Bankruptcy terms restrict GM liability in crash lawsuits

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In apologizing for its slow response to a faulty ignition switch that triggered a recall of about one.6 million vehicles, Common Motors has vowed that the new GM will do enterprise differently than the old organization that filed for bankruptcy in 2009.

In a legal twist, that dividing line — amongst “previous GM” and “new GM” — could be a shield for GM in court, lowering possible legal liabilities by hundreds of thousands of bucks, if chastened executives are ready to invoke it.

Under the terms of its restructuring, GM’;s item liability extends only to accidents that occurred following the reorganized business left bankruptcy in July 2009. Plaintiffs injured before that time would have to look for redress from the defunct shell of GM in Bankruptcy Court, where the chance of compensation is slim.

Even that was the consequence of extreme negotiation with state attorneys standard and consumer groups this kind of as the Center for Auto Safety. GM’;s authentic restructuring strategy would have manufactured it immune to liability claims from all of its prebankruptcy cars — such as the oldest versions touched by this year’;s ignition switch recall, this kind of as the Chevrolet Cobalt, Pontiac G5 and Saturn Ion.

But under stress from critics and client advocates, GM changed the terms.

“That was challenging-fought,” says Clarence Ditlow, executive director of the Center for Car Safety. “We can just be thankful we drew the line on submit-bankruptcy crashes.”

All plaintiffs who have attempted suing the new GM for pre-2009 claims have failed. This suggests that the financial savings in any forthcoming ignition-switch litigation could be substantial for GM, which paid $ 601 million in 2012 to resolve item-liability claims, according to a filing last yr with the U.S. Securities and Exchange Commission.

GM says that it is aware of of 31 accidents in which airbags didn’;t deploy because of the faulty switch, and that 13 individuals died in these accidents. The company has not launched data that would present how many of the accidents predate GM’;s emergence from bankruptcy.

At least one particular fatality that GM has linked to the Cobalt recall occurred in December 2009.

“It is accurate that new GM did not assume liability for claims arising from incidents or accidents taking place prior to July 2009,” GM spokesman Greg Martin wrote in an e-mail to Automotive Information. “Our principle during this procedure has been to the place the buyer 1st, and that will continue to guide us.”

You can reach Gabe Nelson at gnelson@crain.com.

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