States across the country have all different types of auto insurance systems, but the main 2 include what are commonly referred as the no-fault system and the tort system. I have dealt with both types of systems as my career as a personal injury lawyer since I have practiced in both Michigan (no-fault) and South Carolina (tort system). In order to give you a better idea of how the two differ, here is a made-up example to help clarify the intricacies of the laws. I feel this is the best way to express the concepts without making it too difficult to understand or becoming too confusing.
A Car Accident Scenario to Explain Both Systems
Let’s assume that there is a simple auto collision between two parties. For simplicity sakes, the two driver’s names are John and Steve. Steve is completely at fault for the accident and this is obvious to anyone at the scene including both drivers. To make this example even better, Steve’s car was not only at fault for the accident, but his car happened to damage a building/home of a third party, let’s call the owner of the building Mark. Mark was just sitting in his home when he watches Steve and his car knock through his kitchen wall. So how would no-fault law treat this incident? How would the tort-system treat this incident? First let’s establish certain losses/injuries in which you can bring a recovery and then I’ll give a short explanation of how they are treated under both types of auto insurance laws.
John’s Medical Expenses – John suffered some serious injuries and needs to have his medical expenses paid for. Under no-fault law, John would simply notify his own insurance company and they are responsible for medical expenses. Under the tort system, John would need to sue Steve and his auto insurance company to receive compensation for medical costs.
John’s Loss of Wages or Income – Since John has suffered from injuries, he was unable to work for a few months. Under no-fault law, John would get this compensation from his own insurance company although there are some restrictions. Under the tort system, you must get this compensation from the other parties insurance company; in this case that would be Steve and his insurance policy.
John’s Replacement Services – Replacement services are treated just like the lost wages. Under no-fault, your own insurance company is responsible. Under tort-law, the other parties insurance policy will cover these costs
John’s Pain & Suffering (3rd Party Benefits) – This is where the major difference occurs. If this accident took place in a no-fault state, John would have a very difficult time getting any compensation for his 3rd party case. Since your own insurance company covers all medical expenses, wage loss, replacement services, etc. they (insurance companies) put in restrictions limiting their 3rd party case exposure. You must be able to prove that a “serious impairment of bodily function” threshold is met. In a tort system, you can simply sue the other driver just like in no-fault but there is no “threshold” which you have to meet. You need to prove negligence of the other driver.
John’s Vehicle Damage – In a no fault state, you utilize what is called a mini-tort law which allows you to collect up to $500 if the other driver was negligent. In a tort-system state, you will simply sue the other driver and there is no maximum which restricts your loss.
Steve’s Compensation – Here is another major difference. Since Steve was at fault for the accident, he is not entitled to any compensation in a tort system for medical expenses, wage loss, and replacement services. If this happened in a no-fault state, Steve would get all of those expenses paid for by his own insurance company.
Mark’s Home – This seems to be the one point of common ground. If this occurred in Michigan, Mark would collect from the insurer of Steve’s Car or Steve’s insurer if he has no car insurance. If this occurred in Georgia, Mark would seek compensation from Steve or his insurer.