The Case for No-Fault: A Review

The Michigan no-fault law provides prompt and assured payment of economic losses to injured persons without regard to fault. The tort Limitation substantially reduces attorneys' fees and other litigation costs and the amount of premiums that otherwise would be used to finance payments for noneconomic losses for minor injuries. These features of the law illustrate the fundamental tradeoff between first-party benefits for economic loss and tort liability that has been emphasized in studies of the advantages of no-fault. Significant restrictions on tort liability are essential. Without such limitations, large personal injury protection benefits can greatly increase the overall cost of coverage and seriously aggravate affordability problems. [62]

Opponents of no-fault emphasize the need to deter negligent behavior and to hold drunk and reckless drivers accountable for their actions. They argue that restrictions on tort liability reduce the rights of innocent victims. Despite these arguments, a strong economic case can be made for limiting tort liability for auto accidents. Clear thinking about tort restrictions does not begin with the question of whether they are fair to injured persons. Instead, it focuses on whether (1) consumers are willing – prior to being involved in an accident – to pay the cost of unrestricted tort liability and (2) whether restrictions on tort liability will increase the total cost of accidents significantly by reducing the incentives for persons to drive safely.

Economic theory and common sense suggest that most people would be unwilling to demand substantial insurance coverage for noneconomic loss or duplicate coverage for economic loss if they had to pay the full cost of such coverage. [63] Unrestricted tort liability essentially requires consumers to buy coverage for both, The right to pursue tort claims against another driver goes hand in hand with the right to be sued. Every auto owner that buys liability coverage is paying for a system that provides benefits for noneconomic loss and some duplicate payments for economic loss. When judged as a compensation (i.e. insurance) system, the tort system provides benefits that most people would not be willing to pay for prior to being injured if given the choice. It also fails to provide assured or prompt recovery, and it involves large payments for litigation and attorney fees.

Unrestricted tort liability can only be economically justified if it reduces the overall cost of accidents and accident prevention by deterring enough accidents to overcome its shortcomings as a compensation system. However, liability insurance is likely to diminish the impact of unrestricted tort rights on accident rates, and there is little evidence that restrictions on tort liability for auto accidents have increased accident frequency. [64] Moreover, there are alternatives to unrestricted tort liability for deterring risky behavior, such as fines or other sanctions for motor vehicle violations and inappropriate behavior. [65]

A widespread sentiment probably exists among the public that people who cause accidents should be held accountable. However, liability insurance protects persons who cause accidents from full accountability. The only financial impact on most negligent drivers is that their premiums may increase for several years, and premium surcharges for accidents and violations are an unavoidably imperfect means of promoting either efficient deterrence or corrective justice. The tort system for auto accidents is an expensive, inefficient, and ineffective method of punishing wrongdoers. The goal of corrective justice could be achieved through fines and other sanctions against undesirable behavior.