No-Fault Insurance – New Appleman on Insurance Law Library Edition, Chapter 66

By Eileen Swarbrick, Attorney

Chapter 66 provides an in-depth discussion of no-fault insurance law.  No-fault insurance refers to insurance for which an insured is compensated for economic losses no matter who is at fault in an accident.   No-fault coverage is strictly governed by the no-fault statute and therefore, the relevant statutory requirements are examined. No-fault statutes govern all aspects of coverage from defining the types of economic losses covered to regulating the process for bringing a claim and the insurer's obligation to pay benefits.

Section 66.01 discusses the essential goals of no-fault insurance including easing court congestion, lowering insurance costs, and providing for prompt, economical payment of benefits.  No-fault plans continue to remain viable and have adapted to the challenges of rising insurance costs and premiums.  The hope is that by eliminating fault and assuring easier access to benefits the need to resort to litigation will also be eliminated.   The major difference among no-fault plans is the treatment of tort recovery. The traditional no-fault plan limits an insured's rights to bring a tort action and impose a tort threshold requirement that must be met in order sue in tort.    Most traditional no-fault jurisdictions mandate that no-fault coverage be obtained for specified vehicles.  Individuals who fail to obtain the mandated no-fault coverage would not be entitled to economic loss benefits and may be subject to other penalties.  No-fault coverage is optional in most jurisdictions that do not have a threshold requirement.  Delaware and Oregon are the exceptions in that they mandate no-fault coverage.

With the exception of Illinois, most no-fault statutes have withstood constitutional challenges.  Section 66.02 examines the more narrowly focused constitutional challenges to no-fault statutes, which have focused principally on Due Process and Equal Protection.  Additionally, no-fault provisions have been attacked on other grounds including:

•   Violation of the Privileges and Immunities Clause;

•   Right to trial by jury;

•   Freedom against self-incrimination;

•   Impairment of contracts; and

•   Freedom of interstate travel and commerce.

The types of no-fault plans are discussed in Section 66.03.  No state has a pure plan.  An add-on plan allows an insured to add-on to the tort liability insurance system and increase the compensation available to an insured injured in an automobile accident.  Add-on plans do not restrict or abolish tort liability.  Under a modified plan, the insured may sue the tortfeasor for non-economic losses provided the insured satisfies a statutory threshold requirement.  There are two types of thresholds: monetary and verbal.  Medical expense thresholds vary with limits of $1,000 or higher.  The following expenses have been deemed to be permissible medical expenses:

•   Rehabilitative training;

•   Occupational therapy;

•   X-rays;

•   Prescribed drugs and medications;

•   Chiropractic care dental services;

•   Hospital expenses;

•   Ambulance expenses;

•   Nursing care;

•   Prosthetic devices;

•   Non-medical remedial care; and

•   Psychiatric therapy.

The serious injury threshold determines whether the claimant's injuries are serious enough to warrant the imposition of tort liability. The no-fault statute enumerates the injuries which, if the claimant suffers one or more of them, entitle the claimant to sue for tort liability.  The list of enumerated injuries varies among jurisdictions, including:

•   Death (including loss of a fetus in some jurisdictions);

•   Disfigurement;

•   Permanent injury;

•   Disability;

•   Loss of sight and hearing;

•   Dismemberment;

•   Loss or impairment of a bodily function; and

•   Fractures.

A mental injury may also be included.

New Jersey and Pennsylvania have adopted choice plans, which are essentially the same as a modified plan, except that the insured can choose to eliminate the threshold requirement.  Kentucky allows the insured to refuse to consent to the tort liability limitation but does not allow the insured to recover no-fault benefits if the tort option is selected.

Section 66.04    examines the types of losses covered under no-fault plans.   All no-fault plans provide medical expense coverage.  However, to safeguard against false medical claims, no-fault statutes limit coverage to necessary and reasonable medical expenses.  Most no-fault plans enumerate the allowable medical expenses and they vary by jurisdiction.  Michigan is the exception as it provides generally for allowable expenses consisting of all reasonable charges incurred for reasonably necessary products, services, and accommodations for an injured person's care, recovery, or rehabilitation. The typical medical expenses covered are:

•   Hospital expenses;

•   Medical tests;

•   Chiropractic care;

•   Rehabilitation services;

•   Religious or healing arts;

•   Nursing care;

•   Ambulance and transportation;

•   Medicines and drugs;

•   Medical devices;

•   Psychiatric treatment;

•   Dental services; and

•   Housing accommodations.

