What Does No-Fault State Mean?

No-fault insurance means that an automotive insurance provider pays for a portion of the damages regardless of the fault or cause of an accident. Under a no-fault policy, the insurer pays damages automatically up to a limit specified in the policy terms. The amount helps cover some of the expenses associated with a car accident regardless of who is “at-fault” or responsible for causing the collision. A no-fault insurance system differs greatly from the tort insurance system. Under the tort system, the at-fault party must pay for the other driver’s damages. These damages may include property damage, injuries, loss of wages, or “pain and suffering.”

List of the No-Fault States

Most states operate under the tort insurance system. Currently, only 12 states have no-fault auto insurance laws in effect. The 12 no-fault states are as follows:

• Florida
• Hawaii
• Kansas
• Kentucky
• Massachusetts
• Michigan
• Minnesota
• New Jersey
• New York
• North Dakota
• Pennsylvania
• Utah

In addition to these 12 states, the District of Columbia also follows a no-fault system. (Note: Puerto Rico, an unincorporated territory of the United States, operates under a no-fault insurance system as well.)

All other states operate under the tort system. With the tort system, drivers must carry liability auto insurance to cover damages they may cause in an accident. When an accident occurs, tort system states use comparative and contributory negligence laws to determine if one or both drivers a responsible for the accident. The at-fault parties then pay for the damages based on standards of the state’s insurance regulatory department.

Some states also allow the option of choosing full or limited tort insurance. For example, limited tort insurance policies may cost less, but drivers generally cannot receive damages for “pain and suffering” unless they experience long-term or permanent injury.

Primary Types of No-Fault Insurance

Having no-fault insurance guarantees payment for certain damages regardless of the at-fault party. The state’s regulatory body determines the cap or limit on this compensation based on industry standards and established state insurance department regulations. In addition to providing a small safety net, this type of policy may shield the at-fault party from being sued for certain damages in the event of an accident or collision. Inversely, this policy also means the drivers forego their rights to sue other parties for basic damages in the event of an accident.

The types of no-fault insurance offered differ for each of the 12 no-fault states. All states follow requirements established under the department of insurance or regulatory body. The most common types of no-fault insurance include the following:

• Personal Injury Protection (PIP)
• Choice No-Fault Policies
• Public Liability and Property Damage (PLPD)
• Property Protection (PPI)
• Residual Bodily Injury and Property Damage Liability (BI/PD)

For example, several no-fault states only require drivers to have basic personal injury protection (PIP). In Florida, for instance, drivers who suffer physical injuries during an accident use their own personal injury protection (PIP) regardless of which party caused the accident. Parties who are not at fault place a claim against their own PIP rather than using the at-fault party’s bodily injury liability (BIL) coverage. However, the at-fault party can still be responsible for other types of damage. In this example, the injured party’s no-fault coverage would pay for bodily injury, but the at-fault party’s property damage liability would cover any vehicle expenses.

Other states allow drivers to choose between traditional tort insurance or no-fault insurance. The industry refers to states with this type of flexibility as “choice no-fault states.” Pennsylvania, New Jersey, and Kentucky each allow drivers to choose between full tort coverage and limited tort (no-fault) coverage for motor vehicle insurance.

In addition to basic PIP policies and choice-no-fault policies, some states operate under comprehensive auto insurance systems. For example, Michigan has an all-inclusive motor vehicle insurance requirement known as public liability and property damage (PLPD) coverage. Each Michigan motorist must purchase an auto insurance policy that covers three basic areas: personal injury protection (PIP), property protection (PPI), and residual bodily injury and property damage liability (BI/PD). In Michigan, property protection (PPI) can cover up to $1 million in damages to standing property like buildings, gates, and fences. However, this type of no-fault insurance does not cover damage to cars involved in the collision, and it does not compensate for other vehicles unless they were legally parked upon impact. As a result, policyholders who want to cover the risk of damaged or stolen vehicles must purchase additional physical damage coverage (or a comprehensive coverage plan) that pays in the event of a collision.

Several of the 12 no-fault states have adopted the no-fault auto insurance system to reduce the burden of vehicular lawsuits. No-fault insurance severely restricts the right of either party to sue (unless serious injury or death occurs as a result of the accident). Monetary damages for non-monetary losses (such as “pain and suffering”) usually only occur if the injured party can prove serious or permanent harm.

