This post continues our writing on motor vehicle accidents (MVAs) and U.S. auto insurance regimes, with an emphasis on the "threshold" concept under no-fault insurance regimes, which are also known as personal injury protection insurance or PIP.
Why is this important? Understanding thresholds is crucial to informing your investment and underwriting decisions. Knowing the variance between states will allow you to distinguish between cases you may fund in one state but would be barred in another. We know of funders who put money into small cases as a matter of course, only to find out later there was no recovery on a particular case because the thresholds weren't met. Further, if you know when thresholds may be met, you can better judge the final value of a case.
No-fault auto insurance varies from state to state and is a term often used loosely to denote any auto insurance program that allows policyholders to recover financial losses from their own insurance company, regardless of fault. This type of insurance also restricts the right of policyholders to bring a lawsuit after an accident.
Lawsuits are never completely barred, however! One may be able to step outside the no-fault rules, and file a liability claim or lawsuit against the at-fault driver, for severe injuries and for pain and suffering if the case meets certain "thresholds." Thresholds, which may be expressed descriptively/verbally or in dollar amounts, relate to the severity of injury.
MVAs are an important source of business for legal funders - studies have shown that they are the most common personal injury case in the U.S., and MVA plaintiffs are more likely to win their case than any other tort. A better overall understanding of auto insurance directly affects your ability to make strong investments in the space.
No state has "absolute" no-fault rules, where a driver completely relinquishes the right to sue for extreme economic damages (such as medical expense or lost wages) and non-economic damages (such as pain and suffering) in exchange for PIP or other similar first-party economic loss benefits.
In its strictest form, though, no-fault applies to state laws that both provide for the payment of no-fault first-party benefits (e.g. PIP) and restrict the right to sue. This is also known the "limited tort" option, which was designed to try and reduce the clogging up of our court systems with minor claims. And that's where thresholds come in - in order to bring a lawsuit in the stricter PIP states, a motorist must meet certain conditions with their claim.
"Threshold injuries" are essentially very serious ones. Depending on the state, under current no-fault laws motorists may be able to sue if their injuries are severe enough or if the total damages or costs exceed a prescribed dollar amount.
These thresholds, although varying from state to state, are usually expressed as:
(i) "verbal thresholds," which are descriptive terms that define the precise injury or a certain level of "serious" injury (e.g. those that resulted in death or dismemberment), or
(ii) "monetary thresholds," where a specific dollar amount of medical expenses must be reached (e.g. minimum of $2,000).
Some laws also include minimum requirements for the days of disability incurred as a result of the accident.
Verbal thresholds are descriptive. Injuries that satisfy this type of threshold are statutorily defined and generally tend to include injuries that caused significant damage, either permanent damage or that which limits a person's ability to do normal, daily activities for a specific period of time.
Although each state defines threshold injuries differently, some types of injuries are common across many or most states. Common verbal threshold injuries include:
See the cheat sheet for the specific, statutory injury language covered by each state.
This is a more straightforward concept: in states with monetary thresholds, to step outside the no-fault system you must incur “necessary” medical expenses over a certain dollar amount. Once you have reached that medical expense threshold, you are free to file a regular liability claim against the people who are at fault for your accident.
Note that all of these states also permit a liability claim or lawsuit if a certain injury threshold (i.e. verbal threshold) is met instead of the medical expense threshold.
Common medical expenses that count include obvious things that most medical insurance covers, such as the costs of an ambulance, hospital, clinic, doctor, nursing, and laboratory work, as well as other professional health services such as dental work on injured teeth, physical therapy, and chiropractic care.
Be sure to look at a particular state’s statutes/PIP policy to to find out what type of medical expenses can be counted toward the threshold limit in that state. The cheat sheet has a link to each state’s laws.
Now that you understand the underlying concepts, you should download the cheat sheet (if you haven't already)! It breaks down the verbal and monetary thresholds state by state.
Remember that these thresholds are not something you need to worry about in states that do not require PIP insurance, don't offer it or have it but do not restrict the right to sue third parties.
As you will see on the bottom of the cheat sheet, some states do not have no-fault insurance regimes or offer no-fault type benefits but don't restrict the right to sue. Therefore, there are no thresholds to meet in order to bring a lawsuit.
Keeping up with state variance can be tricky, but it's important when funding in multiple parts of the country. Hang onto the above chart for reference when underwriting MVAs and considering potential investments in the space.
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