Rehabilitation services are commonly covered under most no-fault plans and include expenses such as occupational therapy, physical therapy, or therapeutic massage.  Michigan allows for recovery of housing accommodations needed for an injured person's care, recovery, or rehabilitation.  Minnesota refers to extended care services.  Most no-fault plans cover work loss, subject to maximum amounts and methods of calculation. Some no-fault plans provide benefits to cover expenses incurred to replace non-income producing services the insured would have performed if not for the accident.

Typical replacement services include:

•   Child care;

•   House cleaning;

•   Home maintenance;

•   Transportation;

•   Home gardening and lawn maintenance;

•   Tutoring;

•   Cooking;

•   Laundry; and

•   Tax preparation.

Property damage is not covered under the typical no-fault plan.

Finally, most no-fault plans cover death benefits, which refer to either funeral expenses or survivor benefits.  Funeral expenses incurred as a direct result of the insured's death, namely disposition of the body, are generally covered under many no-fault plans.  Survivor benefits include (1) accidental death benefits; (2) income continuation payments; (3) periodic pension payment; and (4) replacement services payments.

Section 66.06 considers the scope of no-fault coverage, specifically the vehicle covered, the persons covered, the types of covered incidents, and the geographical reach of no-fault insurance.

Typically, no-fault statutes provide coverage for privately owned passenger vehicles that are subject to registration requirements. Most no-fault plans refer to motor vehicles used or operated on public highways.  The definition of a motor vehicle is important in determining coverage for persons other than named insureds and their family members, such as passengers and pedestrians.

Most no-fault statutes designate specific groups of persons, most commonly the named insured, the named insured's family member, and occupants, passengers, and operators of insured vehicles.  New York is an exception in that it provides payment of no-fault benefits to every person suffering injury or loss arising out of the use, operation, or maintenance of an insured motor vehicle for injury or loss that occurs within the state.  The named insured is listed in most no-fault statutes as a covered person entitled to economic benefits for accidents involving the insured vehicle.     The named insured is the person who enters into the insurance contract with the insurer and to whom the policy is issued.  Unlike other insureds, no-fault coverage follows the named insured and applies even if the named insured is not injured in the insured vehicle. No-fault plans require coverage for the relatives of the named insured, such as the spouse, children, wards, and in-laws.  Only relatives residing in the named insured's household are covered under no-fault plans.  Most no-fault plans provide coverage for occupants, passengers, and operators of insured vehicles.  The concept of "occupancy" suggests a zone of connection with the insured vehicle that may include persons not actually inside the vehicle at the time of the accident.  Some jurisdictions include the following definitions of occupancy: entering into or alighting from the vehicle or persons positioned on or near the vehicle for a purpose related to the use or operation of a motor vehicle.  Some no-fault statutes specifically list pedestrians as covered persons.  In any event, the pedestrian's injuries must arise out of the ownership, use, or maintenance of the insured vehicle.  Arkansas, New York, and North Dakota refer to bicyclists as covered persons.    Other jurisdictions consider bicyclists to be pedestrians.

Most no-fault statutes require, as a condition of recovering insurance benefits, that the relationship between the injury and the motor vehicle arise out of the ownership, operation, maintenance, or use of a motor vehicle.  Four elements are required to establish coverage within the meaning of the no-fault statute:

(1) A motor vehicle, which is defined in either the no-fault statute or the motor vehicle registration statute, was involved in the injury producing event;

(2) The injured party suffered accidental bodily injury;

(3) The motor vehicle was used as a motor vehicle at the time of the injury producing event; and

(4) There was a causal connection between the injury and the vehicle or accident.

