NO PAY, NO PLAY: What Is It? How Does It Affect Claims Handling?

Most states now have mandatory car insurance laws that require all drivers to have some type of insurance. New Hampshire is the last of the 50 states which does not require mandatory automobile liability insurance. Wisconsin was second to last, but as of June 1, 2010, Wisconsin now mandates that drivers purchase auto liability insurance. Wis. Stat. § 344.62 (2010). Florida does not require bodily injury liability insurance, but it is a no-fault state. Compulsory insurance laws are an effort to keep insurance premiums at a lower cost for everyone. However, a growing problem is how to enforce these laws and give an incentive for everyone to follow compulsory insurance laws in their particular state. “No Pay, No Play” statutes are intended to help enforce these mandatory insurance laws by penalizing those who drive without insurance. In many states, the percentage of drivers without liability insurance is approaching, and even in some cases exceeding, 25%. This creates quite a financial burden on the state and on the families of victims involved in accidents with uninsured drivers.

Over the past two decades, several states have seen trends toward enacting No Pay, No Play laws – insurance statutes which prohibit uninsured drivers from receiving certain benefits and rights, including the right to recover certain damages if and when they are injured in an accident which results from the negligence of a driver who is legally and properly insured. Understanding these laws and which states have them has become an integral part of insurance claims and subrogation claims handling. Currently, eleven (11) states have some form of No Pay, No Play laws on their books. Knowing which ones they are and how the laws operate to limit damage recovery of the irresponsibly uninsured can make a great deal of difference in today’s claims handling environment.

One theory behind No Pay, No Play laws is that drivers who refuse to get auto insurance should not be allowed to benefit from someone else’s compliance with the law while simultaneously denying that benefit to others. Additionally, No Pay, No Play laws have been challenged as unconstitutional in several states. New Jersey and Louisiana have upheld their respective No Pay, No Play laws as constitutional under both the state Constitution and the U.S. Constitution. Recently, however, the Supreme Court of Oklahoma struck down their No Pay, No Play statute as violating that state’s Constitution. The most recent state to join the No Pay, No Play club is Indiana, which passed new legislation in 2015.

No Pay, No Play laws currently exist in Alaska, California, Indiana, Iowa, Kansas, Louisiana, Michigan, Missouri, New Jersey, North Dakota, and Oregon. A growing number of states are considering the same course of action. No Pay, No Play laws make it so that a driver who neglects to purchase insurance cannot collect certain damages from the insurer of anyone who hits them. Drivers in No Pay, No Play states can, however, receive compensation for things like property damage, medical bills, and lost wages.

As of 2011, new No Pay, No Play legislation was pending in Minnesota, Montana, and Oklahoma. An uninsured driver may be able to recover economic damages, such as payment for medical bills, and for the damage to his vehicle – non-economic damages, such as pain and suffering, can be limited or unavailable. Some states strictly define these laws –placing monetary limits on non-economic damages or only allowing recovery if the other party was intoxicated or under the influence.

No Pay, No Play laws punish not only the uninsured, but in some cases also punish criminals and those driving under the influence. In California, for example, the law provides that an injured person cannot recover non-economic damages if that person was under the influence at the time of the accident and was convicted of that offense, the injured driver’s vehicle was not insured, or the injured driver cannot establish financial responsibility as required by the state. However, if the uninsured driver was injured by another driver that was under the influence and was convicted of that offense, then that uninsured driver may recover non-economic losses.

No Pay, No Play laws have both staunch critics and supporters, and are not without controversy. On one hand, laws might seek to protect those who abide by the compulsory insurance laws and purchase liability insurance for their vehicle. When those insured drivers are not forced to pay pain and suffering damages, their premiums aren’t as likely to rise, and their insurance companies won’t be forced to pay damages to an uninsured motorist. On the other hand, injured parties may seek compensation elsewhere, burdening innocent parties. Laws may also have unanticipated effects on those who are borrowing another’s vehicle – if the borrowed vehicle did not have insurance, it may not matter if the driver’s own vehicle did.

Depending on the language of the law in each particular state, subrogation rights may be affected as well. Subrogation clauses in insurance policies usually provide that insurance companies have subrogation rights from any third-party recovery made by its injured insured, should the accident have resulted from negligence and should the company have paid benefits to its insured. If the injured party cannot seek pain and suffering from an at-fault third party, however, they are likely to seek it from their own insurer. The insurer, then, will look to their subrogation clause and begin to investigate avenues through which it may recover the payments to its injured insured. Usually, this would include reimbursement from a suit the injured person would file against an at-fault party. If the suit can’t be brought for pain and suffering by the injured party, though, then their insurer has nothing (or less) to recover from.

Claims professionals often adjust liability claims without bothering to check into whether or not the claimant (one making a claim) is insured. If the claimant is uninsured, the liability carrier for the at-fault party may suddenly find a wealth of defenses at their disposal to aid in limiting the claim itself. Claims with clear liability are often adjusted to conclusion and settled without ever verifying whether the claimant (plaintiff) was property insured.

When states are considering implementing No Pay, No Play laws or restrictions, they should endeavor to realize the effect their law may have on subrogation rights. As subrogation has been shown to consistently lower premiums and provide greater choices to consumers, these rights should be protected explicitly in any legislation. For example, including language that entities with subrogation rights stemming from an uninsured driver are not barred from subrogating payments or seeking reimbursement from an insured driver will go far in helping entities assert their rights and in allowing consumers to continue to enjoy the beneficial effects of subrogation. A chart detailing the states that have No Pay, No Play laws can be viewed HERE.

If you have any questions on the application of these laws to a claim, or subrogation in general, please contact Amy Smith at [email protected].

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Amy J. Smith
Sr. Associate Attorney

Amy J. Smith joined Matthiesen, Wickert & Lehrer, S.C. as a subrogation associate attorney. Amy’s practice areas include subrogation of health insurance, automobile, occupational accident, and other lines of insurance.