Understanding No Fault Insurance in Canada

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What is no fault insurance?

As confusing as its name may be, no fault insurance coverage doesn’t mean that no persons are at fault in an auto accident. So, what is no fault insurance? No-fault insurance, or personal injury protection (PIP), is when a person makes a claim against their own insurance provider to cover medical expenses incurred in a car accident. No-fault insurance coverage not only protects the driver of a vehicle but any passengers who are affected. No-fault insurance aims to simplify the claims process by making insurance companies deal with claims internally.

All provinces across Canada require drivers to purchase a certain minimum in third party liability coverage ($200,000 in all provinces except Quebec which holds a $50,000 minimum). Third-party liability insurance ensures that if you are involved in an accident that is not your fault and finds yourself injured, the party at fault will pay for any medical expenses as well as any repairs to your car. However, this system can be extremely frustrating for insurance customers for two major reasons:

Determining fault

In order to secure an insurance payout to cover the aforementioned costs, insurers must determine who is at fault in any given situation. In order to do this, insurance companies employ adjusters to determine the sequence of events and estimate damages. Adjusters use provincial Fault Determination Rules to attribute responsibility with a percentage. This fault determination system may conclude one party is 0% at fault for an incident according to fault determination or, in some cases, both parties might be considered equally at fault at 50%. 

In the event of a serious collision, you should always contact the police. The police will conduct an investigation into the situation independent of any insurance company. The insurance company’s adjuster will then consult the police report and log the relevant information. This information chain will greatly simplify the claims process by providing a clear record of events. You should report incidents to the police regardless of whether or not you are at fault.

A no fault system really doesn’t factor in who is responsible for the accident during the claims process. Rather, each party is deemed entitled to financial compensation for bodily injury regardless of the sequence of events. The alternative to the no fault system is essentially two car insurance providers battling it out to determine who will lose the most money in paying for the damages. This can be particularly problematic for incidences in which it is unclear who is at fault. If both parties seem to be responsible for a collision at some level, the argument turns on who has collected the most compelling evidence. It can be arduous, painful, and often leaves the both faultless and at fault parties in a financially precarious place as they wait for answers.

Running out of coverage

As mentioned above, all provinces require a minimum amount of third party liability insurance. Many people will purchase substantially more than this minimum because it’s incredibly easy to rack up car repair bills and especially easy to accumulate medical costs. However, some people will stick to the minimum. So, if you are injured in an accident in which you are not at fault, your bills might exceed, say, $200000. Then things can become messy. 

You can seek compensation beyond mandatory car insurance limits through the claims process but this may involve taking the at-fault party to a court or even mounting a lawsuit against an insurance company if you feel the assessment of the situation is unfair. However, these suits are not always successful and can cost more than they will gain. Furthermore, if the at-fault party goes bankrupt and simply cannot afford to give you further compensation, you will still be stuck with insufficient funds

No fault insurance bypasses these major inconveniences by holding car insurance companies accountable for their own customers. That is to say, if you got into an accident and found yourself injured, you would be entitled to a payout on behalf of your insurer rather than a third party. No fault insurance applies no matter who is responsible for the accident. Even if the accident is your fault, you will still receive financial compensation using your own insurance policy. This is where the policy’s name comes from: the car insurance company does not factor who is at fault for an accident in issuing a pay out. 

No fault insurance guarantees that individuals will not be held up by arduous fights between providers. You won’t have to wait in financial limbo for days, weeks, sometimes even months for mediators to scrutinize your insurance policy. You won’t have to worry about the responsible party running out of funds or, in some cases, disappearing and forcing you to pursue them.

If the accident is your fault, you won’t be concerned with guaranteeing payment for the other party if your minimum liability insurance cannot cover the damages. In short, no-fault insurance works to save all involved in an accident time and money by providing a financial safety net from your own insurer.

Keep in mind the risk to your insurance rate: One of the many downsides of being involved in an accident is its potential effect on your insurance rate. Insurance companies want to protect themselves financially from clients who are likely to get into accidents. So it follows that if you have been deemed at fault for an accident, your insurer will consider you a higher risk and might increase your insurance rate. However, at fault drivers are not necessarily the only ones affected by increased insurance rates. 

If you have been involved in an accident in which another driver is at fault, you are entitled to make an insurance claim. If you are especially unlucky and are involved in multiple accidents, resulting in multiple insurance claims, your insurance company might begin to react. Insurance companies are a business whose primary concern is maintaining a profit margin. So, if an insurance company sees someone filing multiple claims and subsequently costing them large amounts of money, they might also raise your insurance rate. In summary, while a poor driving record might justifiably cost you a little more in insurance premiums, keep in mind that a lengthy claims record might as well.

What does no fault insurance cover?