No-fault jurisdictions have developed tests for determining whether there is a sufficient link between the injury and the motor vehicle. The most commonly used test is the causal connection test, which was first applied in motor vehicle liability insurance policies.  The causal connection test requires less than a proximate cause relationship but enough to establish that the vehicle was an active accessory to the injury sustained.  New York is an exception in that it requires the insured vehicle must be the proximate cause of the claimant's injuries.  North Dakota appears to have the broadest test, which allows recovery as long as the injury occurs but for the use of a motor vehicle.  Under the North Dakota test, mere occupancy in a motor vehicle would be sufficient to satisfy the test.

Most no-fault plans provide coverage to a named insured and family members for both in-state and out-of-state accidents.  Some jurisdictions also cover accidents that take place in Canada.

There are numerous statutory exclusions to no-fault coverage and they are addressed in Section 66.06.  The intentional injury exclusion is the most common exclusion found in no-fault statutes.  The issue of intentional injury poses special problems in the context of no-fault coverage because the basic premise of no-fault coverage is to provide coverage to everyone regardless of fault.  Another common exclusion applies when the claimant is injured while committing a felony or fleeing arrest.  Some jurisdictions require proof that the injured person's conduct contributed to the injury while the injured party was engaging in the prohibited conduct.

Many jurisdictions prohibit unauthorized use of a motor vehicle or refer to a converted or stolen vehicle.  Others bar recovery by persons who are injured while occupying an owned motor vehicle that is not an insured motor vehicle.

The named driver exclusion is a valid means of limiting liability coverage but its application to no-fault coverage is questionable given the compulsory nature of no-fault coverage.

A few jurisdictions allow an insurer to exclude no-fault coverage if the claimant is injured while repairing, servicing, or maintaining a motor vehicle on business premises.  Still others specifically exclude no-fault benefits to those who drive under the influence of drugs or alcohol.  Driving under the influence may also invoke the exclusion for criminal acts.  In any event, even if the insured was under the influence, the exclusion does not apply if the insured was not driving or operating a motor vehicle.

Several jurisdictions exclude recovery for injuries that occur during races or speed contests.  Utah and Washington allow an insurer to exclude coverage to persons whose injuries result from radioactive, toxic, or other hazardous properties of nuclear material or war.

Certain types of vehicles are excluded in no-fault statutes and they include:

•   Motorcycles or motorized cycles;

•   Snowmobiles;

•   Farm equipment;

•   Taxis;

•   Livery conveyances and buses;

•   Government vehicles;

•   Recreational vehicles;

•   Construction equipment; and

•   All-terrain vehicles (ATVs).

Section 66.07 examines the statutory requirements for claiming no-fault benefits.  Most no-fault statutes require the insured to provide the insurer with written notice of the accident within a prescribed period or as soon as practicable after an accident.  In New York, failure to timely submit a no-fault application may result in loss of no-fault benefits.  In the first 30 days following an accident, the injured person should file a claim with the no-fault insurer.  The notice should either be on a form prescribed by the Insurance Commissioner or the insurer's form.  The statutes do not outline the information that should be contained in the notice to the no-fault insurer, but usually require that the insurer receive notice of the fact and date of the accident and reasonable proof of a loss.

Many no-fault jurisdictions have established procedures the insurer may invoke prior to determining whether benefits should be paid. The procedures are designed to aid insurers in determining whether coverage exists or whether the benefits being sought are reasonable and necessary. Others are anti-fraud procedures designed to help diminish fraudulent claims.  Most no-fault jurisdictions allow the insurer to require the insured to submit to one or more medical examinations to establish the insured's medical condition.  Many insurance policies provide for an examination under oath ("EUO") that requires the insured to answer questions about the accident and the damages claimed.  Several jurisdictions have upheld these provisions. If the insurer has availed itself of the other provisions for release of information, such as the independent medical examination ("IME") or the EUO, and still does not have enough information, some no-fault jurisdictions permit the court to authorize additional discovery.

Most no-fault plans. Some of the payments limits are relatively low, such as $2,000 in Massachusetts, while others are more generous, for example, New Jersey, which is $ 250,000.

