"Fault," the opposite of no-fault, refers to the traditional tort-based system which takes into account who was at fault for an accident, and to what degree, when determining what each person (and their insurance companies) will pay for personal injury and property damage.

Usually, the laws of the state in which the car accident occurred determines who pays for the damages. There are roughly four different categories of state liability insurance laws: 1) the traditional tort-based system, mentioned above; 2) a no-fault system where the insurance company is required to pay its own policyholders financial losses, but the policyholder retains the right to sue; 3) a no-fault system with no right to sue except under certain conditions; and 4) states that provide a choice between the traditional tort or no-fault systems.

As of 2008, 12 states have adopted some form of "no-fault" liability laws, while the rest still operate under the tort liability system. Some of the no-fault states restrict the right to sue in some manner.

Some states have no-fault laws that establish a "threshold." A threshold limits the amount for which you must self-insure. Some no-fault thresholds are based on a stated dollar amount. In other no-fault states, it depends on the circumstances of the car accident. A state might have a no-fault system for all losses sustained, unless property damage exceeds $10,000, someone suffers a serious personal injury or someone was driving illegally (such as driving while intoxicated).

An attorney can help if you have questions about the exact laws in your state.

In a pure "fault" state, the person who caused the car accident is responsible for paying all damages sustained by everyone involved. In "fault" states, lawsuits sometimes resolve the issue of who is at fault and who will be the one to pay all damages.

For customers in no-fault states, insurance policies can provide coverage for accidents that occur in a fault state, or vice versa. This ensures that the policyholder will have a source of compensation regardless of where the car accident occurred, thus providing more complete coverage.