No-Fault Auto Insurance: The Basics

by Anna Glendenning | More from this Blogger

15 Jan 2007 10:33 AM

In the majority of states, personal auto insurance operates under the standard fault-based system. Auto insurance pays claims based on each driver's percentage of fault for each motor vehicle accident. Adjusters decide which driver holds the greatest degree of fault and claims are paid based on the percentage of fault each driver may share for the accident loss.

This system can lead to long and expensive court battles with judges deciding which driver is at fault in many auto accident claims. An effort to eliminate these costly court cases has lead to many states creating an alternative and using a no-fault system for auto insurance.

Some of the states that are using a pure "no-fault" system include Colorado, Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah.

Under the no-fault system, when insured drivers are involved in an accident their own insurance policy will automatically pay for your damages, no matter which driver is at fault, up to driver's policy limits. No Fault is designed to insure policy holders are guaranteed payments for the losses they suffer. But, No Fault Auto Insurance requires insured drivers to give up some of their rights to sue the other driver involved in the accident.

No-fault insurance is supposed to help lower driver's auto insurance premiums because it reduces the number of accident cases needing settlement in the courts. There are restrictions for the recovery amounts for pain and suffering damages, and provides limited payment for losses.

In a fully no-fault system, a drivers personal insurer pays for any damages, such as the medical bills, and lost wages up to the policy limits. The drivers are then completely prohibited from suing a negligent driver for "non-economic" losses like pain and suffering, and loss of companionship.

At this time, none of the states are using a pure no-fault system. Rather, a modified no-fault system is most common. A modified no-fault system means a drivers insurance company pays for their financial damages up to their own policy limits, but still allow the insureds to sue for non-economic damages when the amount of these damages exceeds a the specified tort threshold. That threshold is established to help limit lawsuits and only require court cases for the most serious injury accidents.

In most states some element of No-Fault Auto insurance is part of the Insurance laws, the next Blog in this series will discuss in more detail what No Fault Auto insurance means to those involved in an accident.

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Related Blogs:

• No-Fault Auto Insurance: Pros and Cons
• The Contents of An Auto Insurance Policy.
• How to Get an Accurate Auto Insurance Quote
• When The Other Driver Is At Fault

Glossary of Insurance Terms:

A | B | C | D | E | F | G | H | I | J-K | L | M | N | O | P | Q-R | S | T | U-V | W-Z

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auto insurance, Insurance Basics, No Fault