What Drivers Should Know About No-Fault Insurance

What Does No-Fault Accident Mean?

In most states, when an accident occurs, someone takes the blame.

Unless two cars both run stop signs and collide or merge into a center lane from opposite sides and wreck, in most accidents, one driver is clearly at fault.

But in a no-fault state, that isn’t necessarily true.

In a no-fault state, a driver who is injured in an auto accident simply has to file a claim for compensation for their injuries. Once filed, the other driver’s insurance provider must pay the claim.

It doesn’t matter whether the injured driver is the victim in the accident or the cause. They can file for coverage regardless, without having to prove who caused the accident.

While this ensures that the claim gets paid, there is a catch; the injured driver cannot sue for additional damage.

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The Different Auto Insurance Systems

Twelve states and Puerto Rico have no-fault auto insurance laws. Florida, Michigan, New Jersey, New York and Pennsylvania have verbal thresholds. The other seven states—Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota and Utah—use a monetary threshold. Three states have a “choice” no-fault law. In New Jersey, Pennsylvania and Kentucky, motorists may reject the lawsuit threshold and retain the right to sue for any auto-related injury.

State auto liability insurance laws fall into four broad categories: no-fault, choice no-fault, tort liability and add-on. The major differences are whether there are restrictions on the right to sue and whether the policyholder’s own insurer pays first-party benefits, up to the state maximum amount, regardless of who is at fault in the accident. These alternative systems have evolved over time as consumers, regulators and insurers have sought ways to lower the cost and speed up the delivery of compensation for auto accidents.

No-fault: The no-fault system is intended to lower the cost of auto insurance by taking small claims out of the courts. Each insurance company compensates its own policyholders (the first party) for the cost of minor injuries, regardless of who was at fault in the accident. (The second party is the insurance company and the third is the other party or parties hurt as a result of the accident.)

The term “no-fault” can be confusing because it is often used to denote any auto insurance system in which each driver’s own insurance company pays for certain losses, regardless of fault. In its strict form, the term no-fault applies only to states where insurance companies pay first-party benefits and where there are restrictions on the right to sue.

These first-party benefits, known as personal injury protection (PIP), are a mandatory coverage in true no-fault states. The extent of coverage varies by state. In states with the most comprehensive benefits, a policyholder receives compensation for medical fees, lost wages, funeral costs and other out-of-pocket expenses. The major variations involve dollar limits on medical and hospital expenses, funeral and burial expenses, lost income and the amount to be paid a person hired to perform essential services that an injured non-income producer is unable to perform.

Drivers in no-fault states may sue for severe injuries if the case meets certain conditions. These conditions are known as the tort liability threshold and may be expressed in verbal terms such as death or significant disfigurement (verbal threshold) or in dollar amounts of medical bills (monetary threshold).

Choice no-fault: In choice no-fault states, drivers may select one of two options: a no-fault auto insurance policy or a traditional tort liability policy. In New Jersey and Pennsylvania, the no-fault option has a verbal threshold. In Kentucky there is a monetary threshold.

Tort liability: In traditional tort liability states, there are no restrictions on lawsuits. A policyholder at fault in a car crash can be sued by the other driver and by the other driver’s passengers for the pain and suffering the accident caused as well as for out-of-pocket expenses such as medical costs.

Add-on: In add-on states, drivers receive compensation from their own insurance company as they do in no-fault states, but there are no restrictions on lawsuits. The term “add-on” is used because in these states first-party benefits have been added on to the traditional tort liability system. In add-on states, first-party coverage may not be mandatory, and the benefits may be lower than in true no-fault states.

Three No-Fault States Share a Unique System

Of the 12 no-fault states, three of them – New Jersey, Kentucky, Pennsylvania – employ a unique “choice no-fault” system regarding car insurance. In this configuration, drivers are given the option to choose between a fault or a no-fault policy for their insurance. Once they choose, this option is locked in until the next time they choose to renew or re-enroll in a new policy.

In New Jersey and Kentucky, if a driver does not willfully choose an option, they are locked into a no-fault policy. In Pennsylvania, however, the default is a fault-based policy.

