Automobile liability insurance is mandatory in America. There are, in general, four categories of car insurance: No-fault, choice no-fault, tort liability and add-on. There are differences (both subtle and significant) to these different types. The major differences include whether there are restrictions on the right to sue and whether the policyholder’s insurer pays first-party benefits, regardless of which driver was at fault for the motor vehicle accident. We're going to take an overall look at No-Fault Automobile Liability Insurance (no-fault car insurance), what it is, discuss some varieties in coverage and identify which states have some version of it (i.e. no-fault, choice no-fault)
So, what exactly is no-fault car insurance? The Insurance Information Institute states the following about no-fault insurance:
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.)
This type of insurance is often misunderstood because the term itself implies a single insurance type. In reality, it's not quite that simple. "Pure" no-fault insurance describes car insurance that provides for no-fault payment of first party benefits and restricts the right to sue (what's referred to as the "limited tort" option). The first party (policyholder) benefit coverage is known as personal injury protection (PIP). Based on this definition, there are currently no states that have a pure no-fault system because all of them provide the ability to sue for non-economic or general damages (but only if and when those damages exceed a certain threshold).
Some variations of no-fault insurance relate to the threshold required to trigger the ability to sue, said threshold measured either
in "monetary" terms (e.g. minimum of $250,000) or "verbal" terms (e.g. injuries described as "serious" or that resulted in death). It comes as a surprise to some that no-fault insurance usually does not include coverage for property damage. In other words, the Property Damage coverage on policies in effect in no fault states is the same as the coverage in a fault-based policy*.
The 12 states that currently have or include a no-fault car insurance scenario are**:
- New Jersey,
- New York,
- North Dakota,
Nine of these states are considered just “No-Fault” and three are considered “Choice” states. In a so-called "Choice" state, drivers can choose a no-fault system policy or a policy based on traditional tort liability law. The tort policy used in "Choice" states are the same as those used in states without no-fault laws and, therefore, the claims procedures are the same. A driver retains her right to sue, generally without any significant statutory limitations.
The three "Choice" states are Kentucky, New Jersey and Pennsylvania.
Kentucky's no-fault scheme uses a monetary threshold. New Jersey and Pennsylvania, the no-fault insurance system uses a verbal threshold.
No-fault car insurance is the exception rather than the rule when it comes to motor vehicle accident insurance coverage. The purpose of this insurance scheme is simple, the actual implementation is not. If you live in a state that has some form of no-fault insurance, seeking professional guidance in making your car insurance purchase decisions will steer you in the right direction.
*Michigan is the sole exception as it requires a Property Protection Insurance policy which pays for damage to your vehicle regardless of fault.
**The District of Columbia and Puerto Rico also have some form of no-fault insurance.