I live in pa and have erie insurance. I was in a car accident and it was my fault. The driver I hit has no license and no car insurance and he was driving his wives car. Does my insurance still have to pay?

Yes. You were the one at fault.

Since you were at fault, your liability coverage pays damages to the other driver.

While his driving without insurance may get him a ticket it has no bearing on fault.

What everyone has said. You were responsible. Your insurance company pays. His status (unlicensed or uninsured) has nothing to do with the cause of the accident. If he is to be "punished" the Police will do it, not the insurance company.

Driving his wife's car is completely irrelevant - couples (and other people as well) switch and borrow cars all the time.

Didn't your insurance company explain this?