No Fault Law

Auto Insurance No Fault Laws in the USA

Auto insurance no fault laws are far less common in the USA than the systems built around the torts of negligence.  In the strictest sense, a no-fault law would be “first-party” coverage and there would be no tort of negligence to concern ourselves with.  The idea of “first-party” insurance means you seek indemnification from your own insurance company for the losses you sustain in an auto accident.  No one would have an option to sue in a court of law alleging a breach of the common law duty that underpins the torts of negligence but, no current state no fault law goes quite that far!

Currently (2/15/2015) there are twelve (12) states in the USA that use a no-fault law as the basis of their insurance regulation.  All places where no fault law applies include:

  1. Florida
  2. Hawaii
  3. Kansas
  4. Kentucky
  5. Massachusetts
  6. Michigan
  7. Minnesota
  8. New Jersey
  9. New York
  10. North Dakota
  11. Pennsylvania
  12. Utah
  13. District of Columbia
  14. Puerto Rico (US Protectorate)

The provinces in Canada that use no fault auto insurance laws include Quebec and Manitoba.  Pennsylvania auto insurance customers have the choice to adopt either the traditional tort liability system or the no fault law auto insurance system of regulation.  This system of choice is similar also for Kentucky and New Jersey.  No fault laws had their day in the sunshine in the 1970’s when there were 24 states that adopted the laws but the experiments in these states with no-fault caused them to be repealed and the states returned to traditional tort systems of insurance.  Florida, in 2008, re-enacted their no fault after much debate.

There are both quantitative and qualitative thresholds in the current no fault laws.  Quantitative thresholds are specific dollar amounts that must be spent on medical bills after an accident before the injured may pursue additional damages under tort theories from the at fault drivers.  Qualitative thresholds are expressions of the types of injuries and the severity of injuries that are considered serious enough to permit the injured to be permitted to pursue tort claims for negligence from the at fault parties.  Unfortunately, this type of threshold has permitted attorneys to go into court to argue the meaning of the thresholds and courts have liberally defined the language in many instances.  Michigan uses the Qualitative method and specifically limits tort claims to those instances where “someone is killed, seriously injured, or permanently injured.”

One of the concepts that made no-fault popular at one time was the elimination of the need to seek damages from the at fault driver in an accident.  The idea was that insurance costs would be lower because expensive litigation could be avoided and more of the benefits would flow to the injured individuals.  Critics say that the safest drivers bear the largest cost for the drivers who are more accident prone or reckless and that uninsured drivers cannot be pursued for the losses they cause.  To answer critics States have made insurance compulsory but this has not eliminated those who fail to keep insurance in force at all times.  Each state offers a slightly different variation on the law.  Each state provides a threshold at which traditional tort negligence claims can be made against the at fault party.  Some of more effective than others at keeping the cost of litigation out of the auto insurance equation and the size and types of thresholds employed within no-fault laws vary from state to state.

Michigan has one of the most extensive and complete implementations of the no-fault insurance concept in the United States.  In their law you are not able to seek recovery for injuries except in several specific instances of severity and extent of injury.  They have carved out a small concession in which auto owners that have suffered damage by another driver that is determined to be more than 50% the cause of an accident.  Referred to as “mini-tort” coverage, the at fault driver has no more than a $1,000 liability to the other driver for damage done to their auto.  This amount is meant to coincide with the most common maximum deductible.

The no-fault law coverage include the following parts:

  • PIP – Personal Injury protection – In Michigan, pays all medical bills caused by the accident.  Pays 85% of lost income up to $5,282 (indexed) per month for three years if you live or die.
  • PPI – Property Protection Insurance – In Michigan, pays up to $1 Million for the damage you do with your auto to the property of others.  Damage you do to legally parked cars is paid under PPI.
  • BI-PD is required for the residual tort of negligence in the instances noted above.  Minimum limits are $20,00 per person, $40,000 per accident, and $10,000 for property damage.
  • UM/UIM are available as optional coverage and it operates much as the coverage does elsewhere in the USA.

As a nearby neighbor, Michigan does add a wrinkle to coverage for Collision damage.  Due to their no-fault law, three types of Collision coverage are available.  First is Limited Collision.  If you are more than 50% the cause of an accident, your policy doesn’t owe or pay damages to you for collision.  Standard Collision is similar to that found elsewhere in the USA.  It pays regardless of fault but payment is subject to the chosen deductible.  Michigan also includes Broadform Collision.  Broadform Collision pays the entire collision damage claim without deductible when you are not more than 50% the cause of an accident.  The deductible does not apply but premium is higher for broadform collision coverage than regular collision.  If you are the cause of the accident and have broadform collision, the deductible applies to the loss and in this way the collision coverage works similar to coverage for Standard Collision here in Ohio.


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