What is "No Fault Insurance" and how are you protected?

This blog entry came about because a friend backed her car into mine, so I filed a claim with my insurance company.  My friend's husband was very angry with me stating that by filing a claim their insurance would go up.  Since we live in a "No Fault Auto Insurance" state I did not understand how my claim with my insurance company could possibly affect their insurance so I decided to research what "No Fault Insurance" truly was, how it works and who pays when.

No-fault car insurance is currently in place in 12 states and causes their residents to have insurance policies that are up to 19% more expensive than in personal responsibility states.  Very simply, a No-Fault auto policy requires the policyholder's own insurance company to reimburse them without proof of fault and restricts their right to seek or recover damages through the civil justice system for losses caused by someone else.  This eliminates the need or the ability of a driver to go after another party's insurance company in order to be reimbursed for damages caused by the other party.

If you have an auto accident, no-fault insurance pays for your medical expenses, wage loss benefits, replacement services, and the damage that you do to other people’s property.  It does not matter who caused the accident.  It is actually made up of three parts, Personal Injury Protection (PIP), Property Protection (PPI) and Residential Liability Insurance - Bodily Injury and Property Damage.  In Michigan, if you are ever in an accident here are what each of these three parts covers:

•  If you are injured in an accident, PIP will cover all medical costs.  If you injured and cannot work or are killed PIP will cover up to 85% of the income that you would have earned for up to three years.  The phrase "up to 85%" is capped at a fixed amount, which changes every year.   Effective 10/1/13, the maximum was set at $5,282 a month.  There is also a $20 allowance to pay for household services that you can no longer perform because of the accident.

• No-fault is required to provide up to $1 million for any damage that the owner's car does to another person's property, such as houses, trailers, buildings and fences.  It will also pay for damage that your car does to another person’s properly parked vehicle, but it will not pay for any damage to cars in a moving accident or for an improperly parked car.

•  The Residential Liability Insurance protects the driver from being sued in the event of an auto accident, except in many special circumstances that will vary from No-Fault state to No-Fault state.  In Michigan, the exceptions include when someone is killed, seriously injured, or permanently disfigured; if you are in an accident with a non-resident who is an occupant in a vehicle not registered in Michigan; you are in an accident in another state; if you are more than 50% at fault in an accident with an uninsured vehicle up to $1,000.

Who pays and when?

As it turns out, my friends had a small right to be concerned that their insurance company could become involved in my insurance claim.  Michigan's no-fault insurance covers damage that you do to another person's properly parked car.  The clause reads, "If your car is properly parked and hit by another car, the other driver’s no-fault coverage will pay for the damage to your car."  This appears to be covered under the $1 million clause of the no-fault policy covering personal property.

Since I had "Standard Collision Insurance", my insurance company would pay to fix my car, except for the deductible that I had to pay on the policy.  Had the damage been extensive and if I had required my insurance company to fix the car, I imagine that my insurance company might have pursued a settlement with my friend's insurance company or the person who hit my car.  As it was, only my insurance company was involved in my collision claim and my friend's concerns were irrational.  I would have had to obtain my friend's insurance company's information and then pursued a claim with their company before they would be affected or involved at all.

1. Now the question became what could be done about the deductible on my claim?  Because we were friends a check passed hands covering my cost, end of story, but what if you are not so lucky?
2. If you can get the insurance company information from the "at-fault" driver who struck your parked car, you can get their insurance company to pay for the repairs and no deductibles would be involved.  Your car would be fixed with nothing out of pocket for you.

If you know who stuck your car and they don't want their insurance company involved, you have two options.

1. If you have "Standard or Broad Collision" you can have your insurance company pay for the damages, less your deductible.
2. Have the person who hit your car pay to have it repaired.

Of course, if you do not know who struck your car, in any state you are out of luck unless you have "Standard or Broad Collision" auto coverage.  If you have "Limited Collision" coverage you will have to prove to your insurance company that you did not cause the damage yourself, which could prove messy.

If you can prove that someone stuck your properly parked car, that someone is liable for the full amount of the damages to your car even in a no-fault state.  If the other driver doesn't have insurance or lacks the appropriate coverage, you can sue them for damages.  If you have collision coverage you may want to leave it up to your insurance company to pursue them for damages as you can go after your deductible in small claims court if it is $1,000 or less.  The sad news is that in small claims court, even if you get a judgment in your favor it does not necessarily mean that you will collect and there is a lack of recourse in the U.S. that you can pursue without great expense.

In a moving accident, if the other driver has no-fault insurance and is proven to be over 50% at fault, you are very limited in what you can get back in court.  In most no-fault states, if all you have is a deductible to cover, you can certainly sue to have them cover up to $1,000 in most no-fault states.  Michigan law has a "mini-tort" provision in their no-fault law that allows the victim to collect up to $1,000 in damages from the "at fault" driver. (See:  http://www.michigan.gov/documents/cis_ofis_ip202_25083_7.pdf)