No-Fault Insurance States and PIP Requirements

Which states are no-fault states?

In the United States, there are 12 no-fault states, including Florida, Michigan, New Jersey, New York, Pennsylvania, Hawaii, Kentucky, Massachusetts, Minnesota, North Dakota and Utah. Although a US territory, Puerto Rico also has no-fault laws, so we included its requirements below.

Besides liability and PIP coverage, some states also require uninsured/underinsured motorist coverage to financially protect drivers from crashes with uninsured parties. The state of Michigan has the highest liability and PIP minimums. Puerto Rico has the lowest requirements.

These states (and US territory) have implemented no-fault auto accident laws, in some variation, to reduce the number of frivolous lawsuits that may occur. Whether through a verbal or monetary threshold to establish the requirements needed to file an auto accident lawsuit, these states require certain standards to be met before approval to file a lawsuit is granted. In three of these states, Kentucky, New Jersey and Pennsylvania, they have what is called “choice no-fault” where motorists have the choice to reject the threshold requirements and file suit. 

List of No-Fault States  

These states are no-fault states and require drivers to carry Personal Injury Protection (PIP) insurance: 

• Arkansas
• Delaware
• Florida
• Hawaii
• Kansas
• Kentucky
• Maryland
• Massachusetts
• Michigan
• Minnesota
• New Jersey
• New York
• North Dakota
• Oregon
• Pennsylvania
• Utah

What is tort and how does it relate to no-fault states?

Unlike no-fault insurance, tort insurance requires that the law assigns “fault” and the person that is at fault is responsible for all medical bills, pain and suffering and damage. You may have heard this type of insurance referred to as “at-fault”. 

Under this type of plan, auto accident-related lawsuits are not restricted and it does matter who caused the accident. Car insurance coverage will pay up to the limits the insured chooses, but if the limits are exhausted, at-fault drivers are still liable to pay out of pocket. Currently, 38 states (all states that are not no-fault) are tort liability states. 

What does it mean to be a no-fault state?

Car insurance laws can be defined as no-fault, choice no-fault, add-on or tort liability.  

In states with no-fault laws, each driver files a claim with their own insurance company following an accident, regardless of who is at fault.

No-fault insurance laws also affect a person’s ability to sue if they’re injured in a car crash. In no-fault states, drivers may be able to sue only if their injuries or medical expenses meet a specific verbal or monetary threshold. In states with a verbal threshold, an injury must be of a certain severity that’s expressed in verbal terms (for example, disfigurement). In states with a monetary threshold, medical bills must reach a certain dollar amount before someone can sue the other driver.

Some states have a type of no-fault law called choice no-fault law. Drivers in these states can choose between no-fault car insurance coverage and a traditional tort liability policy.

How are no-fault states different from tort liability states?

In tort liability states, someone who’s injured in an accident they didn’t cause will file a claim with the at-fault driver’s insurance company rather than their own insurer. The injured person can also sue the at-fault driver for any pain and suffering or out-of-pocket medical costs — there are no restrictions on someone’s right to sue after an accident.

How do add-on states work?

Add-on states essentially have a mix of no-fault and tort liability laws. Like no-fault states, states with add-on laws require drivers to file claims with their own insurance providers after a car accident. But similar to tort liability states, add-on states place no restrictions on a driver’s ability to file a lawsuit to seek compensation for injuries after a car accident.

Do I Need a Personal Injury Lawyer in a No-Fault State?

In most cases, no-fault states help reduce the need for car accident victims to file a personal injury lawsuit, as they can handle the claim through their insurance company directly, saving time and money for all parties. However, if you or a loved one was severely injured in a wreck caused by another driver’s negligence, you could be entitled to far more compensation than is available through your car insurance policy. 

In such cases, you will almost certainly need the assistance of an experienced and savvy personal injury attorney in order to obtain a fair settlement. The good news? Most personal injury law firms offer free consultations to help you determine whether filing a car accident lawsuit is the right choice for you and your family. Many also work on a contingency fee basis, meaning you don’t pay any upfront costs. Instead, your lawyer’s fees will come out of your final settlement. 

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