Whatever happened to no-fault? - no-fault automobile insurance

Washington Monthly, April, 1986 by Peter Spiro, Jeffrey O'Connell

The second case took place in Michigan, which has the best no-fault law in the country. Thirteen-year-old Faith Ann Glynn was riding her bicycle when a car struck her from behind. Glynn, like Demichelis, suffered brain damage. In addition to having two brain operations, she lived in nursing and rehabilitation centers for two years. But in Glynn's case, the automobile insurance company that covered the entire family picked up all her medical expenses. It didn't matter that Glynn hadn't been driving a car; their coverage extended to auto accidents that occurred when a member of the family was walking or riding a bicycle.

Of course, if Faith Glynn had been injured in a state operating under the tort system, she would have been able to sue the driver. But, practically speaking, tort awards are limited by the extent of the wrongdoer's liability coverage, which most states set at a minimum of no more than $10,000 or $20,000. (Glynn's medical bills and rehabilitation treatment, all paid by her auto insurance, came to more than $180,000.) While it's true that most people take out insurance in excess of the minimum, there's no guarantee that the fellow who crashes into you will have--and, under a tort system, it's the other guy's coverage that determines how much you collect. No-fault, by contrast, removes this anxiety, since what matters is not someone else's coverage but your own. And that coverage can be more generous because of money saved by avoiding the courtroom. (Largely thanks to lawyers' fees, only 44 cents of every dollar paid into liability insurance pools makes it into the pockets of accident victims.) This is not to say that no-fault is prone to granting extravagant awards. For one thing, no-fault does not reward on the basis of "pain and suffering.' No-fault also caps recovery for lost wages and often subtracts compensation made to the victim under other insurance programs. Most important, payments are disbursed as medical and other bills fall due and not in the sort of speculative lump sums that make trial awards resemble a grotesque sweepstakes.

Crossing the threshold

If no-fault's virtues are so obvious, why are states now turning against it? We can begin to answer this question by looking at the half-hearted way most no-fault legislation has been drafted. Most states have chosen to water down the no-fault principle in one of two ways.

The first is to set thresholds that must be reached--most commonly, medical expenses in excess of a certain dollar amount--before an injury victim may bring legal action. The states that have adopted this form of no-fault--16 of the 24--are called "no-lawsuit' states. This is a serious misnomer. Lawsuits are routine in many of these states. The dollar threshold for medical expenses is as high as $4,500 (Minnesota) and as low as $200 (New Jersey). Obviously it doesn't take much of an injury to come away from the doctor with a $200 bill. And even when the dollar threshold is high, doctors with an eye on the "pain and suffering' jackpot, which typically pays off at three to five times the amount of real economic loss, may be tempted to pad costs. (One doctor charged with cost-padding was the proud owner of a yacht called Whiplash.)