March 3, 2015 Maurice Draine
Learn more about no-fault car insurance including - which states have it, what it covers, and how it restricts the right to sue.
A Brief History of No-Fault Insurance
As the number of drivers on the road in the US rose dramatically in the 1920s, so too did the number of car accidents. Commentators and academics began to criticize the inefficiency of using the courts to establish fault in the rapidly increasing number of car accidents.
The impetus for no-fault car insurance was to create a system where when there was an auto accident, each driver could get full and fast compensation without having to go to court to establish which party was at fault. It was modeled on the relatively new innovation of workers’ compensation insurance.
More of an Ivory Tower debate topic of law professors than a policy proposal, no-fault insurance would not be implemented in the United States for several decades.
No-fault insurance languished in relative obscurity. In the mid-1960s, two law professors, Robert Keeton and Jeffrey O’Connell, dusted off no-fault insurance and reimagined it. Their suggestion for improving it was simple: limit lawsuits for pain and suffering to contain the rising costs of car insurance claims.
Anyone badly injured in a car accident would still get the normal compensation for lost wages, medical bills, and such. However, compensation for pain and suffering would be prohibited unless the pain and suffering were extreme, such as loss of life, or someone being paralyzed, or rendered sterile.
No-fault insurance gained a reputation as a public policy idea whose time had come, and one that would lower the cost of car insurance in the United States. Keeton and O’Connell made public appearnces before numerous state legislatures promoting no-fault insurance.
In the 1970s, no-fault insurance exploded. Between 1970 and 1976, 26 states, the majority of the United States, passed some type of no-fault insurance requirement. Consumer groups were in favor of no-fault insurance because of its promise to contain claim costs and lower car insurance premiums.
The 1980s On
No-fault insurance claim costs, began to grow faster than tort insurance claim costs. In the 1980s and 1990s, four states repealed their no-fault insurance laws and went back to tort car insurance systems. More states have repealed no-fault insurance laws in the years since.
Consumer groups’ support for no-fault insurance, which had been strong in the 1970s, waned in the decades since. Not only did no-fault insurance not lower premiums, but no-fault claims and premiums cost more on average in states than tort claims.
The State of Florida
Reforms passed in 2012 have reduced personal injury protection (PIP)
payments in the state with the intent of fighting fraud. The 2012 reforms impose a cap of $10,000 for medical emergencies and limit non-emergency medical care to $2,500 for car accident victims. They also exclude payments to acupuncturists, chiropractors, and massage therapists. Injured drivers and passengers are required to get treatment from a hospital within 14 days. Also, the treatment sought, must be in line with the actual injuries sustained. Initial results show a decline in questionable claims as well as premiums.
The State of New York
In 2014-15, Governor Andrew Cuomo began an initiative to audit healthcare providers in New York state in order to find providers that are habitually treating the “victims” of fraudulent insurance claims. Violators will be arrested and fined.
In March 2012, 36 people, including physicians and personal injury lawyers were arrested as part of a criminal insurance fraud ring.
The State of Michigan
In 2013, Michigan tried to put a cap on benefits provided under the PIP component of the state’s no-fault law at $1 million but it stalled. At the time of writing, Michigan is the only state to have unlimited lifetime PIP coverage. As a result Michigan has the most expensive car insurance of any state and correspondingly, one of the highest rates of uninsured drivers as well.
As of 2012, it is a felony to act as or employ a “runner” to recruit people to stage accidents for financial gain.
"Fault" Varies from State to State
No-fault measures vary from state to state. Some have verbiage to describe what constitutes grounds for legal action, usually "life-changing" or "permanently disabling" injuries, though courts have interpreted labels like these to be much broader than they sound. Others set a monetary cap for medical expenses that, once exceeded, constitute damages sufficient to warrant a lawsuit. In practice, this has caused prospective litigants to over-seek medical attention merely to drive up total costs over the threshold.
$$$ The Million Dollar Question $$$
Has No-Fault been effective?
It depends on one’s criteria. No-fault insurance has not provided the cost savings that it initially promised. The states that sill have no-fault requirements have the highest insurance premiums, and the states that offer no-fault insurance have higher insurance premiums on average than the states that don’t.
The pricing structure of No-fault insurance encourages fraud and exaggeration. Health care providers are giving unnecessary medical treatment and procedures to claimants in order to get over the monetary threshold to get more money from the insurance companies. No-fault insurance was intended to lower rates by dramatically decreasing lawsuits over auto accidents. It did do this. However, what it also seems to have done, is to incentivize fraud enough to exceed the reduction in legal costs.