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What Is No-Fault Insurance and Why Does Michigan Have It?

No-fault insurance. As a resident of Michigan you’ve often heard the term but maybe you haven’t given it much thought. After all, that’s just the way it is in this state: All automobile insurance here is no-fault (you can’t operate a vehicle without it). But what kind of coverage is this, what exactly does it cover, and what does it mean for you, as a driver?

No-Fault in Brief

In simplest terms, no-fault auto insurance means that when a driver is involved in a motor vehicle accident, no one is assumed to be at fault. Instead, the insurers automatically pay certain types of claims. Damage to a vehicle in an accident is not covered (unless parked), but if anyone is hurt in the accident, their medical expenses are completely covered (this part is called personal injury protection, or PIP). Damage to property (a fence, a wall, a building) is covered by no-fault, and the system prevents drivers from being personally sued (unless the accident resulted in a death or a catastrophic injury).

Only twelve states and Puerto Rico have no-fault auto insurance, and although their systems vary, claims are handled in two basic ways: using either what’s called a “verbal threshold” (where the severity of eligible injuries are described in the regulations) or a “monetary threshold” (where any injury might be eligible, but a certain minimum amount of damages must be exceeded).

No-Fault in Michigan

Since 1973, Michigan has had no-fault auto insurance using a verbal threshold (last amended in 2012). It was meant to lower premiums and reduce litigation, but forty-four years on, some argue that it’s had the opposite effect. They point to the fact that PIP pays up to 85 percent of lost income to an injured party (or to the survivors, if the victim dies) and, more importantly, that PIP pays 100 percent of medical costs with no cap.

While Michiganders pay more than most other drivers for car insurance (by one analysis those in Detroit pay the highest rates in the nation), efforts to change this system have consistently failed. Why? Because in the end, voting citizens and their elected representatives agree that the system, while perhaps expensive, provides a necessary safety net for those who are critically injured in car accidents.

No-Fault, Plenty of Critics

Michigan’s system isn’t perfect, but it’s worked reasonably well for decades. Of course, it’s not without its critics.

Up above we used the term “accident” repeatedly. That can be seen as one of the criticisms of a no-fault system. The truth is that most transportation agencies and most individuals who study traffic don’t view collisions as “accidents” but as preventable “crashes.” The US Department of Transportation has frowned on the use of the term “accident” for a couple of decades now, while the National Highway Traffic Safety Administration released a short but influential analysis in 2015 estimating that 94 percent of crashes are directly attributable to driver actions. The other 6 percent—blamed on environmental factors (roads and weather), mechanical failure, and “other”—are arguably also tied to human actions. Mechanical failure can almost always be blamed on a human, and if the weather is dangerous, people should know better than to drive in it.

There are instances of fraud in the no-fault system, but that’s true in every system. The solution isn’t to scrap the system, but to work harder to root out existing fraud and prevent it in the future. Some insurers are doing their part by going after suspected fraudsters in federal court.

We applaud their efforts. Keeping the system clean benefits everyone involved. Insurers manage costs better, adequate resources are available to victims, and taxpayer dollars are spent more effectively.

Michigan Car Accident Lawyer

When you’ve been injured in a car accident in Michigan and need representation, turn to an experienced and knowledgeable car accident lawyer from David Christensen Law. We understand all the wrinkles involved in pursuing action under Michigan’s no-fault system. We also offer a free consultation to all new clients. Give us a call today at 248-213-4900 or contact us online through the form on this page to schedule yours.