For example, reformers in New York claim that “medical mills” use no-fault policies to bill personal injury claims of up to $50,000 that healthcare providers then fail to administer. Similarly, fraud has become so widespread in some parts of Florida that $10,000 worth of PIP coverage can cost a motorist thousands of dollars in fees every year. In fact, a 2016 study found that on the whole, Florida drivers pay an extra $1 billion each year as a result of these fraud-inflated premiums. In Michigan, lobbyists have argued against unlimited lifetime medical benefits for accident victims (which costs each motorist $175 annually). This debate reaches persistent deadlock since attempts to overturn the no-fault auto insurance law have failed in at least two state elections.

State policymakers and insurance industry representatives have often noted that choice, reform, or repeal may help reduce fraud. For example, Florida governor Rick Scott signed new measures into law that reduced coverage for non-emergency or minor medical treatments. By reducing this type of automatic coverage, advocates hope to reduce the occurrence of fraud and thereby lower the cost of premiums for policyholders.

Although some states attempt to reform existing no-fault systems, other states have repealed them entirely in order to reduce the cost of automotive insurance premiums. For example, Colorado governor William Forrester Owens signed a law to end the state’s no-fault insurance program in 2003. Within five years, the cost of premiums fell nearly 35 percent, saving drivers an average of $322 per motor vehicle per year.

Colorado policymakers replaced the no-fault system with a traditional tort system. This tort system requires drivers to purchase liability insurance coverage, and at-fault parties must pay for medical injuries or property damage in the event of an accident. Specifically, Colorado law requires $25,000 of bodily injury liability (BIL) per individual, per accident; $50,000 of coverage for all injuries incurred in one accident; and at least $15,000 of property damage liability (PDL) in the event of an collision. Furthermore, standard auto insurance policies cover at least $5,000 of hospital expenses unless the policyholder chooses to forego purchasing medical coverage. Coloradans can skip the medical coverage portion if their existing health insurance policy already covers this expense.

In addition to Colorado, other states that repealed or replaced no-fault insurance system have experienced similar results. For example, Georgia saw a 20-percent drop in auto insurance premiums upon its repeal of the no-fault system in 1991. The state’s lowered auto insurance premiums have remained consistent for over two decades. Similarly, Connecticut ended its no-fault insurance system in 1994 and saw insurance premiums drop by 31 percent by year 2004. Nevada ended its no-fault insurance system in 1980 and policyholders have experienced lower auto insurance rates ever since. Even more startling, a 2007 study found that states with traditional tort insurance laws had a 40-percent lower cost of accident-related medical care than states with no-fault insurance laws.

It is important to note, however, that not all states have experienced backlash regarding no-fault laws. As discussed, there are 12 states with primary no-fault insurance systems. In addition, there are a handful of states with PIP add-on options. (As of 2019, states that offer some type of PIP add-on options include Arkansas, Delaware, Maryland, New Hampshire, Oregon, Texas, Washington, Virginia, and Wisconsin.) A PIP add-on can subsidize any damages received from a traditional tort insurance claim.

Some states with no-fault laws have experienced happy results. For example, motor vehicle insurance rates and premiums in no-fault states Minnesota and North Dakota rank lower than the national average. Even in states with reputations for notoriously high premiums (such as Florida), automotive insurance rates can vary drastically by zip code. In Florida, zip codes with higher crime (such as car theft rates) have much higher insurance premiums than low-crime or suburban areas.

No-fault reform laws may also help mitigate some of the fraud associated with the system. For example, Florida’s newfound reform policy has the following rules:

• Parties who claim medical injury must receive medical treatment within 14 days of the accident. Medical assistance must take place in an ambulance or hospital, or it must come directly from a licensed, practicing professional (such as a medical doctor or chiropractic physician).
• Insurance companies only pay the $10,000 PIP benefit if the licensed medical professional certifies that the patient is experiencing an “emergency medical condition.” For non-emergencies, the new policy limits benefit payouts to $2,500.
• Injured parties must receive follow-up care if notated in the medical referral. Under the new reform policy, there is no coverage for holistic or alternative treatments like massage therapy or acupuncture.

Policymakers believe that the new restrictions can encourage Floridians to rightfully use private health insurance, Medicaid, or Medicare for long-term injuries instead of draining the no-fault system. While it may be too soon to determine if reform can lower existing premiums, many regulators feel confident that such changes can prevent premiums from increasing too high in the future.

FAQ

General Information on No-Fault States

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US States

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