Setoff Provisions in No-fault Insurance Policies

When an insured files a lawsuit against an insurance company, the insurance company can file a counter claim against the insured to reduce the amount of the insured's claim by an amount that the insurance company claims that the insured owes to it. The amount owed can be unpaid premiums or funds received by the insured from other sources that would exceed the amount of the insured's loss. This is called a setoff, an offset provision, or a benefit-set off provision. In the case of no-fault insurance, setoffs exist for a number of benefits that an insured could obtain due to an automobile accident.

Most no-fault insurance plans provide a setoff for workers compensation benefits, Social Security disability benefits, and Social Security retirement benefits. For the setoff to be valid, the benefits should serve the same purpose as the no-fault insurance, which is to compensate the insured for his or her injuries, and should be triggered by the same accident.

Some states have invalidated setoff provisions in no-fault insurance plans. The reduction of uninsured or underinsured motorist benefits to an amount below the state statutory minimum has not been allowed. Courts look to whether an insured has been fully compensated for his or her loss before ordering a setoff of no-fault benefits.

Setoffs not only avoid double recovery by insureds, they can reduce insurance costs. Setoffs required by an insurance policy must be considered by an arbitrator.

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