Car Accidents, Personal Injuries & the Insurance Carrier — Part 1: From a No-Fault System to a Tort System

Car Accidents, Personal Injuries & the Insurance Carrier — Part 1: From a No-Fault System to a Tort System

This is the first of a three-part series entitled Car Accidents, Personal Injuries & the Insurance Carrier. We will begin by looking at Colorado’s auto insurance system historically, as it has changed considerably in recent years. Next, we will assess current market conditions in the state and explain and differentiate first-party claims from third-party claims in the auto insurance system.

In 2003, the state repealed the existing “no-fault” auto insurance system that was in place for 30 years. The Governor felt this existing system was “broken” and sought to transition the state to a tort-based system similar to those used in the majority of U.S. states. The no-fault system meant parties in an accident each used their own auto insurance to cover damages, rather than assess fault to one party. Initially, it was viewed as a solution for reducing lawsuits and expediting the payment of claims. The reality was that the system led to high premium costs, abuse, and no reduction of claims volume. One key problem was policyholders were mandated to purchase $130,000 in Personal Injury Protection (PIP) coverage for medically-related costs.

Tort System Implementation

The new (current) system makes a determination of the party who is at-fault in an accident through an investigation. The at-fault driver’s insurance provider is then responsible for paying expenses such as medical care for injuries and vehicle property damage. Each driver is mandated to maintain liability insurance to cover these potential damages. PIP coverage is still offered, although not required, as many drivers have separate health insurance policies for medically-related expenses.

Current Colorado Auto Insurance Market

The current system has recently experienced a rise in premium costs of approximately 15%. The volume of claims filed statewide has increased, partially due to population growth. In 2016, the state gained roughly 100,000 new residents. Carole Walker, of the Rocky Mountain Insurance Information Association, explained rates have risen nationally; however, Colorado has been more heavily impacted by insurance claims and higher costs of claims. Fatal accidents in Colorado rose 24% from 2014 to 2016. According to QuoteWizard, Colorado drivers ranked 8th worst for accident rates, drunken driving incidents, and other traffic violations. The cost of repairing vehicle damage has also contributed. For example, most new cars have bumpers containing electronics for backup (rear) cameras; therefore, what previously was a $500 replacement is now often $1,500 or more. Litigation-related costs have increased as attorneys are more aggressively pursuing cases for financial compensation for various types of damages.

Currently, Colorado requires a minimum of $25,000 per person for bodily injury, $50,000 per accident total and $15,000 in property damage coverage. An uninsured motorist or underinsured motorist coverage is usually added and the minimum limits correspond to the bodily injury minimums of $25,000/$50,000.

First-Party vs. Third-Party Claims

A first-party insurance claim is one where the insured files a claim with their insurance provider. In terms of liability coverage, this may include when the insured is at-fault in the accident, or possibly if the individual was involved in an accident with an uninsured motorist.

Third-party claims are made by those who are accident victims based on another driver’s fault. In this instance, the motorist files a claim with the at-fault driver’s insurance company for compensation. Third-party claims were not applicable under the prior no-fault system because each party simply filed first-party claims with their own insurer regardless of fault.

Insurer Duty

Insurers and policyholders enter a relationship in a contract, establishing a duty for the insurer owed to the policyholder for good faith actions conducted in a reasonable manner in the event of claims. Insurers who breach their duty may face a tort claim for bad faith. A breach occurs if an insurer unreasonably delays or denies a claim. The standard is if a reasonable insurance provider in a similar situation would have denied or delayed the claim’s payment. What is reasonable is dependent on whether the insurer’s actions were negligent. Breach claims may only be brought by first-party claimants, as third-party claimants do not have preexisting contract-based relationships that could be breached.

Colorado’s transition from a no-fault system to a tort system has had its ups and downs. In the end, the tort system is more consumer-centric than the no-fault system. If you have been injured in an auto accident, you may be able to file a first- or third-party claim, depending on the circumstances. You can always consult with a personal injury attorney to learn what options are available to you.