No-Fault Insurance: What, Why and Where?

Abstract

Under the common-law "tort" or fault-finding system, after an accident between Smith and Jones, if Smith is an "innocent" party claiming loss against a "wrongdoer," he is paid not only for his economic loss, but for the monetary value of his pain and suffering. But it is often very difficult to establish not only who was at fault in an accident but the pecuniary value of pain. Under the no-fault solution, after an accident between Smith and Jones, each is paid for eco nomic losses by his own insurance company, regardless of any one's fault. As a corollary, each is required to surrender his claim based on fault against the other. No-fault insurance then, was designed to make the following improvements in auto accident compensation: (1) to assure that everyone injured in auto accidents is eligible for auto insurance payments, regard less of whether he was able to prove fault-based claims; (2) to spend less on smaller, relatively trivial claims, and more on serious injury; (3) to pay claims promptly; (4) to pay more efficiently by using less of the premium dollar on insurance overhead and legal fees; (5) to reduce, or at least to stabilize, the pertinent costs of auto insurance. In essence, no-fault auto insurance has succeeded in all these goals. Consideration is given to extending no-fault to all kinds of accidents.