In 1974, Colorado began to operate under a no-fault auto insurance system. Since that time, Colorado's auto insurance premiums have skyrocketed. Colorado's auto insurance rates moved from tenth lowest in the nation in 1972 to the eighth highest in 2003. During the last year, many auto no-fault premiums increased another 20 to 30% and Personal Injury Protection (PIP) costs have risen by as much as 60% since 2001. Governor Owens challenged the legislature to either fix the no-fault system or join the other 37 states that have a tort system. The Colorado legislature chose the tort system which went into effect on July 1, 2003. This article will explain the differences between these two systems and how this change will likely affect insurance premiums for both auto and health insurance.
Under Colorado's no-fault system, PIP coverage was mandatory and provided coverage for certain medical and rehabilitation expenses from injuries sustained in an automobile accident, regardless of who was at fault (hence, the term "no-fault"). There were no subrogation rights against the person at fault for the recovery of these benefits. No-fault also imposed threshold limits, i.e., $2,500 for medical expenses, that had to be satisfied prior to a lawsuit being filed.
Under a tort system, the insurance company of the person who is responsible for the accident foots the bills for injuries and damages. No longer is one entitled to receive medical and rehabilitation expenses regardless of fault. Subrogation by health insurers or other benefit providers against the party at fault is allowed and no threshold limits are imposed. To provide a substitute for PIP as it pertains to the payment of medical expenses, most insurance companies are offering "medical payment" coverage as an option. Medical payment coverage provides benefits to you and injured passengers in your vehicle, regardless of fault. Most insurance companies will offer medical payment coverage with limits between $5,000 and $25,000.
The greatest difference between the no-fault and tort systems lies in who is responsible for the payment of medical bills as a result of injuries sustained in an accident. For example, under the no-fault system, if you were in an accident and injured, you would seek medical treatment and your own auto insurance company would pay for that treatment. Under the tort system, you must look to other insurance to pay your medical expenses. Typically, one will look to their own...