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Colorado's Transition to Tort Auto Insurance

Many thanks to the RMIIA for their outstanding work and for providing this Q & A!

On July 1, 2003 Colorado will switch from a no-fault auto insurance system (enacted in 1974) and join 37 other states in operating under a fault-based or tort system. Policyholders cannot drop their no-fault medical coverage, known as Personal Injury Protection (PIP), until the law goes into effect after midnight on June 30, 2003.

After the effective date, Colorado insurance consumers can either stick with their no-fault policy until it expires or contact their agent or company about the possibility of buying a tort policy. Companies are now in the process making the transition to tort, so agents and companies may not have all the answers to your questions about coverage and rates. In the meantime, it is important to bone up on what coverage is available under a tort system and make some informed decision about what it right for you and/or your family. Click here for letter from Colorado Insurance Commissioner Doug Dean

Q & A No-Fault to Tort Transition

Q. What should I do if my no-fault auto insurance policy renews before tort becomes effective on July 1, 2003?

A. Your company will still issue you a no-fault policy through June 30, 2003 with all of the same mandated coverage (i.e. PIP, liability) and you’ll receive all the benefits of your no-fault coverage until your policy comes up for renewal sometime after July 1, 2003.

Q. When can I drop my no-fault coverage or the Personal Injury Protection (PIP) coverage?

A. You cannot legally cancel your PIP coverage until July 1, 2003. After or on July 1st, you can either wait until your no-fault policy expires and renew with a tort policy or contact your agent or company about the possibility of immediately switching to a tort policy.

Q. Can my insurance company automatically switch my no-fault policy to a tort policy after July 1, 2003?

A. No. The company must wait until your no-fault policy expires to write you a tort policy. However, the company can offer to transfer your coverage to tort before your no-fault policy expires, but that decision is up to you. If you want to make the switch immediately contact your agent or company about that option. Companies may offer a refund on your no-fault coverage if there is a price difference between the two policies. Keep in mind that the refund isn’t likely to be dollar for dollar what you paid for PIP. It will also be based on how much time you have left on your policy and the new coverage you decide to purchase under the tort system. One additional coverage to look into is signing up for a prepaid legal plan.

Q. What happens if I’m in an accident after the no-fault law expires, but before my no-fault policy changes over to a tort policy?

A. Keep in mind that your auto insurance policy is a contract between you and your insurance company. Your insurance company is required to pay your medical bills under the benefits that you paid for under no-fault. That includes any accident that occurs prior to July 1, 2003. Remember that no-fault means your own insurance company pays for your medical expenses when you are in an accident regardless of who is at fault in the accident. The claims process will also operate under the old rules, which means you will continue to collect injury damages under your PIP policy guidelines. PIP claims are eligible for medical treatment for up to five years and rehabilitation for up to 10 years.

Q. What is a tort auto insurance system?

A. This is a system where the driver who is at fault for causing a traffic crash is responsible for paying the victim’s medical expenses and compensating for additional damages, such as loss of wages and “pain and suffering.”

Q. Do other state operate under a tort system?

A. Fault-based systems are the most common form of auto insurance in the United States. As of July 2003, 38 states will operate under a tort system, while 12 states have some form of no-fault auto insurance.

Q. What coverage do I need to buy under a tort system? What are my options?

A. The greatest difference from a no-fault system is that you don’t have to purchase extra coverage (PIP) from your own auto insurance company to pay for medical bills. Much of the coverage you buy remains the same - think of it as six separate parts:

Bodily injury liability coverage (mandatory: $25,000 per person and $50,000 per accident in Colorado) is in case you cause an accident in which someone is hurt or killed. Many insurers recommend carrying at least $100,000 per person and $300,000 per occurrence. You should consider what assets you have to protect and your pocketbook can bear when deciding how much to purchase.

Property liability coverage (mandatory: $15,000 in Colorado) is for when you damage someone else's property. Usually it's someone else's car, but it could apply to buildings, utility poles, garage doors, etc.

Collision coverage (optional) covers damage to your car from a collision with another car, a brick wall, a fire hydrant, etc.

Comprehensive coverage (optional) is in case your car is stolen or damaged in ways that don't involve a collision. Covered risks include hail, fire, theft, flood, earthquake, explosion, and falling objects.

Uninsured motorist coverage (optional) is available in two forms - property damage coverage and medical coverage to pay your bills when you are hit by a driver without insurance.

Medical payments coverage, or MPC (optional), pays for reasonable expenses you and your passengers incur because of injury in a motor vehicle accident, regardless of fault. Coverage amounts available vary from company to company.

Q. Under a tort system, if I already have health insurance do I need to buy extra medical coverage to pay for injuries from an auto accident?

