No-fault car insurance explained

What is no-fault car insurance?

In Canada, car insurance generally falls under one of two legal systems: tort-based or no-fault-based.

Prior to 1990, provinces in Canada operated under the tort-based insurance system.

In Ontario, the provincial government introduced a new no-fault insurance system on June 22, 1990. This marked a shift in how insurance claims were handled in the province, with other provinces eventually adopting similar no-fault systems as well.

No-fault car insurance is a system where after an accident, each driver involved deals with their own insurance company for claims and compensation, regardless of who’s at fault. Likewise, insurance companies are required to cover the losses of the driver they’ve insured, even if they’re at fault.

Let’s say Person A and Person B get into an accident. In a no-fault system, Person A’s insurance would pay for Person A’s medical bills and car repairs, while Person B’s insurance would do the same for Person B. Since each person deals with their own insurer, there is no reason for a lawsuit.

This is different from a tort, or fault-based system, where it’s the insurance company of the person who caused the accident (the at-fault driver) that’s liable for the victim’s damages. Applying the example above, if person A was at fault, person B could sue person A to acquire compensation from their insurer. If person A were found liable, their car insurance would cover the damages they were ordered to pay.

Generally, there are two types of no-fault systems: pure no-fault and modified no-fault.

In a pure no-fault system, you are entitled to compensation from your own insurer, but without the right to sue an at-fault driver for damages. For instance, you couldn’t sue a bad driver who ran a red light and totaled your car, even if it was obvious they were negligent.

In a modified no-fault system, you still deal with your own insurer, but you can sue an at-fault driver in certain scenarios. Typically, lawsuits are permitted when someone suffers catastrophic injuries, when a criminal offense is committed, or when someone is killed. Most provinces in Canada have chosen to adopt this system of car insurance — more on this later.

What are the benefits of a no-fault insurance system?

Compared to a tort-based system, no-fault insurance offers several advantages for parties involved in car accidents:

1. Faster claims processing: No-fault claims are typically resolved more quickly since they don’t require lengthy investigations and court battles to determine fault.
2. Quicker payouts: With streamlined claims processing, no-fault insurance often leads to faster compensation for those involved in accidents.
3. Guaranteed compensation: Even if you’re at fault, you’re still entitled to compensation from your own insurer.

By resolving most claims outside of court, no-fault insurance frees up judicial resources for other matters. The whole goal is to reduce the legal stress and financial burdens for accident victims after car accidents by speeding up the claims process. For some people, that could mean quicker access to benefits and as a result, a faster path to recovery.

How does no-fault work in Ontario?

In Ontario, car insurance is provided by private insurers and operates under the modified no-fault system. Here, you seek coverage through your own insurer after an accident. They’ll cover the damage to your insured vehicle and pay for any injuries you’ve suffered, subject to your policy’s limits.

In cases of severe injury, or when the damages exceed one’s coverage limits, the victim may file a tort claim (lawsuit) against the at-fault driver.

Misconceptions about no-fault insurance

At this point, it’s worth noting that the term “no-fault” can be confusing, particularly for drivers who are new to insurance. To simplify how no-fault insurance works in Ontario, it may help to clear up a few misconceptions:

1. Nobody is at fault. This is not true. When two vehicles collide, someone is always at fault to some degree. If drivers were never at fault, there probably wouldn’t be any collisions in the first place — car insurance would only exist to cover random acts of nature.
2. Fault is not determined. This is not true. Fault is still determined by your insurer after an accident using a set of fault determination rules. These lay out whether a person should be assigned 0, 25, 50, 75, or 100 percent fault in almost every possible accident scenario. If your insurer finds you partially or entirely at fault, they could reassess your rates. Fault determination is also crucial if a lawsuit arises, as it helps establish who’s legally liable for damages.
3. Being at fault will not affect your insurance. This is not true. While being at fault doesn’t prevent you from making an insurance claim, it could have other consequences. An at-fault accident goes on your insurance record, which could lead to higher premiums or the loss of any claims-free discounts you had prior.

That said, it’s worth noting that fault doesn’t solely rely on one driver. You may be found partially or entirely at fault, or in some cases, share fault equally with the other driver. The point is that fault still matters in no-fault insurance — disregarding it entirely would be a complete injustice to innocent victims.

What is covered under no-fault insurance?

Once you file a claim with your insurer, the payout you’ll receive will depend on which coverages you’ve chosen for your policy and your applicable deductibles (the amount you pay before your policy pays the remainder of your claim).

