Drivers be warned – Motor vehicle financial responsibility laws do not protect you in today’s world! Auto insurance coverage was once a rare product, but for decades it has been required by most states for all drivers. “Financial responsibility laws” are the state statutes that require drivers to carry liability coverage, which is coverage that pays others who suffer injury or property damage due to an auto accident that you cause.
Liability coverage is typically the only mandatory coverage, with other coverage’s such as collision coverage (which pays for damage to your car) are optional on most policies. North Carolina and some other states have recently added Uninsured Motorist coverage to the list of mandatory coverage types, but for the most part, states across the U.S. typically only require liability coverage for registered vehicles.
Auto insurance first became mandatory starting in the 1920s. Connecticut and Massachusetts were the first states to require this coverage in 1925 and thereafter, states followed the lead and mandatory car insurance legislation swept across this country. By the 1970s, liability coverage was mandatory in every state. Currently, drivers will be ticketed or have their license suspended if they operate an uninsured vehicle anywhere in the U.S.
The true problem lies in the antiquity of financial responsibility statutes, and the lack and/or opposition of efforts to update these laws to require sufficient coverage for the typical collision. For example, looking just at a southeast, Tennessee state law, that only requires drivers to carry liability insurance covering property damage coverage of merely $15,000.00.
Considering that many cars today sell for well above $30,000.00, this is clearly not enough to pay for an innocent victim’s damaged or totaled vehicle. Further, this is the full amount available to pay for towing the vehicle from the scene, repair or replacement of the damaged vehicle, and a rental vehicle for the victim.
Simply put, this coverage is woefully insufficient in today’s economy. Consider also how lacking this coverage limit would be if an insured driver causes some significant damage to multiple vehicles.
The real tragedy lies in the personal injury arena. Looking at Tennessee (and many states have coverage in the same range), their mandatory coverage requirement for bodily injury or death caused by a negligent driver is just $25,000.00 per person, and $50,000.00 per occurrence.
This means that an innocent victim who suffers injury cannot collect more than $25,000.00 from the at-fault driver’s insurance policy, and this amount is the total coverage for all past and future medical care costs AND lost wages Plus any additional payment for pain, suffering, scarring, disfigurement and lost quality-of-life.
Consider a hypothetical – a victim who is rushed from the collision scene for emergency surgery, incurs $100,000.00 in medical bills and misses 4 months of work, and is rated as having a 20 percent permanent impairment to the body as a whole.
If the at-fault driver had only the state required coverage, the total amount the victim could receive is capped at just $25,000.00. The victim is left to shoulder the remaining medical charges and receives no compensation for lost income or for their pain and suffering.
While insurance coverage does not prevent the victim from filing a lawsuit and pursuing payment from the personal wealth and assets of the at-fault driver, this is practically impossible in most cases.
Revisiting our hypothetical, if our victim with $100,000.00 in medical charges decides to forego the chance to settle for merely $25,000.00, they must now file suit and bring their case through a jury trial. Unfortunately, the road to trial is a “toll road” for all parties in most states.
Thus, to present their claims to a jury, the victim now must pay filing fees to open the court case along with all other costs of presenting their evidence at trial. The most expensive trial cost is paying doctors to attend video depositions or trials.
Most liability policies do not provide expanded coverage for litigation expenses. Thus, even if a trial results in a large verdict, the insurance carrier only owes their $25,000.00 coverage limit. Unfortunately, the $25,000.00 in coverage would likely be consumed by the costs of conducting the trial.
Further, is a large verdict is granted in favor of the victim, federal bankruptcy laws allow an insolvent debtor to file a Chapter 7 bankruptcy, obtain a discharge, and in most cases avoid any personal payment obligation on the trial judgment. In most cases, the available liability coverage is the ONLY source of payment for victims’ losses.
The level of mandatory “per-occurrence” bodily injury liability coverage is also currently a huge problem for crash victims. Again viewing Tennessee law, the mandatory coverage for bodily injury to all victims of a single incident is only $50,000.00.
In a multi-vehicle collision, or in a crash involving cars carrying multiple passengers, all victims must somehow agree to divide the $50,000.00 to satisfy all of their injury claims. This would include the guest passengers in the at-fault vehicle, and all other people who suffer injuries in the crash.
If several people suffer serious injuries in a single collision, dividing $50,000.00 among all victims leaves very little hope of meaningful compensation for crash victims.
