Handling Car Accidents In No-Fault States

If you plan on moving to one of the twelve states (including the District of Columbia) that require no-fault insurance, you might want to find out how that differs from your current policy. The following takes a look at how no-fault insurance works and what it means for you the next time you make an auto insurance claim.

What "No-Fault" Means

In most states, insurance companies operate under "traditional tort" rules, meaning that the insurance company helps motorists recover damages by determining who's at fault in an accident. It's not uncommon to see two parties share equal liability for an accident or for one party to be considered "at fault" by a small degree.

If you're found to be at fault for an accident, for example, the other party's insurance company and personal injury attorney can pursue compensation from your auto insurer. Likewise, your insurance company will go after the other party's insurer to recover damages (or, if the two parties share the same insurer, arrange for due compensation).

In a no-fault state, however, a policyholder is required to turn to their own insurer to recover their own financial losses. That means you can't pursue the other party's insurance agency to recover damages, even if they're at fault for the accident itself.

Why No-Fault Insurance Exists

No-fault insurance is commonly touted as a way to reduce lawsuits stemming from auto accidents and lower insurance rates. However, many argue that no-fault coverage makes it easier for scammers to fraudulently collect insurance payouts, resulting in higher costs for honest drivers.

How It Affects Your Insurance

Since no-fault insurance laws prohibit making claims against the other party's insurer for damages they're responsible for, you'll have to file a claim against your own insurer to recover the cost of medical bills, lost wages and other damages. Your insurer will cover this up to the limits provided by the state or as determined in your claim.

In many cases, your medical and financial losses may be more than what the insurance company is willing to pay out. For this reason, some states require you purchase personal injury protection (PIP) coverage in addition to your liability insurance. Others offer "two-part" coverage where your auto insurer pays a small portion of your medical expenses while your health insurance policy covers the rest.

No-fault insurance also provides limited grounds for filing suit against the other party. Most states have a verbal or monetary threshold that must be met or exceeded in order to initiate legal action. For instance, the state of Minnesota has a $4,000 threshold that must be exceeded before damages can be recovered through legal action.

Knowing what to expect from no-fault insurance better prepares you in the event of an accident. Don't forget that you can always turn to an accident attorney for more guidance and advice.