Imagine this: You’re on your way to work, sitting at a red light, minding your own business. The light turns green, you start moving, and out of nowhere, a pickup truck slams into your passenger door. Your car ends up in a ditch, possibly totaled. You’re not badly hurt, but you take an ambulance ride to the ER just to be safe.
Fast forward a few weeks. You’re about to get a nice insurance payout for your car, but there’s a hitch. That hospital visit left you with a hefty bill that your health insurance won’t fully cover. You think about suing the pickup driver who was clearly at fault, but if you live in a state with a no-fault auto insurance law, you probably can’t.
So, what’s no-fault auto insurance? It’s sometimes called personal injury protection, or PIP, but that’s not exactly right. PIP is a type of auto insurance that drivers in no-fault states have to carry. No-fault is the legal rule that requires PIP and outlines what expenses PIP covers. It also limits drivers’ ability to sue other drivers for things like medical bills, funeral costs, and lost wages after an accident.
More than a dozen states have mandatory no-fault auto insurance. If you live in one of these "true" no-fault states, you have to carry PIP and can only sue other drivers under certain conditions. In a smaller number of states, PIP coverage is optional. You can add it to your car insurance policy if you want, but you don’t have to.
How does no-fault auto insurance work? If you have it, you file a claim with your insurance company and hope they’ll cover that unexpected medical bill. You can only sue if you have a severe, life-changing injury.
Remember, if you’re in a car accident, there are at least two parties involved: you (and any passengers) and your insurance company. If other drivers or bystanders get involved in the accident, they’re third parties. This could include other drivers, passengers in other cars, or bystanders.
If you live in a true no-fault state and get minor injuries in a car accident with third parties, your insurance company only covers your injury claim. The other parties’ insurance companies cover their own injury claims. This is how no-fault auto insurance works, no matter who’s at fault for the accident. For instance, even if you’re found to be solely responsible for a rear-end accident that injures you and the driver in front of you, your insurance company is only responsible for your claim. The other driver’s insurance company covers their claim.
Drivers in true no-fault states usually can’t sue other drivers for compensation related to accidents they caused. No-fault laws only allow for lawsuits related to accidents if the accident meets specific conditions, known as thresholds. These thresholds can be verbal (related to the nature of the injury) or monetary (related to the cost of the injury).
In contrast, if you live in a state without no-fault laws (a tort liability state), figuring out who’s at fault for an auto accident is crucial. If you’re solely responsible, your insurance company could cover all parties’ injury claims. If another driver is at fault, their insurance company could cover their claim and yours.
In some states, the auto insurance laws are a mix between true no-fault and true tort liability. In these states, you can choose between a no-fault policy and a traditional tort liability policy. Or, you can add no-fault coverage to your policy if you want. This gives you first-party benefits no matter who’s at fault for the accident. But even if you add no-fault coverage, you can still sue other parties, even for minor injuries.
If your driving causes damage to personal property like a house, mailbox, or parked car, and the owners aren’t injured, they’re not considered parties to the accident under the no-fault framework. They can’t get PIP compensation. But they might still get compensation through your auto insurance policy’s property damage liability coverage.
In states with no-fault car insurance laws, your insurance policy compensates you and any passengers in your vehicle for medical injuries from an accident. If the accident involves another driver, their insurance policy compensates them and any passengers in their vehicle for medical injuries. This coverage applies no matter who’s at fault for the accident.
In no-fault states, PIP compensation usually covers more than just medical bills. Each no-fault state has its own rules about what expenses are covered and the maximum coverage amount for each expense type. Most true no-fault states provide some coverage for medical expenses, physical therapy and other recovery expenses, in-home care expenses, lost income due to injury or disability, and funeral and burial expenses.
Are you required to have no-fault insurance? That depends on where you live. As of late 2021, several states required no-fault coverage, and several others had optional no-fault laws.
Even if you don’t live in a no-fault insurance state right now, it’s good to understand how it works and how it’s different from other types of auto insurance. States have enacted and repealed no-fault insurance laws over the years, keeping drivers and car insurance companies on their toes. No matter what type of auto insurance your state requires, you’re probably required to carry a minimum amount of coverage. So, it’s worth taking a few moments to familiarize yourself with the rules in your area.
