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What Happens If I Hit a Stop Sign? Get Ready to Pay Up

One of the most important reasons motorists buy a new auto insurance policy is to cover the cost of damage to other vehicles in a crash. But what happens when that damage also includes state or municipally owned property like street signs and guardrails? Well, it turns out that drivers are on the hook for that stuff as well.

“It’s just like any other property damage you may cause in an accident,” says Lynette Simmons Hoag, an insurance attorney in Chicago. “And the city or state is going to charge you.”

The problem is that states have historically had a difficult time accurately collecting money for damage to public property. Bureaucratic lag time and disputes over fault often are to blame, which is why many states are seeking new ways to get the dough.

How States Collect for Damaged Stop Signs and More

The Indiana Department of Transportation, for instance, recently unveiled a new approach to tracking down motorists who damage state property in auto crashes. Under the new program, which was launched in July 2011, police officers are being equipped with kits containing tags that can be tied to damaged fixtures at an accident scene, such as guardrails and stop signs. The officer then writes down an accident number and the date of the crash on one of the tags so state officials can call up the report and identify the motorist responsible for the damage.

A similar approach is being used in Florida, Minnesota, North Carolina, Texas, Kentucky and Tennessee.

“The department has incurred significant financial losses in the past when repairing damaged state property because the responsible parties can’t always be identified,” says Will Wingfield, a spokesman for the Indiana Department of Transportation. “This new program should help bridge that gap.”

Consider that during a 15-month period that ended in February 2009, Indiana billed insurers and motorists for $3.5 million in damaged state property, but it recovered only $1.8 million.

Conversely, between October 2011 and March 2012, Indiana’s new program has let officials charge motorists and insurers more than $2 million, a significant increase from the $1.4 million billed during all of 2010. All told, state officials are hoping to collect up to $4 million a year through this new program.

Wingfield says Indiana has not only improved the accuracy of information gathering, but also the expediency with which it bills a driver’s insurance company. This is important, he says, because if too much time passes between when damage occurs and when the state sends a bill for reimbursement, it becomes very difficult to prove conclusively that the damage was caused by a specific crash.

For instance, the Indiana Department of Transportation sent a $1,641 bill to insurance company The Hanover on Jan. 29, 2009, for damage to a guardrail that occurred during a policyholder’s wreck six months earlier. Because of the half-year delay, Hanover says, photos of the damaged guardrail did not accurately represent what it looked like after the accident, so the state had to settle for $820 from the insurance company.

How At-Fault Drivers Are Billed for Damaged Public Property

The short answer is that each state handles it differently. Some jurisdictions, such as Chicago, bill a driver directly, while others initially reach out to a driver’s insurance company.

“Chicago is very aggressive about going after people who damage public property,” Hoag says. “The responsibility will fall on whoever the vehicle is titled to, and the city will serve that person with a complaint. If you have decent insurance, that would cover it. If not, it’s just like any other debt.”

Almost every state uses a public agency to send invoices and pursue collections. The only exceptions are Oklahoma and Massachusetts.

Oklahoma uses a consultant to create invoices and track collections for crashes involving damaged state property. The consultant does this using police reports without visiting the crash site and then negotiates with a driver or insurer for repair costs.

The Massachusetts Department of Transportation requires an insurer to pick an approved contractor and pay the contractor directly for repairs. When a crash involves damaged state property and does not need to be repaired within two days, the transportation department prepares a cost estimate for the driver or insurance company to put out for bids. The driver or insurer selects the preferred contractor, receives state approval from the state to work and then the driver or insurance company pays the contractor directly.

“Even though they all handle it differently, every state certainly has the legal right to pursue drivers for these costs,” says Eli Lehrer, vice president of nonprofit research center The Heartland Institute. “Someone needs to pay.”

Will Your Auto Insurance Cover the Damage?

Regardless of how you get the bill, it’s your auto policy’s liability coverage that’s going to cover this type of damage. Hoag says consumers should read their policies carefully to make sure state-owned property damage isn’t excluded.

“For the most part your liability coverage should take care of this type of damage,” Hoag says. “The people who need to be concerned are those who may have substandard policies, which are usually written for people who are tough to insure.”

According to Dave Snyder, vice president and associate general counsel at the American Insurance Association, an industry trade group, the key question regarding who will foot the bill always is: Who was at fault?

“This isn’t always an easy question to answer, because it’s wrapped up in so many other considerations,” Snyder says.

For example, did the driver do something wrong — like speed or make an illegal turn —that led to the damage? Was there any previous damage to the structure? Is it possible that more than one vehicle was responsible?

“Drivers should not necessarily assume they are responsible,” Snyder says. “If you get any notification from the state, you should immediately contact your insurance carrier or agent to determine whether or not this type of claim is going to be covered.”

Situations like these are why it is so important for drivers to get multiple free car insurance quotes with a good amount of coverage.

Be on the Lookout for Extra Administrative Fees

Don’t be surprised if the repairs cost more than you’d think. According to Lehrer, states often assess fees and other charges that the average driver might not expect.

For example, the most common indirect fee — not directly tied to repair costs — is something called “the fringe fee,” with 11 states charging between 48 percent and 181 percent on top of the direct repair costs. Indiana, for instance, tacks a fringe fee of 76 percent onto every invoice for damaged state property.

Overhead and administrative fees also are levied by a few states, but these often are employed as bargaining chips with a driver or insurance company.

“Even if it’s something small, like knocking over a stop sign or accidentally backing into a light post, the state, in theory, can charge a lot,” Lehrer says. “In most cases, they won’t even investigate small things like this, but if they do, you might be shocked by the bill.”

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