May 5, 2010

Comparative Negligence And Its Effect On Auto Insurance Premiums

There are three ways that liability is determined after an auto accident. The oldest, and least used method, is contributory negligence. However, most states now use either pure’ or ‘modified’ comparative negligence methods. Since thirty-seven states use a comparative type, we will focus on better understanding each type and the effect it has on auto insurance premiums.

Traditionally, when an accident occurred, the contributory negligence doctrine was used in calculating liability. Under this model, total fault could be assigned to one or neither driver, but never to both. The use of contributory negligence failed to address the frequency of accidents where both drivers were partially at fault.

To more accurately assign financial liability that resulted from auto accidents, increasing numbers of US states are using either the ‘pure’ or ‘modified’ type of comparative negligence. This model allows a percentage of fault and consequently, liability, to be assigned to each driver.

Where the two types differ, is on how these assigned percentages can be used making claims against each driver’s insurance company. The ‘pure’ type is used in 13 states. Using a pure comparative approach, unless 100% at-fault, a driver can collect damages against the other driver. The amount of damages each driver is entitled to, is equal to his/her total costs less the costs associated with their percentage of fault.

The most common method of assessing liability is the ‘modified’ version of the comparative type. This method is used in 33 states. Like the pure type, discussed above, a modified comparative approach looks at the percentage of fault each driver had in causing the accident. However, unlike the ‘pure’ comparative method, with the ‘modified’ comparative approach, a driver can only make a claim against the other driver’s insurance if he/she is less than 50% at fault in the accident.

States that assess accident fault using a comparative method have fewer no-fault accidents compared to states where using the contributory doctrine The decrease in no-fault accident results in an increase in the amount paid out in insurance claims. As a result, auto insurance premiums are slightly higher for all drivers compared to those paid by drivers in the 4 states still using the contributory negligence doctrine. However, the benefit to drivers in states using a comparative model is that following a major accident (when the driver bears majority fault), the driver is less likely to have their policy canceled or incur the high premium increases because his auto insurance company was forced to pay on 100% of the accidents expenses. The decrease in costs from policy cancellation or rate increases is substantially higher than the slight state-wide increase in average premiums in states using comparative methods.