Given the fact that most accidents create multiple sources for the payment of no-fault benefits, the insured should notify all potential no-fault insurers to determine coverage. The no-fault statutes define the priority of coverage. Generally, only one recovery per injury is permitted and the insurers will establish among themselves the priority insurer.  Some no-fault jurisdictions require multiple insurers to pay the injured insured regardless of the dispute concerning priority of coverage. The insurer is usually permitted to arbitrate or litigate the claim to determine the rights of reimbursement and the obligation of continued coverage.

Section 66.08 discusses the insurer's obligation to pay no-fault benefits and the consequences of failure to pay those benefits.  Most no-fault plans provide that no-fault benefits must be paid by the insurer within 30 days from the date reasonable proof of the expense was given to the insurer.  An insurer's failure to pay no-fault benefits in a timely manner can have undesirable consequences for the insurer, including interest, penalties and attorney's fees.     Most no-fault jurisdictions define an overdue payment as one for which reasonable proof has been provided to the insurer and which has not been paid by the insurer.

The most common penalty for overdue payments is interest, which accrues on overdue payments. Interest rates range from 12% to 24%. Absent a statutory or contractual provision, attorney's fees generally are not recoverable in a lawsuit.  However, most no-fault jurisdictions permit an award of attorney's fees for overdue payments.  A few jurisdictions allow for penalty provisions in addition to interest and attorney's fees. For example, Arkansas allows for a 12% penalty. The recognition of bad faith actions in no-fault jurisdictions has received mixed reception.  Some have rejected the action in the no-fault context.  Others recognize the claim in the insurance context.   Pennsylvania enacted a statute that recognizes a bad faith action on an insurance policy and allows punitive damages.

As long as there is no policy or statutory provision limiting or restricting multiple recoveries, payments may be made under more than one policy or plan. Section 66.09 explores how jurisdictions treat the multiple sources of recovery that are available to the injured insured.   Most no-fault statutes have some type of coordination of benefits language.  Statutory set-offs from no-fault recovery are quite common.  Most no-fault jurisdictions provide for a set-off of workers' compensation benefits against no-fault benefits. Some no-fault jurisdictions allow for a set-off of government provided disability benefits.  Medicaid payments are generally not deducted from no-fault benefits.  However, Medicare payments reduce no-fault benefits in a few no-fault jurisdictions.  The common-law collateral source rule allows an injured person to recover damages from a tortfeasor even if the injured person received compensation from a collateral source, such as insurance, independent of the tortfeasor.  A few no-fault jurisdictions have passed collateral-source statutes that have partially abrogated the common-law collateral-source rule.

Section 66.10 considers the insurer's right to subrogation. Most no-fault jurisdictions permit the insurer to subrogate itself to the rights of its insured.  However, Maryland does not recognize an insurer's subrogation rights.   The insured's right to subrogation is usually limited to that portion of the insured's recovery that represents damages for economic losses.  In settling with a tortfeasor in a tort action, the insured must not jeopardize the insurer's subrogation rights.  In some states, the public policy favoring full compensation of accident victims extends to insureds. Accordingly, the insured must be made whole before the insurer is entitled to the proceeds of an insured's recovery.  Not all no-fault jurisdictions apply the made whole doctrine.  New Jersey, for example, has not applied the made whole doctrine.  The insurer's subrogation rights may be subject to deductibles or co-payments.  In Minnesota, it is an unfair claims practice to fail to include a deductible in a subrogation action.

The following jurisdictional charts have been added to facilitate research at the end of this chapter:

•   Section 66.11 Multi-Jurisdictional Survey of No-Fault Plans;

•   Section 66.12 Multi-Jurisdictional Survey of Tort Threshold Requirement; and

•   Section 66.13 Multi-Jurisdictional Survey of Serious Injury Requirement.

Eileen Swarbrick has authored chapters for many publications, including No-Fault and Uninsured Motorist Insurance, New Appleman Insurance Law Practice Guide, Appleman on Insurance 2d, New Appleman Library Edition, Damages in Tort Actions, Practical Solutions for New York Lawyers, and What's It Worth.  She has also served as the educational coordinator of the Queens College Paralegal Studies Program, a referee in foreclosure matters and a guardian ad litem in civil matters.  She is a graduate of the St. John's University School of Law and is admitted to practice law in New Jersey and New York.

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