Plenty of confusion surrounds the term “no-fault” when it comes to auto insurance policies.
Does it mean you’re never responsible for an accident or something else?
Here’s what no-fault insurance is, how it differs from the tort system, and how it could affect you.
What is No-Fault Insurance?
Once, Canada’s auto insurance industry relied on a tort system.
The tort system involved determining responsibility for an accident so one party could be held liable for all damages and injuries.
However, this often led to disputes, lengthy lawsuits, and skyrocketing insurance costs.
Insurance premiums also rose dramatically.
As a result, consumers complained to legislators who worked with the insurance industry to find a solution.
The alternative is the no-fault insurance system.
Under a no-fault insurance system, each party files and settles their claim with their own insurance company.
Both parties are compensated for their losses according to the limits of their policy, irrespective of fault.
Like all insurance policies, a no-fault policy includes specific components.
These components usually include liability coverage, uninsured motorist coverage, accident benefits, and direct compensation for property damage in some areas.
Third-party liability – covers damage caused to another person’s vehicle or property, medical expenses, and funerary costs.
Uninsured motorist – covers damage caused to your car or property, medical expenses, and funerary costs when caused by an uninsured motorist.
Accident benefits – Costs associated with medical services not covered under your regional health care plan that you need after an accident.
Examples include home care, physiotherapy, and chiropractic care.
Direct compensation property damage – this coverage only applies to drivers in Ontario, Quebec, Nova Scotia, New Brunswick and Prince Edward Island.
Your insurer automatically pays your repair bills if you have an accident in one of these provinces.
How Does No-Fault Insurance Work?
No-fault insurance refers to how insurers pay out claims, not who is to blame for the accident.
To avoid a lengthy, costly lawsuit, each insurance company handles its own driver’s claim.
Your insurance company covers your damage and injury costs automatically up to the limits listed in the policy.
The other driver’s insurance company handles their damage and injury costs.
The insurers later determine who is at-fault, or partially at-fault, for the incident.
Consequently, you can be found at-fault for an accident when you have no-fault insurance.
You still receive benefits, but the insurer later determines who caused the incident, which may affect your premiums and future insurability.
Pros of No-Fault Insurance
1. Faster Claim Settlement
The no-fault insurance system typically leads to a faster claim settlement.
You receive your compensation directly from your insurance company.
2. Deal with Your Own Insurance Company
The other insurance company can’t slow down your claim or affect how much you receive.
Your insurance determines your benefits based on the terms within your policy and regional guidelines.
3. Potentially Lower Premiums
Insurers suggest eliminating litigation from insurance claims saves money.
ICBC suggested no-fault insurance will save BC drivers about $400 annually.
An Alberta panel estimated drivers would save between 9.4 and 10 percent.
4. Extensive Benefits
The specific policy and jurisdictional restrictions limit the benefits you’re entitled to.
These include supplementary medical coverage and income replacement if you’re injured in an accident.
5. More Driver Coverage
Every driver is entitled to benefits when they have a policy under the no-fault insurance system, whether or not they caused the accident
Cons of No-Fault Insurance
1. May Violate Your Right to Access the Courts
The Supreme Court of Canada recognizes a constitutional right of access to justice and access to the courts.
However, many suggest the no-fault insurance system reduces these rights as injured victims often have no way to contest their insurance claim.
2. May Not Receive a Fair Settlement
Since insurers compensate both parties, the amount paid out must be lower to make the system work.
Consequently, injured parties can’t pursue pain and suffering in many regions or only claim up to a specific limit.
Other benefits are also subject to limitations.
For instance, in BC, an injured driver receives a 90% income replacement per week under ICBC Enhanced Care.
In Ontario, the income replacement benefit is 70% of your gross income, up to a maximum of $400 per week.
Under the tort system, the injured party could pursue the at-fault driver for all losses.
As a result, a driver may not receive a full and fair settlement.
3. No Accountability for Bad Drivers
The tort system focused on determining accountability for the accident.
If the courts found a driver at-fault, the victim or their insurance company could seek substantial compensation.
Under the no-fault system, insurers determine responsibility.
The only consequence for the negligent driver is increased premiums and sometimes limited insurability.
4. No Accountability for Insurance Companies
Insurers determine compensation based on a benefits schedule defined by the regulations in your province or territory.
It assigns a dollar amount for a particular injury.
For example, Ontario benefits offer up to $3,500 for minor injury and up to $65,000 for a non-minor injury per person.
A no-fault system does not allow you to challenge how your insurance company assesses your injury, nor the amount you can claim.
5. Insurance Company Determines Level of Fault
Insurer “fault determination rules” decide who was at-fault, or partially at-fault for the incident.
These rules assign from zero to one hundred percent of the blame to each driver.
Your insurer’s investigation takes precedent over the police investigation.
If you decide to submit a claim because the police did not find you at-fault, your insurer could make a different decision.
They could find you partially to blame and only pay out a portion of your claim.
Which Provinces Offer No-Fault Insurance?
All provinces and territories have no-fault insurance systems.
However, Saskatchewan has both tort and no-fault systems.
Manitoba and Quebec use a comprehensive no-fault system that eliminates lawsuits for financial losses and pain and suffering.
Other provinces limit the right to sue for further damages unless the situation meets specific criteria.
They also specify accident benefits limits.
For instance, in Alberta and British Columbia, victims can sue for pain and suffering or financial losses within limits.
However, BC accident victims can only sue when a driver is convicted of a serious Criminal Code offence, such as impaired driving.
Saskatchewan drivers can opt out of their provincial no-fault insurance system for the tort system instead.
How Can I Get No-Fault Insurance?
Auto insurance is required by law in all areas of Canada.
Whether you buy a policy through a public or private auto insurance program, you’re automatically included in the no-fault insurance system.
The only possible exception is within Saskatchewan.
The tort system exists in Saskatchewan, but if you choose it, you pay more, have a high deductible, and must complete a declaration.
Otherwise, auto insurance policies automatically default to the no-fault system.
No-fault processes, policy limitations, and benefits vary significantly between areas.
You can refer to this guide, starting on page 32, for specific regulations and procedures for your region.