Ontario’s no-fault insurance system includes several coverages that may compensate drivers after an accident. These include:

• Direct Compensation Property Damage (DCPD) coverage: This optional no-fault coverage pays for damage to your car if another driver is at fault. Depending on your selected deductible, you might pay $500, $300, or nothing before DCPD responds. You can decline DCPD coverage in Ontario if you add endorsement OPCF 49 to your policy. However, this means you’ll lose the no-fault insurance coverage on your policy.
• Third-party liability coverage: This mandatory coverage protects you in situations where you may be liable for another person’s injuries, death, or damage to their property. If a driver has grounds to file a lawsuit against you, this coverage will respond to pay for their damages. In most provinces, the minimum third-party coverage limit for all drivers is $200,000, but most insurers recommend carrying at least $1 million.
• Accident benefits coverage: This mandatory coverage covers medical bills, rehabilitation costs, and lost income if you’re injured in an accident, regardless of fault. We’ve got a whole article explaining how accident benefits in Ontario
• Uninsured motorist coverage: This mandatory coverage protects you if you’re in an accident caused by a driver without insurance, a driver with insufficient insurance, or an unidentified driver (like in a hit-and-run)

The nature of the damages you incur will largely dictate the type of coverage that applies to your accident claim. For example, DCPD covers the costs to repair your car in accidents for which you are not at fault. For those accidents where you’re fully at fault, you’ll be compensated under collision coverage or all perils coverage instead.

In cases of partial fault, the costs will be shared between DCPD and your collision or all perils coverage (depending on your degree of responsibility). That means, if you’re found 50% at fault for an accident, DCPD will pay for half of your repair costs, while collision coverage (if you have it) pays the other half. Without collision coverage, you’d have to pay the remaining 50% out-of-pocket.

With accident benefits, coverage isn’t just limited to the driver alone — anyone injured in the accident may apply for these benefits, including passengers. Typically, it’s the driver’s policy that pays for the injuries of passengers, even if that driver was at fault. You could seek compensation for medical care and other benefits up to certain limits, as specified in your policy. Most policies also offer the option to buy enhanced benefits with higher limits; an option suitable for those who regularly drive around with others, particularly loved ones.

Making a claim

For most minor accidents, making a no-fault insurance claim is straightforward: simply report the accident to your insurer, give them the details, and they’ll take care of the rest (including compensation). There’s no need to play the blame game or wait for a decision on who’s at fault.

However, while no-fault insurance prevents litigation for most minor car accidents, there are some cases where you have no choice but to file a lawsuit.

In Ontario, you can qualify to sue an at-fault driver if you can prove that your injuries exceed a certain monetary threshold defined in the Insurance Act. Oftentimes, this would be a result of a criminal offense committed by the other driver (like impaired driving), a catastrophic injury (like permanent disfigurement or impaired function), or death.¹

In these cases, accident victims have the right to sue the at-fault driver either to cover shortfalls in their accident benefits coverage or to claim damages for pain and suffering.

Here’s a scenario illustrating how this would work in Ontario:

Alice, a not-at-fault driver, is seriously injured in an accident caused by Mark, the at-fault driver. She needs $200,000 for extensive physiotherapy and her car costs $50,000 to repair. Alice’s insurance policy, however, only covers up to $100,000 in no-fault benefits. This is how the situation would unfold:

1. Alice files a claim with her insurer under the Statutory Accident Benefits Schedule (SABS). Her insurer covers the first $100,000 of her physiotherapy costs, as specified by her policy’s limit. Since she is not at fault, she will also receive $50,000 to cover her car’s repair costs under DCPD. (Note: If Alice had another form of insurance, like public health coverage, it might cover a portion or all her medical costs instead).
2. Since Alice’s policy doesn’t cover all her medical expenses, she can sue Mark for pain and suffering damages. The tort claim (lawsuit) against Mark would be for the remaining $100,000 of her medical costs.
3. If Mark is found liable for Alice’s injuries, his third-party liability insurance would likely respond to cover the remaining $100,000 awarded to Alice.

How does no-fault insurance work outside of Ontario?

In Canada, every province except Alberta operates under a no-fault system. However, the exact rules and proceedings regarding claims vary between some provinces.

New Brunswick, Nova Scotia, Newfoundland and Labrador, and PEI all have modified no-fault systems similar to Ontario’s.