A. Colorado’s no-fault law (expires July 1, 2003) requires you to purchase what is often duplicate coverage to pay for medical bills and other related expenses. If your health insurance is enough to cover your medical bills from a car accident, then you may not want to buy any additional medical protection at all.

Q. How do my medical bills get paid under a tort system?

A. Drivers are required to carry liability coverage to pay for injuries and damages, so the insurance company of the driver who causes the accident will be responsible for paying the medical bills. Most drivers in tort states also carry some medical payments coverage, which pays for the medical expenses of the injured person regardless of who is at fault. Most drivers carry health insurance of some kind, so they could rely on their health insurance after the medical payments coverage, if needed. Then, if it becomes clear that someone else was at fault, the health insurer can seek reimbursement from the at-fault driver.

Q. Do I have to get a lawyer and file a lawsuit to get my damages paid for?

A. Very rarely. In fact, more than 90% of all cases settle without suit being filed. Of the less than 10% where suit is filed, most cases are settled out of court. You will likely just work with the at-fault party’s insurance company to settle your claim.

Q. What if there is a dispute over who caused the accident – or worse yet, if the driver does not have auto insurance?

A. After a thorough investigation by the insurance companies, in most cases fault is determined and the claim is settled. You would follow the process spelled out in the answer above, plus you have several other options to seek payment for damages:

If the at-fault driver has no insurance, the injured person would still be able to access his or her health insurance.

Many drivers also carry “uninsured or underinsured motorist” coverage, which means their own insurance company pays for damages that result from an accident caused by an uninsured driver.

Q. Are there any restrictions on my right to collect for “pain and suffering?”

A. Not under a tort system. The only requirements to file a claim or sue for damages above and beyond your medical bills are that you must receive injuries as a result of the accident and another driver must be at fault. Unlike no-fault, there is no dollar figure or threshold that you have to reach on your medical damages. You can make a claim for “pain and suffering” damages from dollar one.

Q. Are there any restrictions on the kinds of treatments that I use? Can I seek treatment from alternative providers?

A. A tort system does not have any limitations on the type of treatment reimbursement you seek from the at fault driver. If you use your health insurance or medical payments coverage you are bound by the terms of your insurance policy.

Background on Colorado's No-Fault Repeal

Q. Why is Colorado repealing its 30-year old no-fault auto insurance law on July 1, 2003?

A. In 2001, Colorado’s legislature put a “sunset” provision on the auto insurance law that would result in a repeal of the system if no legislative action were taken to reform no-fault or replace it. The deadline was extended through two sessions, but in 2002 Governor Bill Owens said he would not extend the sunset of no-fault past the 2003 Legislative Session. The Governor called for either an aggressive reform to the “broken no-fault system” or a return to a fault-based or tort auto insurance system. The General Assembly rejected several no-fault reform measures, but ultimately passed HB-1188 which returns Colorado to a tort system on July 1, 2003.

Q. Why was Colorado’s no-fault system considered broken?

A. No-Fault auto insurance meant that if you were in an accident each person involved collects injury damages from his or her own insurance company. It wasn’t necessary to establish fault in order to get your medical bills taken care of because you were required to buy an additional medical coverage called Personal Injury Protection (PIP) to pay for your medical bills regardless of who caused the accident. (still effective through July 1, 2003)

In theory, No-Fault was designed to be a simple answer to controlling the cost of auto insurance by discouraging lawsuits and speeding up the process of paying claims. In practice in Colorado it resulted sky-high premiums, claims abuses and had little impact on the number of claims and lawsuits being filed. In 2000, Colorado had the 11th highest auto insurance premiums in the nation and rates climbed 20-30% in 2002. Personal injury protection coverage went up as much as 80%.

Expensive & Broad Required Medical Coverage
One of the major factors that resulted in a cost crisis in Colorado was that policyholders were required by law to buy $130,000 in no-fault coverage (PIP) to pay for their own medical, rehabilitation, lost wages and essential services resulting from an accident. This was the third most expensive medical benefits package in the country and people were paying for coverage that they may not have wanted, needed, or could afford. The average PIP claim was about $7,800 and 96% of claims were under $25,000.

The no-fault law also required that any "reasonable" treatment for pain be covered by a standard policy, resulting in payments for expensive, non-traditional treatments and claims for hot tubs, treadmills and fish thanks for vision therapy.

No-Fault System Encouraged Double Dipping
People were also able to collect from their own insurance company for medical/rehabilitation expenses and make another claim or sue the at-fault driver's insurance company for non-economic damages ("pain and suffering"). All you had to do to "double dip" the Colorado system was meet a dollar threshold of medical expenses that amounted to at least $2,500.

Editor's note:
As has been published in many places, the one thing that everyone agrees on regarding the Tort system is that it will result in more litigation and lawsuits. This will mean more work for a court system that is already experiencing large cutbacks. (Read more about Colorado's legal cuts)

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