3.7 State No-Fault, Financial Responsibility & Compulsory Laws

Tort vs No-Fault

• Tort (liability) state — the at-fault driver and that driver's insurer pay the injured party's damages. Part A liability and UM/UIM are the centerpiece coverages.
• No-fault state — each driver's own Personal Injury Protection (PIP) pays that driver's own injury benefits regardless of fault, and the right to sue the other driver for pain and suffering is restricted unless a tort threshold is crossed. No-fault applies only to bodily injury; property damage claims remain a tort matter even in no-fault states.

Tort Thresholds

Choice No-Fault

In Pennsylvania, Kentucky, and New Jersey, drivers choose at purchase between two tort positions, in writing:

• Limited tort — lower premium; the insured generally cannot sue for pain and suffering unless a threshold (such as serious injury) is met.
• Full tort — higher premium; PIP still applies, but the insured preserves the full right to sue for pain and suffering.

The election must be documented in writing; absent a valid election, default rules (often full tort) apply.

What PIP Typically Covers

• Medical and hospital expenses (often subject to a dollar cap or fee schedule)
• Wage loss — commonly about 80% of lost wages up to a weekly maximum
• Essential / replacement services — housekeeping, childcare
• Funeral expenses
• Survivors' loss benefits to dependents

Financial Responsibility vs Compulsory Insurance

Most states have both regimes today. New Hampshire is the best-known state that does not mandate liability insurance for all drivers, instead enforcing financial responsibility after the fact.

SR-22 and FR-44

An SR-22 is a Certificate of Financial Responsibility that the insurer files with the state motor-vehicle department to verify that a high-risk driver carries at least the minimum required coverage. It is triggered by events such as a DUI/DWI, driving without insurance, or an at-fault accident while uninsured, and is typically required for about 3 years. If the policy lapses, the insurer must notify the state, which usually suspends the license.

An FR-44 is a higher-limit version used in Florida and Virginia for serious offenses such as DUI; it requires liability limits above the state's ordinary minimum.

Residual (Shared) Markets

When a driver cannot buy coverage in the voluntary market, state residual-market mechanisms supply it:

1. Automobile Insurance Plan (AIP) / Assigned Risk Plan — applicants are assigned to insurers in proportion to each insurer's share of the state's voluntary market. This is the most common mechanism.
2. Joint Underwriting Association (JUA) — a state-created entity issues the policies; participating insurers share the profits and losses.
3. Reinsurance Facility — an insurer must write any applicant but may cede high-risk policies to a state facility that shares the results.

Worked Example: Choosing Limited vs Full Tort

A Pennsylvania driver weighing limited tort against full tort is really pricing the right to sue for pain and suffering. Limited tort lowers the premium but, after a minor crash producing only a soft-tissue sprain, bars a pain-and-suffering lawsuit because no statutory serious injury (death, permanent disability, significant disfigurement, or fracture) occurred. The same driver under full tort pays more but could pursue the pain-and-suffering claim regardless of injury severity. Either way, PIP still pays that driver's own medical bills and a portion of lost wages first-party.

The exam loves to pair a verbal-threshold state with a minor injury and ask whether suit is allowed — the answer turns on whether the described injury meets the statutory serious-injury definition, not on whether the medical bills are large.

Distinguishing the Regimes on Test Day

The three regimes are easy to confuse, so anchor each to its trigger. No-fault is about who pays your medical bills — your own PIP, regardless of fault. Financial responsibility is about proving you can pay AFTER an accident or violation, by insurance, bond, or deposit. Compulsory insurance is about proving coverage BEFORE you register or drive. Most states run financial-responsibility and compulsory regimes simultaneously, and a no-fault state layers PIP on top of both.

The SR-22 (and the higher-limit FR-44 used in Florida and Virginia) is the certificate an insurer files to prove a high-risk driver's coverage, usually for about three years after a DUI or driving uninsured; if that policy lapses, the carrier must alert the state, which typically suspends the license. When the voluntary market refuses a driver, the residual market — most often an Automobile Insurance Plan that assigns applicants to insurers by market share — guarantees that even high-risk drivers can satisfy the compulsory law.