What are Add-On No-Fault Laws

Add-on no fault laws are a type of state statute that allow policyholders to bring litigation against other drivers, even if they have personal injury protection (PIP) coverage through their auto insurance policy.

Several states have add-on no-fault laws These laws are less restrictive on the issue of torts than laws only allowing for pure no-fault insurance. States with add-on no fault insurance laws include Arkansas, Delaware, Washington D.C., Maryland, New Hampshire and Oregon.

BREAKING DOWN Add-On No-Fault Laws

Add-on no-fault laws sometimes require that policyholders secure PIP for all auto insurance policies. Other times, they require insurers to offer PIP, although purchasing it remains optional for the policyholder. While the PIP typically cover some damages related to an accident, drivers often still want to sue another driver for further damages.

No-fault laws allow drivers involved in an accident to file a liability claim against the driver at fault. The claim can involve damages to the claimant’s vehicle as well as injuries suffered by the driver or passengers.

These laws are in response to the difficulty of settling auto insurance claims prior to the 1970s. Before the 1970s, states required drivers to settle claims by proving who was at fault through the legal process. This made settling insurance claims costly and time consuming. No-fault laws sped up the claims process by allowing insurance companies to compensate drivers regardless of fault. They also helped keep drivers from being able to sue each other for damages.

Types of No-fault Regulation

Auto insurance is regulated by states, and many states have no-fault regulations to limit litigation. Several forms of no-fault regulations exist.

Pure no-fault regulation prevents the parties from pursuing litigation while claims to insurers are in process.

Modified no-fault regulation allows for claims against insurers until a threshold is met. This threshold is generally a certain amount of money, for example, $2,500 in damages. Once this threshold is met, a driver may then file suit.

Add-on no-fault insurance is a third option, which places no limits on litigation, or torts. In some states, insurers simply add this as a feature of regular policies. In other states it's an optional add-on to a regular insurance policy.

The benefits associated with pure no-fault insurance diminish with add-on no fault insurance options. Allowing litigation through modified or add-on no fault regulation increases the costs to the insurer associated with settling a claim. This increased cost, in turn, increases the cost of auto insurance premiums over time, because insurers will necessarily raise premiums in order to cover higher administrative expenses.