No Fault Auto Insurance Explained

Many thought the solution was a no-fault system modeled on workers’ compensation insurance. This insurance pays benefits to a worker who is injured on the job regardless of whether the worker or the company (or both) was at fault in the accident, and therefore eliminates any need for litigation as to liability.

Traditional Tort Coverage vs. No Fault Coverage

Workers’ compensation is based on the concept of a trade-off between workers and their employers. Workers trade the right to bring lawsuits against their employers following on-the-job accidents or after contracting work-related disease, such as asbestosis.

In return, the employer guarantees swift payment of all their medical and rehabilitative expenses, as well as compensation to make up for wages lost while they are unable to work. Payments may also be made to cover funeral expenses and support for the workers family if the accident or disease caused his or her death. Damages for noneconomic losses, often characterized as “pain and suffering” awards, which some successful lawsuit plaintiffs receive, are also surrendered in return for immediate compensation for all accidents, regardless of who was at fault.

Among those calling for a new system to compensate auto accident victims directly, regardless of who was at fault and without litigation, were car owners, insurance companies and agents, and state insurance regulators. Applying the same no-fault model to auto accident injuries as to workplace injuries, proponents argued that disputes about auto accident fault should be similarly removed from the courts. Under the proposed no-fault system victims of auto crashes would in effect trade off their right to sue someone else and their right to noneconomic damages.

In return, they would be assured of immediate compensation for their medical expenses, lost wages and other economic losses incurred in connection with the accident. Unlike the tort system, which does not compensate everyone who is injured, no-fault auto insurance guarantees compensation. In addition, no-fault helps to control insurance premiums because for most accidents it reduces costs; it eliminates the costs of defending people against lawsuits and the costs of noneconomic damage awards and of awards that include funds, not only to compensate for medical care and lost income but also to pay the contingency fees of plaintiffs’ lawyers. Compare discount car insurance rates online!

With a no-fault system, more of the total dollars expended on auto liability would reach actual victims rather than being eaten up by legal fees and court costs. In addition, taxpayers would save money because fewer tax dollars would have to be expended on running the court system to resolve accident cases.

Finally, no-fault auto insurance laws would provide victims with compensation when they needed it, rather than subjecting them to having legal cases dragged through the courts for years during which time they received nothing. In short, a no-fault system for compensating auto accident victims was envisioned as eliminating the very “problems with the tort system identified in the DOT study.


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