In a pure no-fault auto insurance system the insurance company pays for the economic damages, up to the policy limit, of the insured. Pure no-fault systems will not allow any kind of law suite against the negligent driver for “non-economic” damages including pain and suffering, loss of companionship. Right now there are no states that use a pure no-fault system.
All of the no-fault auto insurance states are actually using a modified no-fault system. Insurance companies pay the economic damages up to the policy limit, but there are still opportunities to sue for non-economic damages when the damages exceed the state specified tort threshold. These threshold can be either verbal or monetary and are often a combination, and are designed to limit lawsuits to only the most serious of injuries.
- Verbal threshold: Non-economic injuries are limited to only serious injuries or death. Each state defines serious differently, and only those meeting the criteria for a serious injury, are permitted to bring a lawsuit against the negligent driver.
- Monetary threshold: Non-economic injuries usually need to reach a specified dollar amount for medical bills before a suite can be filed.
Supporters of the no-fault auto insurance believe there are many benefits including:
- No subsidizing uninsured motorists; each person’s insurer covers their own medical bills.
- Faster payment and processing of claims due to the elimination of determining or litigation over. An accident happens and everyone has their damages taken care of without any arguments.
- Lower insurance rates due to the fact that non-economic damage awards and attorney fees are eliminated. Estimates place the cost of legal fees account for as much as 12% of auto insurance premiums.
- Court costs are reduced because of fewer lawsuits.
- Lower insurance premiums make auto insurance available to people with lesser means.
Opponents of no-fault auto insurance believe the system is ineffective and there are many drawbacks including:
- There is no compensation for pain and suffering, and that other non-economic damages have arbitrary limits imposed.
- Bad drivers are protected and can’t be sued for the damages they cause.
- Insurance premium rates actually increase no-fault. Statistics indicate premiums in no-fault states are an average 20 to 25% higher than in liability states.
- The expense insurance companies used to spend defending litigation claims is now spent defending lawsuits brought by their own policy holders for failure to pay no-fault benefits.
- In modified no-fault states, time and energy is spent litigating over the tort threshold requirements.
- Insureds economic damages are limited by the terms of their own policy. In liability states, drivers are compensated for the loss by suing the negligent. No-fault states set limits for liability, for basic economic damages which result in drivers being forced to pay any unpaid medical bills without being able to sue the driver who caused the accident.
A hybrid of liability and no-fault insurance known as “choice no-fault” creates two different types of insured drivers by offering parts of both the pure no-fault and fault-based insurance systems. Several versions of choice no-fault have been enacted in Pennsylvania and New Jersey.
In the choice system, drivers may decide whether they want to purchase a pure no-fault plan or a plan that offers some of the traditional tort rights. In these states the insured decides which type of policy they would like to purchase.
The choice system tends to lead low risk drivers to decide on the traditional liability based option, which has higher premiums and high risk drivers pick the pure no-fault option because it is less expensive.
Related Blogs:
- No-Fault Auto Insurance: The Basics
- How to Get an Accurate Auto Insurance Quote
- When The Other Driver Is At Fault
Glossary of Insurance Terms:
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