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State auto insurance laws governing liability coverage fall into four broad categories: no-fault, choice no-fault, tort liability, and add-on. The major differences are whether there are restrictions on the right to sue and whether the policyholder’s own insurance company pays first-party (policyholder) benefits, up to the state maximum amount, regardless of who is at fault in the accident.
No-Fault: 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 for the cost of minor injuries re g a rdless of who was at fault in the accident. These “first-party” benefits, which are a mandatory coverage, vary by state with no-fault systems. In states with the most comprehensive benefits, a policyholder receives compensation for medical fees, lost wages, funeral costs and other out-of-pocket expenses. The term “nofault” can be confusing because it is often used to denote any auto insurance system in which each driver’s own insurance company pays for certain losses, regardless of fault. In its strict form, the term no-fault applies only to states where insurance companies pay “first-party” benefits and where there are restrictions on the right to sue.
Drivers in no-fault states may sue for severe injuries if the case meets certain conditions. These conditions are known as the tort liability threshold, and may be expressed in verbal terms such as death or significant disfigurement (verbal threshold) or in dollar amounts of medical bills (monetary threshold).
Choice No-Fault: In choice no-fault states, drivers may select one of two options: a no-fault auto insurance policy, usually with a verbal threshold, or a traditional tort liability policy.
Tort Liability: In traditional tort liability states, there are no restrictions on lawsuits. A policyholder at fault in a car crash can be sued by the other driver and the other driver’s passengers for the pain and suffering the accident caused as well as for out-of-pocket expenses such as medical costs.
Add-On: In add-on states, drivers receive compensation from their own insurance company as they do in no-fault states but there a re no restrictions on lawsuits. The term “add-on” is used because in these states first-party benefits have been added on to the traditional tort liability system. In add-on states, first-party coverage may not be mandatory and the benefits may be lower than in true no-fault states.
In the following 28 states, auto liability is based on the traditional tort liability system. In these states, there are no restrictions on lawsuits:
Alabama, Alaska, Arizona, California, Colorado, Connecticut, Georgia, Idaho, Illinois, Indiana. Iowa, Louisiana, Maine, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina, Tennessee, Vermont, West Virginia, Wyoming |
