When you have a "no-fault" auto insurance policy, it doesn't mean accidents are never your fault. It means it doesn't matter, for insurance purposes, who is at fault in an accident. Whether you or someone else is to blame for the accident, your insurance company is responsible for paying your claims for property damage and medical bills. Twenty-two states require no-fault insurance or make it an option, although the insurance industry quibbles with the definition used in some states.
The defining characteristic of a no-fault policy is that insurers pay "first-party" claims — that is, the claims of their own policyholders. However, the insurance industry defines a "true" no-fault state as one that not only requires insurers to pay first-party claims, but also limits the ability of accident victims to sue for damages beyond the dollars-and-cents cost of the accident — such as for compensation for pain and suffering or punitive damages.
"True" No-Fault States
As of 2012, according to the Insurance Information Institute, 12 states had "true" no-fault auto insurance laws: Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah. In Kentucky, New Jersey and Pennsylvania, car owners can choose between a no-fault policy and a traditional "tort-liability" policy, in which insurers pay claims based on who is at fault. The other nine states require no-fault policies for all drivers.
"Add-On" No-Fault States
Ten states have a variation of no-fault insurance in which insurers pay first-party claims, but there are no restrictions on lawsuits. The insurance industry refers to these as "add-on" no-fault states. Here, no-fault coverage has been "added on" to the traditional system. Those states are Arkansas, Delaware, Maryland, New Hampshire, Oregon, South Dakota, Texas, Virginia, Washington and Wisconsin.
It's important to note that even in true no-fault states, accident victims aren't totally prohibited from suing for additional damages. It's just that the law sets a standard that a case must meet before a lawsuit can proceed. In seven of the states, the standard is defined in monetary terms -- for example, medical bills exceeding $100,000. The states with a monetary lawsuit threshold are Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota and Utah. In the other five states, the standard is "verbal," meaning the law allows lawsuits in cases that meet non-monetary criteria. Such laws might say lawsuits are allowed in accidents causing "serious injuries," for example, or resulting from "reckless behavior." The five states with verbal thresholds are Florida, Michigan, New Jersey, New York and Pennsylvania.
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