Whose Insurance Pays Out in a Car Accident? What is No-Fault Insurance?

Someone rear-ends you. You get into a bump-and-scrape when turning left on a green. Whether you were at-fault, completely, partially, or it’s entirely the responsibility of the other driver, you may be wondering: what now? Whose insurance company will pay out?

The answer? Yours will. Every time. Why? Because in the province of Ontario, and in many other provinces (and some states!), we use a system called “no-fault insurance,” which handles the way that claims are paid out in the event of an accident. Read on for more information!

What is no-fault insurance?

Ontario follows a system called “no-fault insurance,” which many other provinces and states use as well. Contrary to the name, fault may still be established. The no-fault component of “no-fault insurance” really only refers to the way that the claim is handled. Someone is always entirely or partially at-fault for an accident, but that is determined by the insurance company – not by the police, and certainly not by the driver or drivers involved. This “fault” percentage will be used later to determine how a driver’s premiums will be impacted.

For claims, no-fault means that if you are injured or your vehicle is damaged in an accident, your insurance company will always handle your claim. This is designed to expedite the claims’ process and avoid going through the court system, which can result in a much longer time for settling a claim. As long as your policy covers the damages/incident, the claim will be paid by your insurance company. Note the following scenarios where no-fault insurance applies.

“DCPD” is a term you might hear tossed around, and it’s part of your car insurance policy, as well as a part of the no-fault car insurance system in Ontario. It stands for Direct Compensation Property Damage. This essentially covers damages to your vehicle when you’re not at-fault.

Scenario A

You accidentally hit a parked car while on your way to work. Even though the incident was your fault, the owner of the parked car’s insurance company would cover the resulting damages to their vehicle (so long as they had comprehensive insurance.) Your insurance company would pay for any damages to your vehicle and your premiums may go up afterward.

Scenario B

You’re driving home late at night and an impaired driver rear-ends you. You suffer whiplash, your car has significant damages, and the driver later pleads guilty to drunk driving. Using Ontario’s no-fault insurance system, it still won’t matter – your car insurance company will end up paying for the damages to your vehicle. However, your insurance company pursues subrogated interest against the drunk driver and recovers the total payout.

What is the impact on my premiums from no-fault insurance claims?

Your insurance history is a big factor in how much you will pay for your premiums. You may worry that because Ontario uses a no-fault claim system, where your company will pay out every time no matter who is at-fault, that your premiums will be severely impacted. That’s not always the case.

For one, fault is still determined by your insurance company, and your premiums may rise only slightly or typically not at all in the event where the other driver was entirely at-fault (such as in the case of the drunk driver, or someone hitting your parked car.)

However, if you are at-fault, you can expect your premiums to rise – save for if you have something called “Accident Forgiveness.” Accident Forgiveness removes the car insurance premium raise if you have an at-fault or partially at-fault incident.

Why do we use no-fault insurance in Ontario?

No-fault insurance is beneficial in many ways, but largely because it expedites the claims process. Unless your insurance company (or theirs) decides to pursue subrogated interest to recoup the claim payout, there’s no need to settle fault in a court-of-law or any back-and-forth between insurance companies. Drivers get their medical and repair payouts faster, and everyone can get back on the road quicker.

It can also save money. There are no costs associated with prosecuting a potentially at-fault driver through a court-of-law, which can be expensive.

The bottom line

Not every province uses no-fault insurance, but those that do benefit from the expedited claims process and significantly saved expenses that would otherwise be used to prosecute at-fault drivers in a court-of-law. Ontario’s no-fault system contains no legal implications and only refers to the insurance process, so any criminal charges are handled by the police and not by your insurance company.

Have any more questions about no-fault insurance? Discuss with Excalibur Insurance Group. Our brokers would be happy to fill you in.