Below is a brief explanation of no fault, who came up with the idea and its history. It was prepared by Consumer Watchdog staff.
In the early 1930s, a group of academics examining the nation's nascent auto insurance system suggested an alternative approach, modeled after the workers' compensation system developed earlier in the century.1
Their aim was to achieve rapid and full compensation of auto accident claims without litigation. They suggested moving from the American tradition of resolving disputes through litigation — tort law-based liability to a system in which, in effect, the private insurance companies adjudicated all claims. Under this new theory, individuals injured in automobile accidents would be compensated by their own insurance company, regardless of whether the motorist was at fault.
Compensation for non-economic damages–principally the intangible pain and suffering experienced by a human being–would be prohibited. Compensation for pain and suffering is only one form of "non-economic" damage recognized by American law. Other forms of non-economic damage to a person include loss of parental guidance or filial care, disfigurement, loss of limbs, sterilization, and inability to engage in sexual activity or to procreate.
The concept won scant attention until Professors Robert Keeton and Jeffrey O'Connell refined it in 1965. 2 They proposed a limited no-fault system applicable exclusively to minor auto accidents. Anyone injured in such an automobile collision would receive compensation for medical bills and wage loss, regardless of whether he had caused the accident. However, compensation for non-economic damages, known colloquially as "pain and suffering," would be prohibited in all but the most severe accidents. Only accident victims with serious injuries–those meeting a threshold of $5000 non-economic damage–would have access to the tort system.3 Motorists would retain the right to go to court to recover medical expenses and other economic costs that exceeded the no-fault benefits.
By 1974, with the considerable resources of the insurance industry in support,4 nineteen states had enacted some form of limited no-fault, beginning with Massachusetts in 1971.5 At its peak, twenty-four states had adopted no-fault laws. The laws were hardly uniform, however. Sixteen states instituted a mandatory no-fault system. In mandatory no-fault states, lawsuits seeking compensation for human pain and suffering are permitted for injuries meeting a certain threshold, the definition of which may vary considerably from state to state. States with "monetary" thresholds require the victim to demonstrate that his damages exceed a specific dollar amount in order to access the tort system to obtain human pain and suffering damages. States with "verbal" thresholds permit such lawsuits only if the injured party can demonstrate a normatively defined level of injury, such as "serious and permanent." Finally, eight states utilize hybrid systems, in which "no-fault" coverage supplements the required third party liability insurance.6 In these "add-on" states, there are no limits on lawsuits. All present no-fault systems permit recourse to the courts against at-fault drivers for payment of economic losses in excess of the no-fault benefits. No state has adopted a "pure" no-fault system, which completely bars access to the tort system.
By 1976, no-fault's progress came to a halt. Only the District of Columbia has adopted a no-fault law since 1976. Since then, however, six states have repealed their mandatory no-fault laws.7 Presently, there are ten mandatory no-fault jurisdictions.8
From the mid-1970s through the early 1980s, no-fault, as well as auto insurance reform in general, remained a dormant issue. It roared to prominence, however, in the mid-1980s, as the nation experienced a liability "insurance crisis."
1. The Columbia University proposal was published in 1932. Benefits would be limited to specific amounts contained in a "schedule" similar to those in the worker's compensation field. COLUMBIA UNIV. COUNCIL FOR RESEARCH IN THE SOC. SCIENCES, REPORT BY THE COMM. TO STUDY COMPENSATION FOR AUTO. ACCIDENTS (1932). STATE FARM INS. COS., NO-FAULT PRESS REFERENCE MANUAL G-120 (1992).
2. See ROBERT A. KEETON & JEFFREY O'CONNELL, BASIC PROTECTION FOR THE TRAFFIC VICTIM 181 (1965).
3. See KEETON & O'CONNELL, supra note 9, at 8. Policyholders would be permitted to purchase coverage for their own pain and suffering in minor cases, however. See id. at 9. Property damage would still be handled on a third party, or fault, basis. See id. at 8.
4. In the late 1960s and early 1970s, insurance trade associations proposed differing forms of no-fault. Large insurers tended to support "pure" no-fault: the complete abolition of tort liability in exchange for unlimited medical benefits and substantial wage loss benefits. See STATE FARM INS. COS., NO-FAULT PRESS REFERENCE MANUAL G-104 (1992).
5. See ROBERT H. JOOST, AUTOMOBILE INSURANCE AND NO-FAULT LAW 2D § 1:1 (1992).
6. Some states gave motorists the option to buy the "add on" coverage, while others required its purchase. See STATE FARM INS. COS., NO-FAULT PRESS REFERENCE MANUAL G-121 (1992).
7. The Nevada Legislature repealed its no-fault law effective June, 1980; Georgia repealed its no-fault law effective October, 1991; and Connecticut repealed its no-fault law effective January, 1994. These states returned to the personal responsibility system. The District of Columbia moved from mandatory no-fault to an "add-on" system effective June, 1986. New Jersey and Pennsylvania repealed the mandatory portions of their no-fault laws in 1989 and 1990, respectively.
8. The mandatory no-fault states are: Colorado, Florida, Hawaii, Kansas, Massachusetts, Michigan, Minnesota, New York, North Dakota, and Utah. Twelve jurisdictions have hybrid no-fault systems: Arkansas, Delaware, District of Columbia, Kentucky, Maryland, New Jersey, Oregon, Pennsylvania, South Carolina, South Dakota, Texas, and Virginia.