Determining which insurer pays for the damages in a car crash varies from one state to another in the United States. We are to distinguish between a no-fault system and an at-fault one, with two variations.
The fault system, also known as tort, is the most commonly used one in the United States, employed in 38 states. It is a legal term that describes actions committed by one person that lead to bodily injury or material damage incurred by a third party. When it comes to auto insurance, it refers to car crashes occurred as result of a party's negligence, ignorance or malevolence. Two variations are to be noted – the so called full tort and limited tort insurance systems, which will be described below. In an at-fault state, a driver is required to choose between one and the other.
Full tort car insurance
The full tort insurance system allows victims of a car crash to sue drivers at fault for negligence and demand financial compensation. When covered by such a policy, defendants are protected from any financial claims the victim may have. Under such a system, victims of a car accident may recover not only the medical expenses and material damages, but also any pain and suffering as well as lost wages.
Sympathetic judges or juries tend to award large amounts of money as settlements in such cases, so such an insurance policy poses a higher risk to the insurer. Therefore, the premium a driver will have to pay for full-tort insurance be higher than for other policies.
Limited tort car insurance
The limited tort insurance system is very similar to the full tort one, with a single exception: the victim isn't allowed to sue the other driver for the pain and suffering. One may still sue the at-fault driver for medical expenses and lost wages, but doesn't have any right to demand further compensation for emotional distress.
Since judgments awarded for pain and suffering are usually the largest part of the total amounts in such a trial, the average settlement is significantly lower than what the insurer would have to pay for a full tort policy, therefore a driver will have to pay accordingly less.
No fault insurance
Twelve states have decided to rule out the litigation process in case of an accident and to provide extremely quick payments. The victims file the claim with their own insurer, while the drivers at fault are regarded as a higher risk and have their premiums raised. A victim's insurer would take care of all medical bills, property damages and lost wages, while the at fault party's insurer raises the fees.
The system may seem unfair to the victim's insurer at a first glance, as that company incurs expenses while the other will earn even more. However, accidents happen between drivers insured by various companies with equal chances, so the odds will eventually even out.
The tradeoff of the no fault insurance system is that the victim isn't allowed to sue for pain and suffering or emotional distress compensation. Should a driver want such coverage, an additional policy must be bought – the Personal Injury Protection, or PIP.
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