No-fault auto insurance coverage

No-fault insurance provides coverage for an insured's injuries or damages up to the policy limit regardless of whether the insured or another driver was at fault. It also prevents an insured from suing another driver or his insurance company, except in some states that permit such a suit for serious injuries or for costs that exceed a certain sum. Because of this possibility, it is important to also have standard liability insurance.

An "add-on" no-fault plan provides coverage in addition to the standard liability insurance. It does not affect the insured's right to sue the driver who was at fault. A "modified" no-fault plan permits tort recovery for non-economic harm if the insured meets a threshold in the no-fault statute that is generally related to the nature of injury or the amount of medical expenses incurred.

The no-fault part of an insurance policy is usually called personal injury protection, or PIP. Different states' PIP policies vary widely, but they generally cover medical costs, loss of wages, compensation for loss of services, funeral expenses, and death benefits.

Who must obtain no-fault insurance?

As of 2005, a driver who lives in Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, Utah, or the District of Columbia is required to carry no-fault insurance and is limited in his ability to sue other drivers.

Benefits of no-fault insurance

No-fault insurance replaces the traditional tort liability system for compensating an insured. Thus, it eliminates the need of an insured to prove the liability of another driver in a lawsuit. This may lead to quicker settlement of accident claims because there is no need to investigate the claims to the extent necessary when proving liability. In addition, it may lead to lower premium rates than in the traditional tort system because it reduces legal fees and court costs.

Drawbacks of no-fault insurance

No-fault insurance limits an insured's right to sue, and, therefore, if an injured person feels the sum he is paid is not sufficient to compensate him for his injuries or damages, he has no recourse to the courts. In addition, the fact that a driver may recover regardless of the fact that he caused an accident does not encourage safe driving and does not help maintain low premiums. Many plaintiffs' lawyers groups are attempting to get the no-fault laws repealed.

Copyright 2010 LexisNexis, a division of Reed Elsevier Inc.