The joy of no-fault

Two people I know were recently in car accidents. Neither was at fault.

Her insurance claim was resolved in days. He has to deal with lawyers, contingency fees, and subrogation.

Massachusetts car insurance is almost no-fault. Minor personal injury is strictly no-fault. But collision insurance feels like no-fault; you don’t need a lawyer to get your car fixed.

The “lucky” driver filed a claim with her insurance company. The guy who hit her filed a claim with his. The adjusters talked on the phone and decided which driver to blame. A $5,000 accident between two insured drivers never goes to court. She has all her out of pocket expenses and a rental car paid with very little paperwork. If she had been found at fault, she would pay her $500 deductible and would be responsible for the rental. The process would still be easy.

The unlucky person was on a bicycle, and he didn’t have getting-run-over-by-a-car insurance. He was hit by a taxi. Taxis are notoriously under-insured. There might not be enough blood in that stone. His lawyer said he should have been hit by an Uber; they have better insurance.

I said the L-word. He needs a lawyer for the same type of accident my friend had taken care with minimal effort. So a third of what he is owed is gone, the contingency fee.

And then there’s subrogation. Health insurance paid for his hospital visit, so health insurance gets a piece of his settlement to recover that cost. There’s a perverse incentive not to sue for medical expenses, but to sue for pain and suffering and the damaged bike and the phone the taxi company is holding for ransom.

His phone ended up in the taxi and the company won’t give it back unless he pays them to give it back. As I see it it’s their fault his phone got into the taxi and they owe him a new one.

One reason you need a lawyer is to deal with issues like subrogation and consequential damages.

It could be worse. At least he can expect a settlement instead of a court appearance. Massachusetts law is very hostile to insurance companies that fight instead of settle.

First, insurance companies owe punitive damages if they refuse to settle claims promptly when liability is clear. (MGL 176D-3(9)(f))

Second, interest accumulates while the lawyers argue. Dragging out a losing case costs the loser 12% interest. It’s called “prejudgment interest”, and is in addition to the more common postjudgment interest that only starts accumulating when the verdict is in. The American Institute of CPAs will tell you your state’s law.

In some states insurance companies fight to the bitter end, a scorched earth policy designed to make lawyers afraid to take them on. My “lucky” friend was in another accident in another state without prejudgment interest or strong consumer protection laws. There was never any doubt the other driver was at fault, but she still had to go to court.

An underappreciated aspect of insurance is, it’s not just a dollar amount of coverage. It’s legal assistance. When it works well it’s the difference between fighting for what you are owed and having somebody give it to you.

The opinions expressed in this post belong to the author and do not necessarily represent those of the National Motorists Association or the NMA Foundation. This content is for informational purposes and is not intended as legal advice. No representations are made regarding the accuracy of this post or the included links.

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