Photographer: Jeff Kowalsky/Bloomberg

GM Still Facing Ignition Liability in Suits Seeking Billions

  • Customers Still Seeking Up To $10 Billion Over Lost Car Value
  • Hundreds of Injury and Death Cases Aren't Part of Settlement

General Motors Co.’s potential liability over flawed ignition switches isn’t over yet, and billions of dollars remain at stake.

GM agreed Thursday to pay $575 million to end a shareholder suit tied to the defect and more than 1,380 civil cases by victims. A separate $900 million accord with the U.S. government resolved a criminal probe into the matter.

That still leaves Detroit-based GM facing hundreds of personal-injury and wrongful-death claims over the deadly flaw, as well as suits by car owners seeking as much as $10 billion for the lost value of their vehicles.

Six personal-injury cases are set for trial, the first in New York in January. If those aren’t settled, the proceedings will shed light once again on the company’s illegal behavior after the flaw was discovered and harm its reputation, said Carl Tobias, who teaches product-liability law at the University of Richmond in Virginia.

“There’s still a risk of a potentially embarrassing trial,” Tobias said. “I don’t think they’ll be able to settle them all -- one holdout who wants to go to trial can gum up the works.”

The cases set for trial are strong and might be extremely costly for GM, said Texas attorney Bob Hilliard, whose personal-injury and wrongful-death cases made up the bulk of Thursday’s settlement.

‘Huge’ Award

“A jury may get the chance to do what the Department of Justice determined it could not do -- hit them with a huge punitive damage award,” the lawyer said.

The plaintiffs argue that GM endangered them by delaying the recall of defective vehicles in which jostled keys could trigger a shut-off and disable steering, brakes and airbags. GM has said top executives didn’t know the switch was a persistent problem. None will be prosecuted under the Justice Department deal.

Lawsuits over the lost value of the vehicles haven’t gone as far in court, and none of those cases is scheduled for trial. GM argues the potential damages are far less than the car-owners contend.

“We do not recognize or believe that that figure has any validity,” Jim Cain, a spokesman for GM, said in a phone interview. “For our part, it’s impossible to estimate our liability because of the all uncertainties that are associated with litigation.”

Some victims were “outraged” by the criminal settlement, Hilliard said.

Victim’s Father

One of his clients, Jay Gass, is the father of Lara Gass, a third-year law
student who was killed driving a 2006 Saturn Ion. Gass, who met with Manhattan U.S. Attorney Preet Bharara earlier in the government’s investigation, was informed of the criminal accord by a federal agent in a phone call early Thursday.

“It shows that corporations only have to budget enough money to buy their way out of criminal actions with the U.S. government,” Gass said in an e-mail. “Families who lost their loved ones in crashes caused by defective GM ignition switches are suffering once again with the loss of any confidence that justice will be served.”

Ken and Beth Melton, whose daughter Brooke died when her Chevy Cobalt crashed, said GM was getting off easy and declined to settle their case, according to a statement by their law firm, Beasley Allen in Montgomery, Alabama.

“Because of the conduct of GM officers and employees, at least 124 innocent victims were killed," attorney Jere Beasley said in the statement.

Company Costs

GM has already paid out $566 million through a victims’ compensation fund outside of court. Thursday’s criminal and civil settlements boost the amount paid by the carmaker to more than $2 billion. When the defect was discovered, it could have been been fixed by spending $1 on each vehicle, prosecutors said.

The defect was a low-torque ignition switch installed in at least five vehicle models starting in 2003, including the Chevrolet Cobalt and the Saturn Ion, the U.S. said in its settlement agreement with GM. Under the accord, the company admitted that 15 deaths and an unspecified number of serious injuries were linked to the flaw.

Even before the switch went into production in 2002, some GM engineers knew it was prone to slipping out of the “run” position, the U.S. said. The company considered fixing the problem a few years later but chose not to after deciding it didn’t pose a safety concern, according to the documents.

By the spring of 2012, the U.S. said, some GM employees knew the switch was defective because it could “cause airbag non-deployment,” according to the agreement. GM didn’t notify federal safety officials until about 20 months later, in February 2014.

Delay’s Result

The delay allowed GM to “fully package, present, explain and handle the deadly problem, taking affirmative steps to keep the defective switch matter outside the normal process,” the U.S. said.

Even after GM stopped selling the affected vehicles, GM dealers from 2012 to 2013 continued to sell used cars that would become subject to recall over the flaw, according to the agreement.

“It’s an admission, inside a criminal proceeding, of wrongdoing,” said Hilliard. The admissions will bolster the remaining cases that weren’t settled, he said.

The settlement will require a special master to determine how to divide the money and make offers to individual plaintiffs who can accept or reject them, Hilliard said. If enough claimants refuse to participate, GM can walk away, he said, without citing the required percentage needed.

Hilliard said he signed the agreement a little before midnight, after news of the criminal settlement became public. He said the criminal settlement had no effect on the timing of his settlement.

Big Number

“It’s a large and substantial number,” Hilliard said. “It’s very, very fair to my clients.”

The settlement covers death and injury claimants represented by Hilliard but
doesn’t include 31 deaths and 244 injuries that predate GM’s 2009
bankruptcy. Hilliard said he has encouraged GM to settle these claims.

GM gained the upper hand over many victims when a judge approved the company’s sale in bankruptcy, barring many claims that predated the Chapter 11 filing. Victims have appealed that ruling, which would expose GM to additional liability if it were overturned.

“GM will certainly take it to the Supreme Court if it has to,” said Tobias, the Virginia law professor.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE