coverage is required in most no-fault states, then, as well as in some at-fault states. In states where PIP coverage is mandated, minimum PIP coverage levels will be stipulated for motorists. Sometimes, PIP coverage is referred to as no-fault insurance, given the way it provides coverage for injuries regardless of blame.
With this type of auto insurance coverage, you can claim up to a certain amount for the medical bills of you and your passengers, assuming you are involved in an auto accident.
PIP coverage also extended to the following:
- Deductibles for health insurance
- Lost wages
- Medical expenses beyond coverage limits
- Funeral expenses
- Essential services you cannot perform due to accident-related injuries
The coverage limit required for personal injury protection is established at the state level.
As an example, motorists in Florida are required to carry $10,000 of PIP coverage and $10,000 of PDL (property damage liability) coverage.
The PDL portion of coverage pays out for damages if a driver is deemed at-fault for the accident and caused damage to the vehicle or property of a third party.
It is the PIP component that is no-fault, then, with each person injured in the wreck making a claim on their PIP coverage for medical expenses.
While there is nothing you can do to alter the auto insurance system of the state where you reside, there are a few pointers worth bearing in mind, and we’ll highlight those below.
Things you should consider if you reside in a no-fault state
If you reside in one of the no-fault states listed above, you should find out what variation of no-fault is in place. A simple online search should yield this information for your state of residence. Failing this, you can simply ask any insurance provider in your state for this information.
Pennsylvania, New Jersey, and Kentucky operate a choice no-fault auto insurance system. You should have the choice of either a no-fault policy or a standard tort policy, also known as an at-fault policy. You make this choice at the time of taking coverage. If you decide to take a traditional tort policy, you will be opting out of the no-fault system typical of that state.
What is tort and how does it relate to no-fault states?
No-fault insurance, as outlined, provides coverage regardless of blame in the event of an auto accident.
With tort insurance, by contrast, fault is legally assigned. The party deemed responsible must then pay for all medical expenses, as well as damages for pain and suffering. Tort insurance is sometimes labeled at-fault insurance.
Under a tort insurance system, lawsuits related to auto accidents are unrestricted and it does not matter who was responsible for the accident. Tort auto insurance coverage will pay up to the limits selected by the insured. Out of pocket expenses could still crop up if policy limits are breached.
The 38 states not listed above operate a tort liability system for auto insurance.
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