What is the role of auto insurance?
Many states require that drivers own an auto insurance policy before you can even drive; you can purchase either first-party coverage (which insures your own vehicle, property, medical expenses, etc.) or third-party coverage (which covers damages to another car or person while you are driving your own vehicle or someone else’s). Most states require that you take out at least a minimum liability policy, which covers damages to a third-party or parties. First-party coverage is generally optional, but a wise investment - it covers damages to your own vehicle or person, and can range in coverage amounts and deductibles, depending on how much you are willing to pay.
If you are involved in an accident, you must provide a notice of loss to your insurance company - failing to do so in a timely manner may result in no coverage. After that, you have to “tender a defense,” i.e., allow the insurance company to defend your claim by hiring an attorney or otherwise settling the claim. After the insurance company pays your damages in full, it can also go after the negligent party to recover damages, and you cannot stop your insurance company from suing. In many states, however, both parties have to go through arbitration; if the arbitration award is rejected, then suit may be brought.
If you have no insurance and are involved in an accident, you will have to cover your own costs (hiring an attorney and planning a defense) and, if found at fault, you’ll also have to pay damages to the other party out of your own pocket. Failure to pay the judgment (which can sometimes reach into the hundreds of thousands of dollars) will result in further legal action - a court will likely attach a lien to your property or garnish your wages - and in many instances, you cannot avoid responsibility by filing for bankruptcy.