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No-Fault Insurance: What it Really Means to You

November 11, 2011

No-fault Car AccidentSeveral provinces have adopted a no-fault insurance system designed to help streamline the claims process. This system can be very beneficial to insurance customers, but it can also be confusing. If you aren’t quite clear on what no-fault really means and how it affects your insurance, you are not alone. Fortunately, no-fault insurance is not complicated; it simply outlines how claims are handled by the insurance companies involved.

No-Fault Doesn’t Mean No one is at Fault

A common misconception about no-fault insurance is that the insurance companies will not make a fault determination in the event of an accident. Having no-fault insurance doesn’t mean you can’t be found at fault for an accident. In every claim situation where two drivers are involved, the insurance companies will always determine who is at fault.

No-fault insurance simply means that it does not matter who is found at fault; your insurance company will handle your claim and pay out for damages and injuries to you. The other person’s insurance company will do the same. Someone will still be determined to be negligent in the accident, and that person may experience a potential rate increase upon renewal or when shopping for car insurance quotes. Fault can also be split between the two parties in percentages, in which case both may see an increase in insurance rates.

The Benefits of No-Fault Insurance

No-fault insurance can benefit the insured in a variety of ways. In the tort system, the two insurance companies would investigate the accident and determine fault – then, the company whose insured driver was found responsible would pay for all of the repairs and damage. No-fault insurance simplifies the process of getting claims paid out by having your insurance company pay for your damages, no matter who is at fault.

Drivers will receive insurance benefits quickly and without the long drawn out process of litigation. There is no need to fight with another insurance company in order to get benefits and the cost of a legal battle is avoided by both sides. This allows you as the insured to get your car repaired quickly and to have medical issues taken care of without worrying if the other insurance company will refuse to pay or argue fault.

No-fault insurance generally cuts out the incredible cost of lengthy legal battles that use time and resources – all of which add up to higher insurance rates overall, because the insurance companies have to spend more money fighting every claim. Some provinces do still allow injured parties to sue for pain and suffering, economic loss or both while others do not. This allows injured parties to recover losses beyond the limits of the policy.

The Cons of No-Fault Insurance

Although no-fault insurance does make things simpler in the event of a claim, it also changes the negative manner in which at-fault parties are impacted. Although the party found at fault will face insurance rate increases, the injured party’s insurance will still have to pay out on the claim; rather than the at fault party’s insurance company taking the full responsibility. Some people feel that the no-fault insurance system protects bad drivers, while leaving good drivers without recourse when their property is damaged or they are injured.

No-fault insurance does not eliminate the problem of resources wasted on lawsuits. Although the promise of no-fault insurance has been to keep overall premiums for insurance down by reducing wasted resources on claims fought out in courts, insurance rates as a general rule continue to rise. As each province has determined whether or not an injured party has the right to sue, in some provinces legal battles continue, impacting overall insurance rates.

What No-Fault Insurance Means to You

If you live in a no-fault insurance province and have a claim, you can expect that your insurance company will pay out on the claim in a relatively speedy manner. To receive benefits, you will not have to wait for fault to be determined or for a long fight between the insurance companies to be resolved. Depending on the province in which you live, you may have the right to sue for pain and suffering or economic loss or both, but you will receive immediate benefits up to the policy limits without delay.

If you are found to be partially or completely at fault in the accident, you may see an increase in your insurance rates on renewal – as such, you may want to compare your car insurance rate and find the lowest available rate. You do have the right to appeal a fault determination – but remember that in some provinces such as Ontario, fault determination is set out in very clear guidelines. In many provinces you may also still face a lawsuit for damages that exceed the limits of the injured party’s policy.

If you are not at fault, your insurance company will pay out for your damages up to the policy limits, and you will not likely see an increase in rates. If the policy limits are reached and you are still at a financial loss, your provincial laws may allow you to sue for the difference.

No-fault insurance has both pros and cons, as does tort insurance. In some cases it can make the claims process much simpler; but this varies from claim to claim and province to province. It’s important to be aware of the laws in your home province in regards to the right to sue. Remember that no-fault still means you can be found at fault, so drive safely and responsibly every time you get behind the wheel.

  • Jade

    So if I don’t have full replacement coverage on my vehicle, and someone else hits me an totals my car, I’m out a vehicle and they get a slap on the wrist?

  • EqualityIsForEveryone

    Not exactly, your insurance covers up to your coverage maximum. You will still be at a net loss, so at that point you would get the rest from the at fault party (probably their property damage insurance coverage.)

    Quote from TD Insurance describing the property damage coverage: “In the event of an accident in which you or another insured party is legally responsible for property damages caused to another person, your insurer will protect you from and settle any resulting claims, subject to the conditions and limits of your insurance policy”

    This section of their insurance would be responsible for covering the difference to make you whole. If they didnt have this coverage, you would sue them for it (just like you would have to in the Tort system, if they were lacking coverage).

    As for the slap on the wrist: fault is still assigned to the other driver and when your insurance maxes out and it costs their insurance company, they are sure to see a big premium increase and you wont see one at all. Plus as a bonus to you, your car is probably replaceable for higher value than it would actually have been worth to resell for you, not to mention your or their insurance would cover transportation expenses such as rental vehicles in the interim while you are dealing with the process.

    There are pros and cons to both systems, but at least it seems no fault prevents people from getting nasty, and usually prevents the victim from getting taken advantage of if the at fault party has much larger legal resources to protect them.

    (This is all just my opinion based on my knowledge and experience, feel free to correct me if I am wrong.)