Does no-fault insurance work?

No-Fault, listed as Personal Injury Protection (PIP) on New York auto policies, is a system to promptly pay medical bills resulting from an auto accident regardless of fault. Basic coverage includes medical expenses and lost earnings up to $50,000 per person for the driver and any passengers in the car. You can buy additional coverage up to a total limit of $175,000 per person, usually at a very reasonable cost.

There are still some circumstances where you can still sue the at-fault driver. If you have a “serious injury” as defined in the statute, you can still sue. Damages to vehicles and property are not part of the no-fault coverage in New York, so those costs are handled either under your collision coverage or the responsible party’s liability coverage.

The primary goals of no-fault insurance are to get medical bills reimbursed quickly and to reduce overall costs. The concept was that if the need for a lawyer and legal action for minor claims were eliminated, the system would work faster and at lower cost.

But does it work? In my experience in western New York, the answer is a resounding “yes”. The insurance companies must make payments within very tight time frames, so we rarely have any complaints from claimants or doctors. We see very few lawsuits resulting from auto accidents, both because of the no-fault law and because companies have learned to settle claims through negotiation or arbitration. Auto insurance premiums have stayed relatively stable for many years.

But do irresponsible drivers get a free pass? Not really. They may not feel the pain of a lawsuit, but their insurance premiums go up substantially based on their driving record. Also, they are not eligible for benefits if they drive while intoxicated, intentionally cause injuries, or use the vehicle in committing a crime.

What about fraud? In other areas of the state, no-fault fraud has been a major problem, with staged accidents and unscrupulous lawyers and doctors. But I think this would be a problem regardless of the system. (NY State has been aggressive in prosecuting fraud cases, and has revised the statute to make fraud easier to detect.)

Why doesn’t no-fault work as well in other states? This is something that New York actually got right. New York’s law makes basic coverage mandatory, applies only to injuries, clearly states who can still sue (only those with “serious” injuries), and makes it clear who pays the medical bills (your auto insurance company). Other states with no-fault coverage have tinkered with it, adding complexity to something that needs to be simple:

  • Some states, like Pennsylvania, make no-fault coverage optional. This presents every insurance buyer with a complex choice that few will understand. Not to mention the complexity of a claim.
  • Some states coordinate coverage with your health insurance and other sources. This may reduce the auto insurance cost, but makes it less clear which insurance company is responsible for your medical bills. The overall medical costs are the same, so it just adds confusion and uncertainty.
  • Some states use a dollar threshold to determine who can sue. They define a serious injury based on the medical costs rather than the type of injury. This just gives motivation to drive up the costs of medical treatment to reach the threshold.
  • Some states, like Michigan, extend no-fault to vehicle damage. Well, sort of. If I understand it right, those who don’t carry collision on their own cars can’t sue a responsible third party.

Many thanks to a friend in Michigan for this question.

Drop me a note or add a comment here with any questions about your no-fault coverage.

(Important note: drivers and passengers of motorcycles and ATVs are not covered under the no-fault statute in New York.)

For more information, drop by our website at, or get in touch with me.

The information in this post is general in nature, and geared toward insurance conditions in Western New York.  As always, you should speak with an insurance adviser to determine your specific insurance needs.

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