Limiting Liability for Automobile Accidents

Are No-Fault Tort Thresholds Effective?

by James K. Hammitt, John E. Rolph


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"No-fault" automobile insurance plans are designed to supplant the tort system by requiring motorists to purchase no-fault insurance and allowing victims to file liability insurance claims and tort suits only if their injuries exceed a legislated "tort threshold." While thresholds vary among states, many are satisfied if the victim incurs medical expenses as low as a few hundred dollars. Using insurance claims data, the authors estimate the effectiveness of several states' thresholds. They find that tort thresholds are surprisingly effective: modest tort thresholds reduce the number of successful tort claimants by half, and the strictest thresholds may exclude nine-tenths of potential claimants. Moreover, they find little evidence of claimants "padding" their claims to exceed the dollar thresholds.

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