Automobile Insurance C14

Chapter 3 – No-Fault Concept

Introduction

·         No-fault is used to describe types of first-party coverage.  Claims under no-fault are settled w/ an insured w/out regard to the traditional legal liability concepts

·         No-fault concepts must be considered separately for vehicle damages and for injuries

No-fault concepts for vehicle damage

·         British insurers were the first to apply the no-fault concept

·         The advantages of these agreements, ‘knock for knock’, were cost savings and ease of handling claims if both parties carried physical damage coverage.  If each insurer paid its own insured, and did not pursue subrogation, money was saved on investigation, establishing fault, and costly litigation b/w insurers.  The cost of one claim was off set by savings on another

·         There were also problems w/ payment of deductibles and fault still had to be established for premium determination.  Further there was a cap on the dollar amount per claim under the agreement

·         These agreements were never binding on insureds and they could sue if they disagreed

·         ‘Knock for knock’ agreements were gradually abandoned b/c Canadian and USA based insurers did not participate

·         ‘Knock for knock’ laid the groundwork for ‘Direct Compensation’ concepts like those in Quebec and Ontario

·         DCPD is not a no-fault coverage.  It is a form of inverse liability subject to payment only if the insured is not at fault

·         The aims of DCPD are:

o    Less investigation

o    Less subrogation activity

o    Less litigation

o    Speedier settlements for insureds

o    Insureds deal only w/ their own insurer

o    Cost savings which result in lower premiums

No-fault concepts for liability

·         For many years the auto policy provided third party coverage and insurance covering damage to the insured vehicle but the inured driver and passengers were unprotected if the insured driver was at fault or it was a single vehicle accident

·         Before AB were introduced into the Canadian S.P.F. 1, some insurers offered auto accident policies underwritten in Casualty departments

·         No fault development in the USA

o    First type of system insureds recovered from their own insurers for medical bills up to a small limit.  They could sue the at-fault party for amounts in excess to the limit for wage losses, general damages, pain suffering, etc.

o    Second type of threshold had a much higher dollar limit.  This only encouraged suits for higher amounts and these plans were not considered successful

o    Third type of system was developed in which a suit was banned unless the injuries met certain specific medical descriptions – threshold.  If an injury did not meet the threshold, certain benefits were claimed from one’s own insurer

·         No-fault coverage has existed in Canada since the late 1940’s when medical expense coverage was first introduced as an optional coverage.  It provided minimal coverage on a no-fault basis for medical expenses for the driver/passengers injured in an auto accident

·         In the 1960’s, AB, with higher limits and a wider range of coverages were developed and became part of the auto policy

·         The first jurisdiction in North America to totally ban suits for injury is Quebec.  The government provided benefits for all Quebecers who are injured

·         In June 1990, Ontario introduced the Ontario Motorist Protection Plan – insureds could not sue unless a threshold was met.  Suit could only be brought if the insured:

o    Died

o    Sustained permanent serious disfigurement

o    Sustained permanent serious impairment of an important bodily function caused by continuing injury which is physical in nature

·         On January 1, 1994 Bill 164 created a Statutory Accident Benefits Schedule.  Suits were now permitted for non-pecuniary losses (pain and suffering) when the insured had:

o    Died

o    Sustained serious disfigurement

o    Serious impairment of an important physical, mental or psychological function

·         March 1, 1994, Manitoba implemented a no-fault bodily injury plan: the Personal Injury Protection Plan similar to the Quebec plan

·         Saskatchewan introduced its no-fault bodily injury plan on January 1, 1995 also called Personal Injury Protection Plan.  It permits suits in certain circumstances

Fault for premium chargeability

·         To determine fault for DCPD claims, Quebec uses Driver’s Fault Charts, while Ontario and NB use similar fault determination rules.  Both contain common types of collisions and descriptions of how fault is assigned for insurance purposes

·         Some insurers use inter-company settlement charts but unless the law requires it, fault determination based on such charts are not binding on the insured

Sample Review Questions -  Automobile Insurance (Part 1)

1.     There is often confusion w/ respect to how consumers and insurers define no-fault b/c consumers think it has to do w/ whether their premium will go up following a claim and the insurance industry uses it to describe types of first party coverage.  Claims under no-fault are settled w/ an insured w/out regard to the traditional legal liability concepts.

2.     Two distinctions that must be made when considering no-fault concepts are: vehicle damages and injuries.

3.     “Knock for knock” agreements were the original concept used for no-fault auto insurance.  With this agreement, recovery was not permitted and signatories to the agreement took the attitude that what was lost in some situations was gained in other – the overall cost ultimately being less.  If each insurer paid its own insured and did not pursue subrogation, money was saved on investigation, establishing fault and costly litigation b/w insurers.

4.     The aims of no-fault insurance are:

a.     Less investigation

b.     Less subrogation activity

c.     Less litigation

d.     Speedier settlements for insureds

e.     Insureds deal only w/ their own insurer

f.      Cost savings which result in lower premiums

5.     No-fault concept first applied in North America to third party coverage and insurance covering damage to or destruction of the insured vehicle.

6.     Accident Benefits coverages are the forerunners of present day no-fault plans.

7.     Threshold – specific medical descriptions of injuries.  A suit was banned unless the injuries met the threshold, short of which only AB were paid out.

8.     Presently Quebec, Ontario, Manitoba, and Saskatchewan have no-fault plans.

9.     The main differences b/w OMPP and Bill 164 are: Bill 164 gives an increased and wider-range of benefits, and the threshold for lawsuits against a third party was modified for accidents occurring on or after that date.  Suits were now permitted for non-pecuniary losses (pain and suffering) when the insured had:

a.     Died (same as OMPP)

b.     Sustained serious disfigurement (different – took out permanent)

c.     Serious impairment of an important physical, mental or psychological function (different)

10.   Quebec and Manitoba allows no suits for injury.

11.   Ontario and Saskatchewan allow suit in certain circumstances only.

12.   In Quebec, the Driver’s Fault Chart is used to determine fault.  Similar fault determination rules are used in Ontario and NB to determine fault.