Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific car insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. She also specializes in automa...

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Reviewed by Melanie Musson
Published Insurance Expert

UPDATED: Mar 13, 2020

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The term “no-fault insurance” is used in the United States to describe a variety of types of insurance coverage with the common characteristic of holding the insurance country of the each driver responsible for its insured’s damages. No-fault laws were implemented by several states in order to minimize the costs of accidents; however, not everyone is in agreement on whether no-fault insurance plans have actually accomplished this goal.

In its simplest form, no-fault insurance means that if there is an accident, each party’s insurance company pays for its insured’s own damages, no matter what the circumstances of the accident. Under a true no-fault system, no tort claims would be allowed, no matter how bad the damage from an accident. In reality, no states have such a pure no-fault system. All states allow tort claims to be filed if certain circumstances are met.

What are the types of no-fault car insurance?

There are actually 3 types of no-fault law presently in effect in the United States: qualitative threshold coverage, quantitative threshold coverage, and choice no-fault coverage. Each of these forms of no-fault law has slightly different applications and outcomes for those who purchase insurance coverage under these plans. Each form offers similar coverage, including medical payments for victims who experience bodily injury, but the terms of each type of insurance are slightly different.

Qualitative threshold no-fault coverage

Qualitative threshold no-fault coverage means that the events which permit a tort action to be filed, contrary to the “no-fault” expectation of the law, are stated qualitatively. In other words, a state may decide that death or dismemberment will allow a victim or family to go outside the no-fault constraints and file a lawsuit against the at-fault party. States with qualitative thresholds must put into writing the exact circumstances which allow a tort claim, but these are stated qualitatively, without numerical figures attached. The states currently using a qualitative threshold no-fault system are Florida, Michigan, New Jersey, New York, and Pennsylvania.

Quantitative threshold no-fault coverage

Quantitative threshold no-fault coverage, on the other hand, allows injured parties to file claims if the damage exceeds a certain dollar amount. The circumstances of the accident are not as important in this type of insurance as the damage caused. The states currently using quantitative no-fault coverage are Hawaii, with a $5,000 threshold; Kansas, with a $1,000 threshold; Kentucky, with a $1,000 threshold; Massachusetts, with a $2,000 threshold; Minnesota, with a $4,000 threshold; North Dakota, with a $2,500 threshold; and Utah, with a $2,000 threshold. Critics of the quantitative threshold system argue that it defeats the purpose of no-fault coverage, in that most accident damage can easily be inflated to exceed these low thresholds.

No-Fault Car Insurance

The final format for no-fault insurance is choice no-fault. This simply means that drivers have a choice to secure insurance under the tort liability system or the no-fault system. New Jersey and Pennsylvania administer no-fault policies as qualitative threshold insurance, and Kentucky administers them as quantitative threshold insurance.

Altogether, only 12 states have chosen forms of no-fault coverage, and even in these states there are exceptions to the no-fault rules. Proponents of no-fault insurance claim that better enforcement of no-fault laws would cut down on the number of lawsuits filed, but critics argue that this would hamper the rights of individuals who have suffered grievous losses as the result of someone else’s misconduct. Some experts advocate a “middle ground” approach, arguing for more stringent no-fault restrictions unless the at-fault driver was criminally negligent, as when a driver chooses to operate a vehicle under the influence of alcohol. The problem with this approach is that many insurance companies do not cover accidents caused by criminal negligence, so the victims might be left with no coverage at all under that system.

The Uninsured Motorist Problem

Another approach to the problems addressed by no-fault coverage is the growing number of automobile insurance companies offering uninsured driver coverage. As fully one-quarter of drivers in some locations are uninsured, this is seen as a solution to the problem. However, some people argue that uninsured motorist coverage is simply causing honest people to pay for those who choose not to insure their vehicles. This leads to suggestions that states toughen penalties for uninsured drivers, including adding incarceration time or forcing uninsured drivers to work to pay off damages caused by their carelessness. Ideally, no-fault insurance would be affordable enough that everyone would have coverage to pay for his or her own damages, although in reality this has not been the case. No-fault coverage generally carries about the same cost as tort liability insurance, and in some states it is even more.