Tort Auto Insurance Basics- What Is an At-Fault Accident?

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Closely following modification of the degrees of negligence is the need to restructure the law of damages. The tort of negligence is divided into two components. Negligence must be shown, and, once that barrier is overcome, proof of damages must follow. Just as a softening of the law of negligence was suggested to broaden the number of individuals eligible for compensation, there is a necessity to update the law of damages. The objective is to pay more victims but in more precise relationship to the actual loss, thus eliminating the extravagances of the tort system.

At present, damages designed to compensate for lost wages are measured by the victim’s loss of earning capacity. The law has shown a preference for loss of earning capacity over payment of actual lost wages; the distinction that has developed through a number of court decisions fixes recovery on the amount of compensation that could have been earned had the injured been able to work, instead of computing his out-of-pocket loss.

The loss is paid as a potential rather than real loss. An accident victim will receive more money than if he had worked. Loss of earning capacity creates additional waste by returning gross earnings—wages payable before taxes, instead of net earnings. No-fault plans proposed to date take this overpayment into consideration by reimbursing 75-85 per cent of gross earnings.

The same saving could easily be adopted by the tort auto insurance system to reduce its wage reparation costs. Suppose that a man is injured in an automobile accident and he is awarded damages. Under the laws of most states, if he were working and his earning capacity were $100 per week before taxes, he would be compensated for a full $100 per week. This happens even though his in-pocket income after taxes was $80 per week.

Is there any justification for bestowing an additional $20 because he is an accident victim? Tort recovery is tax exempt. Even if he had been unemployed at the time of his accident, the victim would be compensated at the same rate upon proof that he was ready, willing, and able to work but could not do so because of his injury.

By paying for loss of earning capacity, there are numerous situations in which double payments are made to accident victims. This duplication results from the victim’s receiving funds from wage-continuation programs available at his job as well as money from private collateral sources, such as insurance policies, in addition to tort payments for the same damages. As we saw, the Massachusetts version of no-fault tries to eliminate the double recovery of earnings by requiring the claimant to exhaust his private collateral resources before looking to his no-fault policy.

Because the accident victim is forced to depend on his collateral resources for damages that are legitimately within the province of automobile insurance, any cost reduction becomes an illusion. The cost is transferred to activities other than automobile accidents. In place of this, a corporation or insurance company that makes a voluntary or contractual payment to an injured person for lost wages due to an automobile accident should be reimbursed directly by the insurer as part of the final adjustment of a claim.

Re-allocating these funds from automobile insurance by recycling them back into collateral wage sources is desirable under fault or no-fault as a way to force the automobile to pay its own way. Get a direct auto insurance quote today!


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