What Is Residual Liability?
Residual liability insurance extends the financial protections afforded by no-fault insurance. A business that purchases no-fault auto insurance can expect its insurance company to pay its claims for injuries and damages regardless of who is at fault. The business also enjoys limited protection from accident-related lawsuits. However, no-fault insurance does not protect against lawsuits when injuries resulting from an accident exceed the no-fault thresholds. Residual liability insurance offers increased protection in these instances.
No-fault auto insurance laws exist in 12 states and in Puerto Rico. These laws are designed to remove the need for lawsuits and allow each party to receive payment for injuries from her own insurance company with no determination of fault. No-fault insurance does not pay for vehicle or other property damages. Three of the 12 no-fault states - - New Jersey, Kentucky and Pennsylvania - - allow residents to choose between no-fault and the full tort coverage available in most other states. The remaining nine no-fault states - - Hawaii, Florida, North Dakota, Kansas, Michigan, Massachusetts, Minnesota, New York and Utah - - offer only no-fault insurance coverage. In states with full tort coverage, consumers are free to sue for any amount in civil court.
The National Association of Insurance Commissioners lists two types of no-fault coverage: personal injury protection and residual bodily injury liability. Although state benefit levels differ, PIP coverage pays the insured and any person in the car a minimum per-person amount for injuries. Covered expenses usually include medical, lost wages, funeral and survivor benefits. Residual bodily injury liability coverage protects everyone in the insured’s car in the event an accident results in the special circumstances that allow for a lawsuit. For instance, if a transportation or delivery business vehicle is involved in an accident that results in death or serious injury, the residual bodily injury liability coverage would pay the damages, legal fees and other expenses if a lawsuit is filed against the company.
The possible thresholds for civil lawsuits established by state no-fault laws are death and specific serious injuries such as disfigurement or loss of function, as well as expenses that exceed a specified dollar amount. A business can expect its residual liability insurance to provide coverage beyond its personal injury protection, but also beyond the limits of coverage for basic property damage. Residual liability coverage also covers accidents that occur outside the state where the policy was issued, providing important protection for businesses that operate across state lines or for companies whose employees engage in interstate automobile travel.
State no-fault laws determine the minimum coverage amounts for residual liability insurance. For instance, Michigan’s minimum amounts are $20,000 per injured person, $40,000 for the total injuries of persons involved and $10,000 for property damage. Minnesota’s no-fault laws require minimum coverage amounts of $30,000 per injured person, $60,000 for injury to two or more people and $10,000 for property damage. Insurance companies must follow state laws regarding coverage minimums, but are free to offer coverage that exceeds the minimums, including levels tailored for the needs of your business. The coverage levels a business chooses, whether it has few assets or many, should coincide with its risk based on the business type and the potential for accidents.
An individual consumer purchases residual liability insurance to protect against financial loss. A business, which might have more assets, might be at even greater risk for lawsuits following an accident. The business owner, especially if the company has employees, might have less control over the events that can result in lawsuits. In the event a business faces significant financial loss because of an accident-related lawsuit, residual liability insurance can protect a business from financial loss and increase its chances of survival following resolution of the claim.