GM execs could invoke bankruptcy terms to reduce recall liability

Article by Anita Panait, on March 13, 2014

General Motors could potentially reduce its product liability relating to a recall of around 1.6 million vehicles caused by a faulty ignition if the carmaker would invoke the terms of its bankruptcy restructuring.  The terms of GM’s restructuring tell that the carmaker’s product liability extends only to accidents that happened after the reorganized company – the new GM – emerged from bankruptcy in July 2009.

Plaintiffs injured before July 2009 would have to seek redress from the defunct shell of GM – the old GM -- in Bankruptcy Court, where the chances of gaining compensation is slim.

GM's original restructuring plan would have rendered the carmaker immune to liability claims from all of its pre-bankruptcy cars, including the oldest models covered by the ignition switch recall, like the Chevrolet Cobalt, Pontiac G5 and Saturn Ion. But due to intense discussions with state attorneys general and consumer groups such as the Center for Auto Safety, GM changed the terms.

"That was hard-fought," says Clarence Ditlow, executive director of the Center for Auto Safety. "We can just be thankful we drew the line on post-bankruptcy crashes." All plaintiffs who have attempted filing a case against the new GM for pre-2009 claims have failed, suggesting that savings in any ignition-switch litigation could be substantial for GM.

In 2012, GM paid $601 million to resolve product-liability claims, according to a filing last year with the U.S. Securities and Exchange Commission. GM disclosed that it has knowledge of 31 accidents in which airbags failed to deploy because of the faulty switch, and that 13 people died in these accidents.[source: automotive news - sub. required]

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