So far, we’ve focused on how no fault insurance plays into personal injury costs. No fault insurance covers all medical expenses incurred in the event of a car accident (again, regardless of fault). While many Canadian drivers may be covered by national insurance, this insurance does not cover prescriptions, home care, long-term care, or dental costs. Many people involved in more serious accidents will require one or more of these services which can be extremely costly. For example, home care usually averages between $20 and $30 per hour. If you find yourself incapacitated and require a few hours of home care for a few weeks in the aftermath of an accident, that amounts to a pretty hefty bill! 

No fault car insurance covers all of these expenses. Furthermore, no fault insurance covers any person who is not covered by Canadia national insurance. This is a relief to all those who may not qualify for citizenship or provincial residency. In short, no fault insurance makes sure no driver is penalized for any injuries incurred in the wake of an accident. 

Not all Canadian provinces have equal no fault insurance infrastructures. In fact, only Manitoba has pure no fault insurance, meaning you will be entitled to a pre-established amount of financial compensation and benefits set by the Manitoba Public Insurance Corporation. However, the no fault insurance system is appealing, both for a driver and to their insurance company. Provinces that do not currently carry explicit no fault insurance systems are edging towards adopting the policy.

No fault insurance in Ontario

No fault car insurance in Ontario is embedded in standard insurance policies. All insured drivers are covered by the no fault insurance system and it applies to any insurance company as to any insurance policy. Ontario no fault insurance covers: 

Medical expenses and long-term care costs: If you are injured and require medical treatment, the no fault insurance system takes care of your medical bills. If you find yourself requiring ongoing care after your initial assessment, or if problems linked to the accident crop up in the long term, no fault coverage will compensate you.

Medical expenses for passengers: As well as covering the insured driver’s medical expenses, no fault insurance will also cover short and long term medical bills for any passengers in the vehicle at the time of the collision.

Direct Compensation Property Damage (DCPD): If you are not at fault for the incident, DCPD will cover the costs of repairs to your vehicle as well as any damage caused to your property (such as a knocked down fence, dented garage door, or any destruction caused to outbuildings). 

Protection against uninsured and absentee motorists: If you are involved in a collision with an uninsured driver or the victim of a hit and run, you will automatically be covered by the standard no fault insurance policy. You will receive coverage for the damages to yourself, your vehicle, any other property (under DCPD) and may be entitled to further financial compensation. 



No fault insurance in Quebec

No fault insurance in Quebec is similar to the no fault insurance system in Ontario except that it functions between government and private insurance plans. All bodily injuries are compensated for by the provincial insurance provider — the Regime d’Assurance Automobile du Québec — rather than a private insurance company. Because this is a public agency, no driver can sue the Quebec government, not can they sue the responsible party. Beyond medical expenses, each driver will receive different compensations for damages to their vehicle depending on their insurance company’s policies. The amount insurers will pay in compensation depends on the driver’s level of liability. In order to assess who is at fault, Quebec insurers are bound to use the Direct Compensation Agreement, a guide to assessing driver’s fault in any given collision.

No fault insurance in Alberta

Alberta, to many driver’s dismay, is one of the few provinces without no fault insurance. As mentioned above, the no fault insurance system can revoke an individual’s right to sue either an insurance company or another individual in the wake of an accident. Alberta has one of the highest average insurance rates (or the highest depending on the year) in the nation. Many Albertans feel as though the implementation of a no fault system would help curb these insurance rates and bring them down. 

Earlier this year, the provincial government issued a survey to its insured population to try and determine public opinion vis a vis the provincial insurance system. The findings revealed that the general public seem to support the introduction of a no fault system and, on average, would be willing to relinquish the right to sue over insurance claims. But, according to a CBC piece published in March 2020, this positive attitude might be reflective of some important misconceptions about the switch from suing to no fault insurance. 

Calgary lawyer Fred Litwiniuk points out how the survey might have skewed its own results through leading questions and capitalized on people’s misconceptions about what this switch actually means (or doesn’t mean). According to Litwiniuk, the way the questions were posed on the survey were over simplistic in drawing a direct link between a no fault system and lower can insurance rates. Litwiniuk points out that Albertans might not understand what kinds of control they are actually giving up and that they may not understand that claims are being dealt with relatively well in the private sector. 

No fault insurance would be run by the government at the provincial level. This means the creation of more agencies to deal with claims in the public sector, more use of public resources to battle out contentious insurance claims. However, it is important to understand that the private sector is fundamentally self interested. Insurance companies and personal injury lawyers are incentivized primarily to look out for themselves rather than for an injured person. The introduction of a no fault system might help injured parties who may not be able to afford certain levels of coverage, let alone a legal consultation, to bypass the expenses and waiting time of two insurers arguing among themselves.

Summary

Phew. Quite a lot of information. Yet, the basics are pretty simple: 

  • No fault insurance covers medical expenses incurred after an accident regardless of fault. 
  • Depending on who is at fault, both provincial and private insurance policies can up the kind of compensation you receive (eg. DCPD for property damages, private collision insurance for vehicular repairs, or gap insurance if your vehicle is totalled). 
  • So, the no fault insurance system works with insurance companies to intertwine different kinds of coverage to make sure you are minimally impacted by the costs of a car accident.

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