General Motors could pay billions in recall-related lawsuits
General Motors Co. will spend whatever it takes to compensate victims of accidents in Cobalts, Ions and other cars with faulty ignition switches, said Ken Feinberg, the lawyer hired to make the payments.
Feinberg will take claims from Aug. 1 through Dec. 31, giving customers time to prepare their documentation, he said in a phone interview. GM will pay anyone who proves they were injured in a crash tied to the faulty switches in one of 2.59 million recalled cars, even if they were drunk or texting on their phone at the time of the accident, he said.
Victims of accidents before GM’s 2009 bankruptcy are eligible, even if they already have been compensated, he said. Feinberg announced details of GM’s plan at a news conference Monday in Washington. Eligible claims will be paid in 90 to 180 days from when Feinberg deems them substantially complete.
“GM will pay all eligible claims,” Feinberg, who previously handled claims against BP PLC after the 2010 Gulf of Mexico oil spill, said in a separate interview. “If you already settled a case before you knew of the switch defect and signed a release, you can come back and get more compensation.”
GM is fighting more than 100 lawsuits over injuries, falling car prices and allegedly misleading statements in the wake of the recalls that began in February. It has paid regulators a $35 million fine and is being investigated by federal officials for its handling of the switch defect.
Brian Johnson, an analyst at Barclays PLC in Chicago, estimated in March that GM might spend $3 billion in damages for faulty Chevrolet Cobalts and Saturn Ions. U.S. Sen. Richard Blumenthal of Connecticut has urged the company to set aside as much as $8 billion.
Since the first ignition switch recalls that are the focus of its compensation plan, GM has called in millions of other cars for issues related to ignitions, including some Chevrolet Impalas whose ignitions can slip out of the “run” position.
Anyone taking money from GM will have to give up the right to sue, Feinberg warned in an interview.
“If you want punitive damages, don’t come to this fund,” he said. GM also will only pay for a crash involving one of the eligible cars in the recall.
“No Cadillacs or Mercedes,” he said. People filing claims must also offer evidence that the ignition was a “substantial cause” of the accident, he added.
“At least the police report will say, in most cases, air bag did not deploy, very important” he said. “If the police report says the air bag deployed, the power was on at the time of the accident — the ignition switch did not fail.”
While Feinberg is carrying out chief executive Mary Barra’s plan to help injured customers, GM is fighting lawsuits by drivers demanding money because their cars’ resale prices have fallen since the recall. They should be asking GM’s bankrupt predecessor for compensation, the company says. A bankruptcy judge in Manhattan will discuss the issue this week with customers’ lawyers.
While running BP’s claims process, Feinberg was accused by the U.S. Justice Department of trying to save the U.K. oil company money. He won’t say how much GM is paying him, though he acknowledges that customers might have concerns about his fairness.
“It’s a real challenge,” he said. “If an administrator is paid by the party funding the claims, it’s always a concern by plaintiffs. You have to demonstrate by the money going out” that the program is successful, he said.
GM will pay money to drivers, passengers, pedestrians and occupants of other vehicles involved in a crash with an eligible vehicle. It covers about 1.6 million model-year 2003-2007 recalled vehicles manufactured with an ignition switch defect and about 1 million model year 2008-2011 vehicles that may have been repaired with a recalled ignition switch. Claimants with a newer model will be eligible only if the accident occurred after getting a replacement switch, Feinberg said in an FAQ document.
Feinberg offered a guide to proving that the ignition was a “substantial cause” of the crash.
“There are really two key elements: Is it the right type of automobile and, two, did the air bag not deploy? If it’s the wrong auto or if the air bag deployed, it’s ineligible on its face,” he said.
Proof for a claim can include police or insurance reports, pictures from the crash or black-box data, if available. A customer also could submit maintenance records that show troubles with stalling, locked steering wheels or anti-lock brakes before the crash.
“Lawyers know exactly the type of evidence to offer to demonstrate a link, a causal connection, between the accident and the ignition switch,” Feinberg said.
Claims for people who died or received catastrophic injury — such as being left paraplegic or with permanent brain damage, double amputation or pervasive burns — could get an immediate award based on national averages, or a “tailored” award.
Under national averages, a 25-year-old married person with two children, earning $75,000 annually, who was killed in an eligible crash would be paid $5.1 million, Feinberg said.
The award for a killed 17-year-old — single, without dependents, unemployed and living at home — could be $2.2 million. A 40-year-old paraplegic, married without children and earning $70,000 a year at the time of the crash, would receive $6.6 million. The victims of serious accidents could choose individual assessments of their losses rather than national averages, he said.
NO TOTAL ESTIMATE
Less serious injuries will be paid flat amounts based on the time spent in a hospital or length of medical treatment. For example, a person who stayed in a hospital overnight for observation would be awarded $20,000, he said. Someone who spent 30 days there would get $385,000, or $500,000 for more than a month, he said.
“Nobody has to take this, it’s totally voluntary,” he said.
Feinberg said he couldn’t estimate how much GM might have to spend to compensate victims before seeing the claims. Like BP, GM will commit money from revenue, though it won’t specify the amount, he said. There won’t be a segregated fund, he said. BP and the 9/11 program for victims of the terrorist attacks didn’t have such funds either.
“We are pleased that Mr. Feinberg has completed the next step with our ignition switch compensation program to help victims and their families,” Barra said in a statement. “We are taking responsibility for what has happened by treating them with compassion, decency and fairness. To that end, we are looking forward to Mr. Feinberg handling claims in a fair and expeditious manner.