What does it mean when a state is a no fault state?
What does it mean when a state is a no fault state?
This is a confusing issue even for insurance professionals.
The term “No-Fault” state refers not to a liability issue, but to a coverage.
Regarding liability, there is no such thing as a no fault state. On the civil side of an accident (the part that insurance is involved in) someone is always at fault. Even if everyone is equally at fault (not a common occurrence) then everyone is 50% at fault.
What a No-Fault State refers to is the first-party medical coverage on an automobile policy.
In each state, law dictates how first party medical coverage is configured on a policy. The term “first-party” means that this coverage covers the owner of the policy and anyone in his or her vehicle at the time of an accident.
In many states, there is a coverage called “Medical Payments”. This is a coverage that pays for first-party injuries regardless of fault. It only pays medical bills and tends to have a very low limit.
If you are involved in an accident, the other company (to whom you are a third-party) does not have to pay anything until all investigations have been completed and all settlements negotiated, which can take months or even years. Several state governments responded to the plight of people who had huge stacks of medical bills, lost wages, and other losses that piled up and sometimes pressured third parties into quick settlements that were not to their advantage, by creating No-Fault Coverage.
This coverage covers medical bills, lost wages, lost services, and other expenses that can come up for someone who has been injured.
Since this coverage is legislated, each state either has Medical Payments or No-Fault, hence the term “No-Fault State”.
