Lawmakers in the 1970s designed no-fault insurance laws to lower car insurance premiums by reducing the number of expensive lawsuits to decide fault. But that hasn’t exactly worked, and consumers are paying for it.
No-fault systems suffer from patchy insurance laws and low “tort” thresholds, which describe how costly or severe an injury has to be before a driver can sue, said Insurify Carrier Relationships Manager Daniel Lucas. Some medical providers and personal injury attorneys have learned how to game the system, leading to lawsuits and fraud that increase costs to insurers, according to the Insurance Information Institute (Triple-I).
While no-fault laws aren’t the only factor contributing to high car insurance rates, they appear to be largely failing to protect drivers from expensive lawsuits and climbing rates.
What does ‘no-fault’ really mean?
Most states have at-fault auto insurance laws, meaning insurers pay out injury claims based on who causes an accident. In no-fault states, all drivers have to carry personal injury protection (PIP) coverage and file their injury claims with their own insurance company, no matter who’s at fault in a crash.
For example:
In an at-fault state, if Driver A clearly causes an accident that injures Driver B, Driver A’s insurance company pays to cover related medical expenses.
In a no-fault state, if Driver A clearly causes an accident that injures Driver B, Driver B would file a bodily injury claim with their own car insurance company. PIP would cover medical and related expenses up to the coverage limit.
“No-fault” only applies to bodily injury claims. Insurers will likely work to determine fault for vehicle and other property damage. And, unlike the term “no-fault” suggests, fault in a personal injury claim could still matter in no-fault states.
No-fault states have legal thresholds for injury severity and cost. If a claim surpasses the threshold, the insurance company and court will work to determine fault as part of a lawsuit.
Some at-fault states require PIP, and others allow drivers to add PIP as an additional coverage. Three states have choice no-fault systems, where drivers choose a no-fault or traditional auto insurance policy, though all require PIP.
Comparing no-fault to at-fault systems
Proponents say no-fault systems can streamline the claims process because an injured driver isn’t waiting on an insurance company or court to determine fault before they can get their medical costs paid. PIP is a “first-party” coverage, meaning it only covers the policyholder and their passengers. No-fault states limit whether drivers can sue for damages based on “verbal” or “monetary” thresholds.
For example, Florida requires $10,000 of PIP and has a verbal threshold. In this case, a verbal threshold would mean an injured person may recover damages for pain and suffering if the accident causes significant and permanent loss of an important bodily function, permanent injury, significant scarring or disfigurement, or death.
“Because PIP is a first-party coverage, the insured is able to use this coverage immediately following a loss and have guaranteed payment up to the limits,” said Lucas. “In an at-fault state, PIP is not mandatory, and the claimant can seek medical to be paid by the at-fault party. This gets significantly more messy given that liability could be disputed, or at least take time to investigate and determine. Meanwhile, the injured party may not be getting treatment.”
At-fault states, on the other hand, have no restrictions on lawsuits and no threshold. The injured persons can sue the at-fault driver for out-of-pocket costs as well as pain and suffering.
How medical providers and attorneys adapted
While no-fault laws aimed to prevent excessive fault litigation, the original laws — written mostly in the 1970s — aren’t working that way anymore.
“Decades later, the medical systems and plaintiff attorneys have adapted to operating successfully in both at-fault and no-fault states to largely negate the intended benefits,” Triple-I Director of Media Relations Scott Holeman told Insurify.
Lucas said it comes down to states’ “antiquated” PIP minimum limits and too-low legal thresholds.
“The state minimum limit is only $2,000 in Virginia, and you can’t walk into an emergency room for $2,000 these days,” he said. “With the rising cost of healthcare, limits are most likely exhausted very early on when there is a real injury from a covered loss.”
Medical providers know the system, Lucas said, and may collude with attorneys to charge higher rates for treatment.
“In some states, attorneys can direct care, meaning an injured person does not need a referral from their doctor or insurance to obtain treatment, and the attorney will direct the claimant to seek treatment at a specific facility with a specific doctor that the attorney has already negotiated rates with,” he said. “If you are in a tort state, and a threshold needs to be breached, the attorney and their doctor will surely direct treatment above that threshold to build up the injury claim.”
What’s next: No more taking advantage of the system
Triple-I coined the term “legal system abuse” to describe how trial attorneys are “gaming the system at the expense of consumers,” driving up costs. No-fault and at-fault states are both vulnerable to legal system abuse. It’s particularly affecting Florida, Georgia, and Louisiana, according to Triple-I.
The good news is that reform works.
“Florida’s 2022/23 legislative reforms are a powerful example of how changing the laws can materially reduce [legal system abuse] to help improve both the affordability and availability of insurance,” Holeman said.
Florida prohibited the assignment of vehicle glass benefits in 2023, which prevents drivers from assigning their auto claims rights to repair shops. Lawsuits dropped substantially: courts saw about 83% fewer auto glass lawsuits in 2024 than in 2023, according to the Florida Justice Reform Institute.
Legal system abuse is also affecting New York. In 2024, Allstate sued multiple medical clinics for allegedly overbilling treatment for car accident victims. Rep. Ken Blankenbush introduced legislation to the New York State Assembly in January to reduce insurance fraud, improve medical treatment standards, and lower premiums.
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