Sheehan & Associates, P.L.C.

Ignition defect impacts Detroit's 'Old' and 'New' General Motors

Detroit automaker General Motors Co. has faced no end of unwanted publicity recently for a defect with the ignition in a number of its cars. That problem, which can cause the car's systems to shut down and prevent air bags from deploying, has been linked to a minimum of 13 deaths in this country.

The company is facing a business litigation nightmare. The National Highway Traffic Safety Administration is asking why it took 10 years from the time GM discovered the problem until last month's recall, despite customer complaints and lawsuits in the interim. According to "ABC News," the U.S. Department of Justice as well as congressional committees in both houses are also investigating GM's slow response.

For victims and families seeking compensation, however, the date of their accident could play a significant role in the damages they receive. GM filed for bankruptcy in July 2009, as most of our readers know. Under the terms of that bankruptcy, the company no longer had liability for any injuries that occurred prior to that filing. The company's bankruptcy estate took on GM's liabilities. It is known as "Old GM." Meanwhile, the company's "good assets" went to the new government-backed GM. Generally, when the assets of a bankrupt company are purchased by another entity, the buyer isn't responsible for old liabilities.

While those harmed after the bankruptcy due to this and other defects can take legal action against the "New GM," what about the cases of those harmed or killed prior to that? Old GM had a total of approximately $3.3 billion in product liability claims. The company says it has settled the "overwhelming majority" of those suits. Lawyers for the pre-bankruptcy company have been in mediation with those plaintiffs. However, many have received only a fraction of what they'd anticipated.

With this new public scrutiny on the ignition defect, it remains to be seen if there will be government and/or public pressure to settle more fully with these pre-July 2009 plaintiffs. This increased media attention and the recall may also bring out additional plaintiffs who didn't previously associate their accident with a defect. No doubt, attorneys for both "old" and "new" GM will be busy with federal authorities and plaintiffs for some time. Perhaps if there's a lesson here, it's that it is generally better, and less costly, for a company to deal with a defective product sooner rather than later.

Source: The Wall Street Journal, "GM's Immunity Pact Could Stymie Claims in Ignition Case" Mike Spector, Mar. 07, 2014

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