Toll From GM Ignition Flaw Seen Rising as Victims Sought

March 13 (Bloomberg) -- Bloomberg News’ Jeff Green reports on the delayed recall by General Motors for issues dating back more than a decade on Bloomberg Television’s “In The Loop.”

The death toll related to an ignition flaw in eight small-car models that General Motors Co. (GM) sold a decade ago is likely to climb, say lawyers and safety advocates.

Automakers often make upward revisions to fatality figures related to recalls as they unearth fresh information, while attorneys are racing to line up plaintiffs seeking compensation for alleged wrongful deaths or injury. GM’s liabilities are also poised to rise as lawyers and safety advocates press the biggest U.S. automaker to pay restitution to victims even from before GM’s 2009 bankruptcy reorganization, which shielded the new GM from the old company’s liabilities.

GM, which said it has identified 12 deaths in connection with the recall of 1.6 million models made in the mid-2000s -- including some Chevrolet Cobalts and HHRs and other Opel, Pontiac and Saturn models -- has said it continues to review data and information related to the recall.

“For every incident that gets reported to the automaker, there are usually nine or 10 more,” said Clarence Ditlow, executive director of the Washington-based Center for Auto Safety, a consumer advocacy group. “You can expect the number of deaths associated with this recall to rise.”

Photographer: Daniel Acker/Bloomberg

General Motors Co. cars Moline, Illinois. Close

General Motors Co. cars Moline, Illinois.

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Photographer: Daniel Acker/Bloomberg

General Motors Co. cars Moline, Illinois.

That happened with Toyota Motor Corp. (7203) As allegations of unintended acceleration generated publicity and Congressional hearings, the number of deaths U.S. regulators investigated in association with Toyota and Lexus models rose from a handful to at least 51. Five were confirmed by the National Highway Traffic Safety Administration to have been caused by mechanical failure. More wrongful-death lawsuits have been filed since the hearings ended.

Shedding Stigma

The GM recall, and the multiple U.S. investigations that it has spurred, come as the company has sought to shed the “Government Motors” stigma tied to its $49.5 billion U.S. bailout. Since the U.S. sold its last GM shares in December, GM has named Mary Barra as chief executive officer, making her the first woman to lead a major automaker. A lineup of new vehicles helped improve GM’s reputation among consumers and boosted quality to record levels, according to reviewers including J.D. Power & Associates and Consumer Reports magazine.

The biggest risk to GM from the recall so far is reputational, Fitch Ratings Senior Director Stephen Brown wrote in a report today. The recall costs to fix vehicles may be less than $100 million and the fines from NHTSA are capped at $35 million, he said. Costs for lawsuits and settlements are still unknown and may be a risk, he said.

Source: Wieck Auto Images via Bloomberg

NHTSA’s Fatal Analysis Reporting System shows there were 303 deaths of front seat passengers in the 2005-2007 Cobalts and 2003-2007 Ion models where the airbag failed to deploy in a non-rear impact crash, Ditlow wrote in March 13 letter to NHTSA that was critical of the agency’s investigation of the deaths. Close

NHTSA’s Fatal Analysis Reporting System shows there were 303 deaths of front seat... Read More

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Source: Wieck Auto Images via Bloomberg

NHTSA’s Fatal Analysis Reporting System shows there were 303 deaths of front seat passengers in the 2005-2007 Cobalts and 2003-2007 Ion models where the airbag failed to deploy in a non-rear impact crash, Ditlow wrote in March 13 letter to NHTSA that was critical of the agency’s investigation of the deaths.

Management’s Task

Since GM no longer sells the recalled models, customers’ biggest concerns will be over how those inside the company address similar issues today, Brown said. “GM’s management will need to convince potential customers that the internal issues that led to the recall delay have been rectified,” he wrote in the report.

GM has apologized for its delay in recalling models with faulty ignition switches that can in some cases be turned off when the key is jostled or weighed down by heavy objects on its ring. That, in turn, shuts off the engine and cuts power to the airbags. “The process employed to examine this phenomenon was not as robust as it should have been,” GM has said in statements, adding it is studying ways to improve how it addresses defects.

That has drawn attention from trial lawyers. One has said he plans to challenge GM’s immunity for any pre-reorganization crashes, which would require asking the judge who oversaw the historic U.S.-backed bankruptcy of GM to reconsider its terms, including the liability shield.

Past History

The time to revoke court orders dating from GM’s bankruptcy “has long past,” said the automaker’s bankruptcy lawyer, Harvey Miller of Weil Gotshal & Manges LLP. “They cannot be reopened at this point in time.”

This week, Ditlow and Joan Claybrook, a former NHTSA administrator, sent a letter to Barra asking her to establish a $1 billion fund to cover losses for victims and their families for any claims that have been extinguished by the bankruptcy, even beyond the ignition complaints. GM hasn’t responded to that request.

