PIP Benefits and Limitations On Tort Liability with Compulsory No-fault

The magnitude of required PIP benefits for medical expenses and loss of income varies widely across states with compulsory no-fault laws. For example, the minimum amount of total benefits for medical expenses and loss of income is less than $100000 in Colorado, and unlimited in Michigan. Like first-party medical payments coverage in states without no fault laws, drivers and occupants of the vehicle are paid these benefits for injuries without regard to fault, and the policyholder must pay a premium that reflects the cost of providing these benefits. PIP benefits generally are primary and group/individual medical expense coverage is excess. As a result, mandatory PIP benefits produce a reduction in the costs of group/individual medical insurance.

Compulsory no-fault laws limit tort liability in two ways. First an injured party who receives PIP benefits generally cannot sue another drivers for losses covered by PIP coverage. Second and very important an injured party cannot sue for pain and suffering unless the magnitude of the injury satisfies a threshold specified in the no-fault law. Some states specify a dollar threshold that requires economic losses to exceed a specified dollar amount. In recent years the dollar thresholds used in different states generally have ranged from $2000 to $4000. Other states use a verbal threshold that usually eliminates suits of pain and sufferings unless there is significant permanent injury. The ultimate effect of a verbal threshold depends on how it’s specific wording is interpreted by the state’s court system. Michigan’s verbal threshold generally is regarded as having the strongest limitations on suits for pain and suffering compared to other states verbal and dollar thresholds. It has eliminated suits for pain and sufferings in a large majority of at fault accidents.

We emphasize that no real world no-fault law eliminates tort liability. There is no pure no fault and most laws still allow large numbers of lawsuits. As a result persons with assets to protect or who wish to comply with state compulsory liability/financial responsibility laws still need to buy auto liability insurance, and it often won’t be cheap.

You should note that compulsory no-fault laws are similar to worker’s compensation laws in that they specify mandatory insurance benefits for injuries and limit tort liability. No-fault laws thus might be viewed as state mandated covenants among drivers to limit the tort liability coupled with mandatory first-party insurance.

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