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What is no fault insurance?

Many US states and Canadian provinces have adopted no-fault insurance concepts into the traditional auto insurance coverage offered in their jurisdictions. Some, like British Columbia, plan to make it the philosophical mainstay of their mandatory, government auto insurance. This shift has its supporters and its detractors.

Traditional insurance system

  • The North American insurance system runs on the tort system, which revolves around the idea that a wrongful act will lead to someone’s legal liability—those at fault will pay.
  • Fault for an accident is established by the insurance companies first, before any of the claims for damages are dealt with—money paid out.
  • This system often entails lengthy and costly lawsuits, which may delay payment of the claims made by injured parties.

No-fault insurance system

  • No-fault insurance describes the system of how an insurance claim is paid.
  • Its goal is to ensure that money and benefits are paid to the injured parties, regardless of who is at fault.
  • Instead of one insurance company paying the damages for both parties, each insurance company covers the claim of their own insured party.

Benefits of no-fault insurance

  • Some say that the cost of insurance will go down and the basic pool of money for awards will increase with the money saved through the limiting of litigation (lawsuits, etc) in the claims process.
  • Money will be available more quickly to those who need it.
  • The insured has only one insurance company to deal with.

In a perfect world, no-fault insurance would be that simple.

No-fault insurance is NOT no fault insurance

  • The first rule of no-fault insurance is that it is about insuring coverage, not assigning blame for the accident.
  • No-fault insurance is not a ‘fee ride’. There still will be accountability.

Fault in no-fault insurance

  • Insurance companies have studied the causes of automobile accidents and court rulings that determined fault.
  • Based on their findings companies have established a set of Fault Determination Rules by which they assign fault for accidents under a myriad of circumstances.
  • Provincial governments regulate the insurance industry in each province, and set Fault Determination Regulations.
  • These regulations pretty well follow the rules of the insurance industry and change very little from province to province.
  • Insurance companies still assign fault under no-fault conditions.
  • The degree of fault may impact the amount of deductible the insured will pay, or the amount their premiums may increase.
  • A record of claims is kept by the insurance companies, so accidents where the insured was found at fault may affect their ability to shop around for better insurance rates.

Drawbacks to no-fault insurance

  • Cap limits may restrict the amount of awards for certain kinds of injuries.
  • Pain and suffering claims may be severely limited or not covered.
  • The insured may challenge an insurance award, but may have to accept the challenge panel’s ruling without further recourse.
  • The insured may be forbidden to sue the insurance company, or the person at fault for further damages.
  • Limiting litigation the may negatively impact the rights of the insured to comfort and care in the long run.
  • Other riders (collision and comprehensive) may have to be purchased to cover vehicle damage.

These changes in insurance are always a matter of give and take. Be sure to check with your insurance professional about the effect of any no-fault coverage in your current policy, or about any changes to your coverage in the foreseeable future.