As car owners, attorneys, and legal funders who deal with motor vehicle accidents (MVAs) know, navigating automobile insurance can be a complicated process. For you, a better understanding of insurance directly affects your ability to make strong investments in the space. Why is it important? The statistics say it all.
In a comprehensive 2005 study, the U.S. Department of Justice, Bureau of Justice Statistics reported that:
State automobile insurance laws generally fall into four categories:
The major difference between these categories is 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.
This article will explain "no-fault" insurance, also known as "Personal Injury Protection" (PIP), in the context of these four categories. It is a complex topic, but one that is extremely important to understand.
PIP is an extension of auto insurance that covers the insured's economic losses that occur as a result of injury, which can include eligible medical expenses, lost wages, funeral expenses and other damages, after a car accident regardless of who was at fault (i.e. legally liable). Compare this with standard auto liability insurance, where the insurance company of the driver who is legally liable for an accident pays the costs resulting from a covered accident up to the policy's limits.
Hence, PIP is often simply referred to as "no-fault" insurance - even if the person seeking PIP coverage caused the accident, they are entitled to make a claim under their own insurance policy. PIP has no deductible and pays benefits until the policy value is exhausted (note that "no-fault" does not mean the insurance premium of the claimant will not increase).
In a nutshell, PIP insurance removes the question of blame from the car insurance equation. This can help eliminate the post-accident frustration of waiting for insurance companies to determine blame, make payments and, if necessary, file a lawsuit-if covered, payments are made as soon as possible and you deal only with your insurance company.
Thus, PIP claims are "first-party claims," or claims the insured driver makes against their own insurance company. Though the specifics can vary greatly by state, PIP generally covers "direct insureds" such as you, your spouse, household members and drivers listed on your policy, and various "indirect insureds" such as your passengers, other drivers to whom you have given permission to drive your automobile and even pedestrians.
Policy limits are generally chosen by the insured and paid for by the insured via premium payments. In order for PIP benefits to be payable, the claimant must have been injured by use of a "motor vehicle," which is defined by state statutes but generally means vehicles with more than two wheels. It also can come as a surprise to some that no-fault insurance usually does not include coverage for property damage.
PIP coverage follows the insured person, not the vehicle: it can move with you and your family if you're driving or riding in your own vehicle or someone else's. In general, if you are injured as a passenger in someone else's car, or even injured by a car as a pedestrian, your own PIP could cover you. There may be a question of priority, however.
In Florida, for example, if you are injured as a passenger in someone else's car, the driver's PIP coverage is probably "primary," meaning that it has to pay first and you can only make a claim under your coverage if you exhaust the driver's coverage and you have a higher limit.
State statutes and case law will have established priorities to make such determinations. Further, if a person who does not own a vehicle or have PIP coverage of their own and is injured in someone else's car, they may be able to make a PIP claim against that vehicle owner's insurance.
For example, in New Jersey, if you are personally uninsured but you live with a family member who is insured (called a "resident relative"), you can be covered by that policy-even if the "named insured" on that policy was not involved in the accident. If you are uninsured, and no resident relatives are insured, the other driver's PIP insurance (the policy covering the vehicle) could cover your bills. If no one is insured, other aspects of the New Jersey no-fault system would come into play.
Depending on the state, motorists may be able to sue if their injuries are severe enough or if the total damages or costs exceed a prescribed dollar amount. Under current no-fault laws, injured parties may generally sue only if the case meets certain thresholds that relate to the severity of injury. These thresholds vary from state to state and usually expressed as:
It is important to keep in mind that the amount and type of no-fault insurance required varies from state to state, and the particular state laws and policy language of the insurer should be reviewed to see what exceptions and variations exist in that state.
Coverage can also vary both in what is covered and what types of treatments are considered medically necessary and reasonable. For example, acupuncture may be a covered PIP medical treatment in one state but not another. It is also important to know that PIP coverage is mandatory in certain states (and Puerto Rico).
All of these concepts are illustrated in this chart, which you can keep on hand for a quick reference:
To clarify, no state has "absolute" no-fault rules, where the driver completely relinquishes the right to bring a lawsuit for extreme economic damages (such as medical expense or lost wages) or non-economic damages (such as pain and suffering) in exchange for PIP or other similar first-party economic loss benefits. Michigan is the closest, which provides unlimited no-fault coverage and makes it very difficult to sue for non-economic damages.
Thus, what is commonly referred to as "no-fault" is technically "modified no-fault," and refers to state laws that both provide for the payment of no-fault first-party benefits and restrict the right to sue. In other words, lawsuits are permitted in all states under statutorily defined circumstances. It is also important to note various time limits, including the limit for submitting claims - a policy may only cover expenses within a set number of years after the date of the accident.
As indicated in the chart above, Kentucky, New Jersey and Pennsylvania also have a "choice" no-fault system. This means that drivers have the choice of being covered under either a:
Nine states, including Arkansas, Delaware, Maryland, Oregon, South Carolina, South Dakota, Texas, Virginia, and Washington have insurance systems which offer add-on no-fault benefits. These states offer PIP or similar benefits in varied amounts under varied conditions, but do not restrict third-party lawsuits. The rest of the states operate under a traditional tort liability system where there are no limitations on the right to sue negligent third-parties.
Every state has its own variation on these parameters. For example, every car insurance policy sold in the Oregon must include PIP coverage for your own injuries, but Oregon does not prevent you from immediately bringing suit against the other driver.
Delaware is unique in that it's one of the only states that operates a tort liability insurance law system, where someone must always be held responsible for being at-fault or causing an accident, but also requires PIP coverage.
In Maryland, PIP is mandatory unless explicitly waived by the consumer. Similarly, some states simply mandate that insurance companies offer PIP coverage.
In Texas, for example, insurance companies must offer you at least $2,500 in PIP and, if you don't want that coverage, you must reject it in writing. The law in D.C. is less specific, and just mandates that insurers offer it generally.
PIP can get complicated, but it's important to understand the basics whether you're shopping for insurance, considering or working through a motor-vehicle accident lawsuit, or funding such suits.
While the recent statutory trend has steered away from no-fault systems in the wake of insurance fraud and rising costs (most recently, Colorado converted from a no-fault system back to a traditional tort system in 2003), many states continue to use them and will do so for the foreseeable future.
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