One of the highest costs an insurance company incurs comes from the litigation that follows an auto accident. When Driver A rear-ends Driver B, the insurance company of the driver found “at fault” in the accident must pay the other driver for the damage incurred to their vehicle. Let’s say in this example, that Driver B was found at fault in the accident, and by rear-ending Driver A, Driver B inflicted severe whiplash on Driver A that caused Driver A to miss a week of work. Driver A sues Driver B to recoup the wages he lost by missing a week of work and for the pain and suffering the accident caused him. Now, not only must Driver B’s insurance company pay to repair Driver A’s car, the company will now have to pay any damages awarded to Driver A from the lawsuit, plus any legal fees related to the lawsuit.
Drivers see the costs of this kind of litigation reflected in their insurance premiums regardless if they have ever been involved in an accident. In an effort to reduce a driver’s premiums, and to limit the number of lawsuits filed against insurance providers, 12 states, plus the District of Columbia, have passed legislation requiring drivers to obtain no fault insurance.
Under a no fault insurance system in the above example, Driver A’s insurance would pay to have his car repaired and would pay all applicable medical bills. Driver B’s insurance company would pay to have his car repaired, and since Driver B was found at fault, Driver B’s insurance company would raise his insurance premiums. Under a no fault system, Driver A would not sue Driver B for the whiplash they suffered from the accident. Instead, Driver A’s insurance company would reimburse the wages lost from missing work, and, depending on Driver A’s policy, negotiate a payment for the pain and suffering they endured. In a few circumstances, Driver A could still sue Driver B if the courts deemed Driver A’s injury to be severe, or if Driver A’s insurance only covered part of the money he lost due to the accident.
Proponents of no-fault insurance argue that by limiting an insurance company’s exposure to litigation the cost of auto insurance would decrease, as would the insurance premiums of most drivers. Opponents of no fault insurance argue that the system does not adequately punish reckless drives, and that some victims who suffer serious injuries have a difficult time receiving adequate restitution. Drivers who live in Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, Utah or D.C. should carefully review their policies to ensure they have adequate coverage.


September 7th, 2011
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