Comparing No-Fault and At-Fault Insurance Systems

September 6, 2023

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Whether your insurance policy is governed by an at-fault or no-fault system can have a major impact on your auto accident claims process. Auto insurance models can also have an impact on the compensation amount you may receive as a result of damages in an auto accident. A major distinguishing factor in a no-fault vs. at-fault claim is whether the victim has the right to sue and who pays for the damages. There are also other key differences between the two types of insurance systems. Please continue reading to learn more about no-fault vs. at-fault insurance systems and how insurance liability systems work. 

No-Fault Insurance

A no-fault system means that the fault of the accident has no significance in seeking compensation for the damages. As a result, the injured parties are required to seek compensation for their damages from their own insurance coverage. No-fault insurance policies have personal injury protection (PIP) coverage that provides compensation for damages regardless of fault. PIP coverage is mandatory in states that follow a no-fault insurance system. 

The purpose of a no-fault system is to streamline the process of compensation for the victims of auto accidents. In a no-fault insurance policy, the insurance company provides compensation for medical bills, lost wages, and other types of damages. Other benefits of no-fault insurance include a simplified claims process and reduced legal costs. 

Auto accidents have led to a dramatic increase in litigation, especially with small claims courts. With no-fault insurance, the claims resolution process becomes more efficient. The victims of auto accidents in no-fault states are released from the obligation of proving the fault of the other drivers involved in the accident. 

No-fault states include New York, Florida, Utah, Minnesota, Pennsylvania, New Jersey, Kentucky, Hawaii, Kanas, Massachusetts, North Dakota, and Michigan. The states of New Jersey, Kentucky, and Pennsylvania are “choice” states, as in these states, you can choose to get a no-fault or at-fault auto insurance policy. 

While most no-fault insurance claims have no litigation process, it is a common misconception that with no-fault insurance, the victims cannot sue at all. For example, individuals might be able to sue for noneconomic damages. To learn more, you can consult with a local auto accident attorney to determine what legal actions you can take to recover compensation for your damages

At-Fault Insurance 

The vast majority of U.S. states follow an at-fault insurance system. This type of system is also referred to as a tort system. There are 38 states, along with the District of Columbia, that follow a fault-based or tort system. As the name suggests, with this type of insurance, each insurance company pays for the damages and compensation according to the percentage of the degree of fault of their policyholder. The injured plaintiff has the right to pursue compensation from any parties who were liable for the accident. If the plaintiff does not agree with the compensation offered by the insurance company, they have the right to file suit and seek higher compensation. 

In at-fault insurance states, establishing liability for the accident is important as the at-fault driver’s insurance company will be responsible for paying the compensation for damages to the plaintiff. However, it is important to keep in mind that the insurance company will only pay up to the policy limits. 

This would be a major problem for all parties involved in the accident. In this situation, the victim has a few alternatives. They can use their underinsurance motorist coverage, sue the at-fault driver, use their health insurance coverage, or cover remaining costs out of their own pocket. Some at-fault states allow drivers to get add-on coverage to their insurance policy for extra coverage in case of an accident with an underinsured or uninsured driver. 

Types of Negligence or Fault in an Auto Accident 

Establishing fault or liability in an auto accident can often be challenging. Having multiple parties involved in the accident further complicates the situation. In auto accidents where drivers are partially at fault, insurance companies will look at the share of fault or negligence of each driver. Generally, fault or negligence in an auto accident falls into three categories: 

Pure Contributory 

Under the pure contributory rule, if the driver contributed to the accident, no matter how minimal, they may be barred from recovering any compensation from the accident. In other words, if the driver is found to have even a minor role in the occurrence of the accident, they will not be able to recover any damages from other parties involved in the accident. The pure contributory rule is quite strict, and only a few states follow this system. 

Pure Comparative

With a pure comparative negligence system, the payout is based on the percentage of fault. For example, if a driver is determined to be 75% at fault, they can only recover 25% of the total damages for the accident. The comparative insurance analysis considers the actions, behavior, and negligence of the drivers leading up to the accident.

A pure comparative system is a more flexible and equitable system compared to a pure contributory system. However, the application of a pure comparative system requires more effort and time, as determining the percentage share of fault for the accident can be challenging and can often be disputed by the parties. 

Modified Comparative

The modified comparative system considers the fault of the driver; however, it has a threshold, typically set at 50% or 51% depending on the jurisdiction. The threshold represents the point at which a driver’s fault becomes too high for them to receive compensation for the accident. For example, if a driver is 75% at fault in the accident, they may not be able to recover any compensation for the damages. The objective of a modified comparative system is to prevent extreme scenarios where a driver with a high fault can cover compensation from others that had a minor fault in the accident. 

Photo of a Damaged Car

How is Fault Determined in Auto Accidents?

As each accident can have its unique circumstances, determining fault often requires some investigation of the accident. If law enforcement officials arrive at the accident site, they will make an incident report or police report of the accident. The report will have details of the accidents, such as license plate numbers of the vehicle involved and contact information of the occupants. In some cases, the report may also include an assessment of who was at fault in the accident. The police report will also contain information such as whether drugs or alcohol played a role in the accident. 

Insurance companies have the right to conduct their own investigation of the accident. They can seek surveillance footage from nearby shops, offices, and residential buildings. Eye witness statements and expert testimony might also be used to determine the fault for the accident. Similarly, photos and videos from the crash site can also be used as evidence to determine liability for the accident. Is it common for involved parties to try to shift blame so their liability is minimized or eliminated? It is best to consult with an experienced attorney for fault determination. 

Impact of at-Fault Accident on Insurance Premiums 

Generally, car insurance premiums do go up if you cause an accident. Your premiums may still go up even if you are not at fault in the accident. However, every auto insurance company handles accidents differently. According to the U.S. News and World Report, the average rate for drivers with a single accident is $2,212 per year. That rate is $665 more than last year for a driver with a clean record. 

A number of factors are considered to calculate insurance premiums, including the driver’s age, type of vehicle insured, and driving history. Typically, insurance companies only back only three to five years of driving records for the calculation of insurance premiums. 

Accident Claims Process 

An auto insurance claims handling process can be initiated by calling the insurance company. If the accident only resulted in minor vehicle damage, the insurance company can handle the entire process without much fuss. However, if there are serious injuries, fatalities, long-term disability, or severe property damage involved, things can get a lot more complex. When the stakes are high, it is best to get an attorney involved as soon as possible

It is not surprising that early settlement offers from insurance companies are typically low. You have the right to reject the offer and submit a counteroffer. If you are not sure if the settlement offer is fair, you can consult with an attorney. If no acceptable agreement can be reached, your lawyer can file a lawsuit on your behalf. 

While you are not legally required to have an attorney for a car accident claim or lawsuit, you can benefit from having one on your side. The attorney can handle communication with the insurance company, help you gather evidence, compile all the legal paperwork, and ensure you get all your injured party rights. The attorney can also evaluate the facts of your case to determine what type of legal case you can pursue and if there are any potential red flags in your case. To learn more, you can contact our car accident attorneys at The Pendergrass Law Firm.