Which States Have Financial Responsibility Laws?

The simple answer is all states have their own financial responsibility law, especially pertaining to automobiles. The legal system had to account for accident fault once the car was invented in the late 1800s. Courts had to decide who was responsible for any accident and award damages one party had to pay to the other. Unfortunately, not every driver found at fault in an auto accident had the wherewithal to pay any awarded damages. This led to the creation of the first financial responsibility laws that were enacted in the states of Connecticut and Massachusetts.

Proving Responsibility

Up until the early 1970s, most states had on the books only financial responsibility laws rather than compulsory insurance laws. Connecticut was the first in 1925 to require any owner of a motor vehicle involved in an accident that resulted in death or personal injury, and/or property damages in excess of $100, to prove financial responsibility to satisfy any claim for damages. The statute provided for 4 different proofs of financial responsibility which were:

1. Possessing liability insurance covering the total amount
2. Posting a bond if required
3. Depositing cash in an escrow account to cover applied damage costs
4. Depositing stocks or bonds to cover the established range for damage costs

License Suspension Penalty

If a person failed to meet any of these requirements, suspension of their driver's license was the penalty. However, the commissioner of insurance only had the power to demand this proof after an accident. This demand only came upon a complaint filed by the aggrieved party. Technically, automobile insurance was optional. No one needed to prove financial responsibility until after an accident and liability was established. In essence, a first violation would then require an individual to fulfill the financial responsibility law permitting one accident before the state came calling. There was no automatic invocation of the law unless the aggrieved party filed a formal complaint.

Evolution of Motor Vehicle Financial Responsibility

Every state in the Union now has financial responsibility laws that require drivers to purchase a minimum amount of liability coverage. Although insurance companies, specifically their lawyers, seek to compel a complainant to accept the minimum financial amounts detailed in an insurance policy when their client is identified as the at-fault driver, legal action is commonly initiated when these minimum amounts do not suit either documented or perceived needs. Then, your entire financial welfare could be at risk without adequate insurance protection. Policies are available set at higher liability limits plus including collision coverage will help pay for repairs. If your car is financed, total coverage will be required and your lender may set the policy's financial requirements you need to carry in order to obtain financing.

Protect Yourself

Although financial responsibility laws have grown to include mandatory up front protection methods such as minimum liability insurance, it is highly recommended to talk with a professional agent to determine what policy limits best suit your personal needs. Increasing limits or purchasing an umbrella policy--one that pays out if your initial limits are exceeded--might be a better choice to ensure proper protection.