Basics of No-Fault Auto Insurance

In spite of what many perceived to be clear advantages of a no-fault insurance system, the existing fault system was strongly defended by some. It was particularly supported by plaintiffs’ attorneys specializing in auto accident cases, who received fraternal support from most of their fellow trial lawyers.

Basics of No-Fault Auto Insurance

Associations of trial lawyers and individual trial lawyers—who often had substantial influence with their lawyer colleagues in state legislatures—lobbied to prevent or weaken no-fault auto insurance laws. As a result, in many states, defenders of the traditional tort system either successfully blocked no-fault laws or substantially watered down proposed measures.

The idea of adapting the no-fault principle, embodied in workers’ compensation insurance, to the problem of automobile accident compensation was proposed as early as 1919. But it was not until Professor Robert E. Keeton, now a federal judge in Massachusetts, and Professor Jeffrey O’Connell, now of the University of Virginia, published their study of automobile accident compensation systems and their “Basic Protection Plan” in 1965 that serious consideration was given to such a proposal.

According to a professor of insurance writing in 1971, Keeton and O’Connell were articulate salesmen for their proposal. Their marketing and packaging of the plan with a ready-made statute, together with the public’s increasing concern over perceived injustices in the tort system and the costs of auto insurance, resulted in general acceptance of the no-fault concept. Compare discount auto insurance rates!

Massachusetts enacted the first no-fault auto liability statute, which became effective on January 1, 1971. All told, between 1971-1976, 14 states enacted no-fault measures. These laws—which combine compulsory first-party liability insurance with restrictions on lawsuits (the no-fault trade-off)—are sometimes referred to as “pure no-fault” laws but this is a misnomer. A “pure” no-fault law would be one in which the right to sue was eliminated entirely. No such law currently exists in the United States. (New Zealand has a pure no- fault system for all accidents, both auto- and non-auto-related.)

Although the term no-fault auto insurance has been and is widely used to describe this system, it should be understood that no-fault is not strictly speaking a type of insurance or a type of law. No-fault, as used with regard to auto insurance in the United States, refers to a relationship between first-party insurance (such as a personal injury protection policy) and third-party liability insurance.

A typical no-fault law requires drivers to carry both these types of insurance. It says that the first-party coverage will pay for injuries regardless of who was at fault, but in certain cases, generally those in which injuries are serious, drivers retain recourse to compensation from other drivers by bringing lawsuits against such drivers under the traditional system. The point at which an injury is defined as serious is known as the threshold.

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