In Saskatchewan, every driver starts in the no-fault system by default but may opt for a tort-based system instead if they submit a declaration form after buying their policy. The right to sue exists under limited circumstances.²

In BC, the no-fault insurance system works a little bit differently. On May 1, 2021, ICBC transitioned from a tort-, or litigation-based system to a no-fault insurance called Enhanced Care. With this change, drivers can no longer sue for pain and suffering unless it is a criminal case. All compensatory damages are awarded by ICBC itself. If you disagree with ICBC on your settlement and wish to dispute it, you’ll either have to go through an ICBC fairness officer, an ombudsperson, or the Civil Resolution Tribunal — not the courts.³

In Manitoba and Quebec, compensation for accidents is determined using a combination of pure no-fault and tort-based rules. In both jurisdictions, compensation for personal injury claims is guaranteed through mandatory government insurance, regardless of fault. If you’re found in violation of the Criminal Code after an accident in either province, you could face a reduction in the benefits you’re entitled to. For criminal violations in Manitoba, these benefits may be terminated altogether.⁴

For claims involving property damage, Quebec bases compensation on fault. So, when another driver is at fault, you could sue them to recover the costs of your car’s repairs. Payment for these repairs comes through the at-fault driver’s civil liability insurance policy. The public insurer, SAAQ, requires every driver to carry a civil liability policy with at least $50,000 in coverage. You could increase this amount if you wish to add further protection against legal liability claims.⁵

Alberta stands alone as the only province with a tort-based insurance system. There has been discussion in the past around adopting the no-fault insurance system, however, most residents in the province have opposed it.⁶

Commonly asked questions

Do you need to opt into no-fault insurance?

No, in almost every province, you don’t need to opt in for no-fault insurance; it’s part of your policy by default. In most cases, you can’t opt out of the system either; only drivers in Saskatchewan have this ability.

As an insured driver, you can only opt out of certain coverages, like DCPD. However, if you deny DCPD coverage, you’ll automatically forfeit your no-fault insurance coverage for vehicle damage. That means when you’re not at fault, you would have to pay out of pocket for your car’s repairs.

Do at-fault accidents affect insurance premiums in a no-fault system?

Yes, if you’re at fault in an accident, you will likely face an increase in your insurance premium. This will usually be based on the percentage of fault you’re assigned by your insurer after an accident. If you’re found partially or entirely at fault, your insurer will impose a rate increase on your next policy renewal date.

To avoid a premium increase after an at-fault accident, you’ll need accident forgiveness coverage beforehand. This coverage, often sold as an endorsement by insurance brokers, prevents a rate increase for your first at-fault incident only.

Does no-fault insurance pay for deductibles if you’re at fault?

No, no-fault insurance doesn’t cover your deductibles when you’re at fault for an accident. The deductible you pay depends on which of your coverages responds to your claim. For instance, if you’re fully at fault and have collision coverage, you’ll pay the collision deductible first before your coverage kicks in for repairs.

When you’re not at fault, you typically won’t have to pay a deductible, unless you opted to add one to your DCPD coverage. Some drivers do add DCPD deductibles to reduce their premiums, so this isn’t something entirely unheard of.

In cases of shared fault, in which you need both DCPD and collision coverage, you’d pay a relative share of each deductible based on your degree of fault.

Sources

1. Lachaîne, Burn Tucker. “The Ontario Insurance Act’s Threshold – What Is It?” Burn Tucker Lachaîne Personal Injury Lawyers, 1 Feb. 2023, burntucker.com/articles/the-ontario-insurance-acts-threshold-what-is-it/.
2. SGI. “Basic auto injury insurance.” ontario.ca, sgi.sk.ca/basic-auto-injury-insurance. Accessed 7 June 2024.
3. Hutchison Oss-Cech Marlatt. “All About ICBC’s New Rules for Accidents.” Hutchison Oss-Cech Marlatt, www.hom-law.com/articles/all-about-icbcs-new-rules-for-accidents-no-fault-insurance/. Accessed 7 June 2024.
4. Manitoba Public Insurance. “Personal Injury Protection Plan.” CTV News, 7 Feb. 2024, www.mpi.mb.ca/personal-injury-protection-plan. Accessed 7 June 2024.
5. SAAQ. “Québec’s Public Automobile Insurance Plan In Brief.” SAAQ, saaq.gouv.qc.ca/en/traffic-accident/public-automobile-insurance-plan/in-brief. Accessed 6 June 2024.
6. Franklin, Michael. “Albertans cool on the idea of ‘no fault’ auto insurance, poll says.” CTV News Calgary, 4 Apr. 2024, calgary.ctvnews.ca/albertans-cool-on-the-idea-of-no-fault-auto-insurance-poll-says-1.6833385.

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