Bankruptcy terms limit 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 1.6 million cars, General Motors has vowed that the new GM will do business differently than the old company that filed for bankruptcy in 2009.

In a legal twist, that dividing line -- between "old GM" and "new GM" -- could be a shield for GM in court, reducing potential legal liabilities by millions of dollars, if chastened executives are willing to invoke it.

Under the terms of its restructuring, GM's product liability extends only to accidents that happened after the reorganized company left bankruptcy in July 2009. Plaintiffs injured before that time would have to seek redress from the defunct shell of GM in Bankruptcy Court, where the chance of compensation is slim.

Even that was the result of intense negotiation with state attorneys general and consumer groups such as the Center for Auto Safety. GM's original restructuring plan would have made it immune to liability claims from all of its prebankruptcy cars -- including the oldest models touched by this year's ignition switch recall, such as the Chevrolet Cobalt, Pontiac G5 and Saturn Ion.

But under pressure from critics and consumer advocates, GM changed the terms.

"That was hard-fought," says Clarence Ditlow, executive director of the Center for Auto Safety. "We can just be thankful we drew the line on post-bankruptcy crashes."

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

GM says that it knows of 31 accidents in which airbags didn't deploy because of the faulty switch, and that 13 people died in these accidents. The company hasn't released data that would show how many of the accidents predate GM's emergence from bankruptcy.

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

"It is true that new GM did not assume liability for claims arising from incidents or accidents occurring prior to July 2009," GM spokesman Greg Martin wrote in an e-mail to Automotive News. "Our principle throughout this process has been to the put the customer first, and that will continue to guide us."

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

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