In the United States and in much of the western world, auto insurance coverage is based on one of two systems: No Fault and Tort. The purpose of this article is to examine these two types of systems in easy to understand language so that you have a better understanding of how each auto insurance system works.
The No Fault system is commonly misunderstood to mean that if you get into an accident, even if it is your fault, you are not at-fault. This is completely wrong. The No-Fault system simply means that regardless of who is at-fault, each party involved in the accident is covered by their own insurance company. For example, if you are involved in an accident and are injured, instead of collecting from the person’s insurance company that hurt you, your medical bills would be paid for by your own insurance company. Why did this system develop?
The No Fault system developed as a way to expedite the claims process. By having your own insurance company cover your medical expenses while you are hurt is certainly better than having to wait for a trial where you sue the third party for your medical expenses. Keep in mind a court case can take up to four years or more to go to trial which means you would be waiting all this time for reimbursement. Another benefit of avoiding a court case is that you do not have to “split hairs” with the third party’s lawyer who is fighting to give you the least amount of coverage as possible. As you will see this all contrasts with the traditional Tort system.
In the Tort system of auto insurance, you have to sue the person that hurt you and if you win the case than you collect from the insurance company. As you can see above the No Fault system was created in many jurisdictions to get rid of the problems associated with having to go to court for your coverage. However, many states follow this system because they believe that one’s ability to fraud their insurance company is reduced since they have to go to court and prove their injuries and justify their expenses. In addition, they argue that claims are settled much faster because most insurance companies would rather settle than to go to court where they would have to pay lawyer’s fees.
Some critics argue that it is unfair to make one’s insurance company pay for their customers damages when it was another person with their own insurance company that was responsible. They argue that it takes away individual responsibility from the consumer. This is more of a nuanced point that really doesn’t have a bearing on the customer service experience as it does not affect the efficiency in which claims are processed.
In conclusion, it is still difficult to say which auto insurance system works the best as both sides have their pros and cons.