GM has settled claims for an undisclosed amount regarding a 2005 death in Maryland, prior to its bankruptcy, and last year in connection with a 2010 death in Georgia.

‘Customer First’

The automaker’s statement on the crashes suggests it may eventually help more drivers than required under its bankruptcy reorganization.

“GM is focused on ensuring the safety and peace of mind of our customers involved in the recall,” GM said in a statement. “It is true that new GM did not assume liability for claims arising from incidents or accidents occurring prior to July 2009. Our principle throughout this process has been to put the customer first, and that will continue to guide us.”

Asked if that could include compensating victims of pre-bankruptcy incidents, Greg Martin, a GM spokesman, declined to elaborate.

Several plaintiffs’ lawyers contacted by Bloomberg News said they had begun taking clients with Cobalt grievances in recent months. Many said they haven’t yet filed lawsuits.

Other suits are emerging. In Canada, Merchant Law Group LLP said it had started a countrywide class action against GM over the defect, which it said affects more than 235,000 GM vehicles in Canada. Merchant is representing a Regina, Saskatchewan, resident whose 2006 Saturn Ion unexpectedly shut off as she sat at a red light, according to its claim filed yesterday in Regina.

Red Light

The woman restarted the vehicle and drove away, according to the claim. As a result of the shutdown, she now fears “she could experience a sudden, unintended engine-shutdown and risk serious bodily harm,” according to the claim. She feels psychological and emotional distress knowing her vehicle is unsafe, her lawyers said in the claim.

Several plaintiffs lawyers are pursuing claims for accidents that happened since GM’s bankruptcy. Bob Hilliard, a plaintiffs’ lawyer based in Corpus Christi, Texas, is going further back, representing the families of two teenagers who died in a 2006 crash of a Cobalt in Wisconsin.

Hilliard, who hasn’t filed suit, said he believes GM shouldn’t be shielded from liability for the pre-2009 crash, arguing that at the time of GM’s reorganization it didn’t present the full extent of its ignition-switch liabilities.

‘Continued Coverup’

“If you are aware of potential exposure to litigation and you don’t reveal it, that’s fraud,” he said. “I’m going to go back to that bankruptcy judge and say, ‘You have to undo this, the liability of old GM, because it was the new GM’s continued coverup after the bankruptcy that allowed people to be hurt or killed.’”

To persuade U.S. Bankruptcy Judge Robert Gerber to reopen the case, Hilliard would need to gather evidence and prove that the old GM had knowingly deceived the judge, said Chip Bowles, a bankruptcy lawyer with Bingham Greenebaum Doll LLP who wasn’t involved in the GM liquidation. “A few bankruptcy cases have been set aside for fraud on the court, but you have to establish deliberate fraud and concealment,” said Bowles, who writes articles on bankruptcy issues.

Judge Gerber declined to comment on past or pending cases.

Hilliard wouldn’t get much money out of the remnants of old GM and if he sued the new GM, he might have little success overturning the ruling that granted it immunity, said Bowles.

Possible Challenges

“Lots of luck there, friend,” said Bowles, adding that if GM were to voluntarily permit liabilities from which it had been exempted, it may face challenges from current shareholders.

Miller said GM’s creditors diligently examined GM’s liabilities and potential exposure for possible torts. “No pertinent information was withheld from the court during the GM Chapter 11 case,” the bankruptcy lawyer said.

Thomas Mayer, a lawyer for old GM creditors at Kramer, Levin, Naftalis & Frankel LLP, didn’t immediately respond to phone and e-mail messages seeking comment on the creditors’ role in probing product liabilities.

GM’s own reports to the government suggest the automaker may uncover additional claims, Ditlow said. Whenever GM is notified of a death related to one of its vehicles, often in the form of a lawsuit, it is required to notify the U.S. under the Early Warning Report system, he said.

Airbag-Related Deaths

Using data from the EWR system for Cobalt and Saturn models covered by the recall and looking for deaths related to airbags, researchers at the Center for Auto Safety identified 25 reports from GM to the EWR system, according to data shared with Bloomberg News.

More broadly, NHTSA’s Fatal Analysis Reporting System shows there were 303 deaths of front seat passengers in the 2005-2007 Cobalts and 2003-2007 Ion models where the airbag failed to deploy in a non-rear impact crash, Ditlow wrote in March 13 letter to NHTSA that was critical of the agency’s investigation of the deaths. The records don’t indicate whether an ignition switch was a factor.

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net; Linda Sandler in New York at lsandler@bloomberg.net; Patrick G. Lee in New York at plee315@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net; Michael Hytha at mhytha@bloomberg.net; Andrew Dunn at adunn8@bloomberg.net

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