Often, the laws of the state in which the accident occurs determines who pays for the damages incurred in an accident. About half of the states in the U.S. have adopted so-called "no-fault" liability laws. Under a no-fault system of law, it does not matter who was "at-fault" or "caused" the accident. No-fault states adopt the approach that everyone is to "make themselves whole" after incurring damages as a result of an auto accident. By making everyone responsible for his or her own loss, states hope that the number of lawsuits will be reduced, since liability does not have to be determined.

Some states have no-fault laws that establish a "threshold." A threshold limits the amount for which you must self-insure. There is also variety in individual states' threshold limits. Some no-fault thresholds are based on a stated dollar amount. Other no-fault states have adopted a "verbal threshold" in which the threshold is determined in words (for example, no-fault rules apply unless there is serious personal injury). Variations of thresholds can also exist. For example, a state might have a no-fault system for all losses, except in the event that property damage exceeds $10,000, or someone sustained a serious personal injury, or someone was operating a vehicle in violation of the law (such as driving while intoxicated). An attorney can help you if you have questions about the exact laws in your state.

In a pure "at-fault" state, the person who caused the auto accident is responsible for payment of all of the damages sustained by everyone involved. The theory in an at-fault state is that the person (or people) who caused the loss must make everyone else whole again, thus everyone is held accountable for the results of his/her actions. In "at-fault" states, courts (through lawsuits) are often called upon to resolve the issue of whom is the at-fault person and will be the one to pay for all damages.

Insurance policies can provide customers in no-fault states with different types of coverage for accidents that occur in an at-fault state, and vice versa. This ensures that the policyholder will have a source of compensation regardless of where the accident occurred, thus providing more complete coverage. For information on fault and no fault laws, see What is the difference between fault and no fault liability in a car accident?

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