In most states, insurance companies make payments based on each person's degree of fault in a particular motor vehicle accident. However, other states have adopted some form of a no-fault system of insurance. To find out whether your state operates under a no-fault system, read your auto insurance policy (Personal Injury Protection is often the heading for the part of a policy that provides no-fault coverage), or consult your insurance agent.
How does no-fault insurance work?
No-fault insurance provides that your own insurance company will pay medical bills you incur due to an auto accident, regardless of who or what caused the accident. In most no-fault states, your company will also pay to replace your lost income, for someone to perform essential services you can no longer perform (e.g., cleaning, cooking), for funeral expenses (in worst-case scenarios), and for benefits to your survivors. The idea is to speed fair payments and avoid costly litigation. It is thought that lower auto insurance premiums should result from a lower incidence of lawsuits.
Under a pure no-fault system, your insurer would pay for any monetary damages (e.g., medical bills, lost wages) up to the policy limit, and you would be completely prohibited from suing a negligent driver for nonmonetary damages (e.g., pain and suffering, loss of companionship). Currently, no states function under a pure no-fault system.
Most of the no-fault states have adopted a modified no-fault system. This means that your insurer still pays for your covered monetary damages up to your policy's limit, but you may be allowed to sue for nonmonetary damages if your bills exceed a specified amount. This amount varies from state to state. Other states won't allow you to bring a lawsuit unless their definition of a serious injury (e.g., broken bones, severed limbs) is met. These definitions establish a verbal rather than a monetary threshold.
What is choice no-fault?
Choice no-fault (versions of which have been implemented in Pennsylvania, Kentucky, and New Jersey) is another hybrid of the pure no-fault system. Under this plan, you can choose whether you want to give up your right to sue for damages (similar to a pure no-fault plan) or retain some of your rights to sue for damages (similar to a modified no-fault plan). If you choose the latter option, your right to sue is limited. If you have an accident with a driver who has opted for the pure no-fault option, you won't be able to sue that driver.