GM Faces Punitive Damages for Switch Defect, Advisers Warned

Jun 10, 2014 9:49 am ET

(Updates with warning to GM in 13th paragraph.)

June 10 (Bloomberg) -- General Motors Co.’s lawyers have warned the carmaker it might face punitive damages over ignition switch defects if its customers go to trial, creating an urgent need to settle lawsuits.

GM, which has said it wants to help accident victims, is dealing with new and revived suits over injuries and deaths as a result of its recall of 2.59 million cars.

An injury case brought by lawyer Lance Cooper was settled for $5 million in September after an adviser warned GM of a “substantial adverse verdict” if a jury heard the defect was known for nine years and the company didn’t fix it, according to a report by investigator Anton Valukas.

The delay would be taken as proof of GM’s indifference and “willful misconduct when it comes to the safety of its vehicles’ occupants,” Philip Holladay of King & Spalding, GM’s outside law firm, told the company last year. “This case needs to be settled,” he said, according to Valukas.

In at least four cases since 2010, GM was told by outside lawyers that jurors might grant accident victims “substantial” or “punitive” awards if they heard of the company’s failures to fix a long-known fault, according to the Valukas report, commissioned by GM to examine its handling of the ignition switch defect.

“I suspect the amount to settle those cases went up significantly after the report’s release,” said Peter Henning, a professor at Wayne State University Law School in Detroit who has written about the automaker’s litigation.

GM’s Liability

The company has asked a bankruptcy judge to rule it isn’t liable for the declining prices of old GM cars. It hasn’t asked him to block any injury suits even though it isn’t legally liable for accidents occurring before mid-2009.

Cooper has revised a suit in Georgia and is accusing GM of hiding long-running concerns over ignition switch defects.

Texas lawyer Bob Hilliard, who has demanded as much as $100 million in a wrongful-death lawsuit in the past, refiled one case yesterday in Tyler, Texas, alleging fraud by GM in settling the original case. Customer lawyers nationwide will try to reopen “a ton” of injury cases, he said in an interview.

Louisiana lawyer Dan Becnel estimates that GM faces around 200 injury suits.

Detroit-based GM named Kenneth Feinberg last week to compensate accident victims. GM has linked the fault to 13 deaths.

Cases Grouped

In the courts, GM is grouping injury cases into manageable pools. In Texas, it forced four accident suits last month to go before a panel of judges who will decide whether to combine them. In a Texas claims court, GM asked a judge to dismiss an injury case.

King & Spalding first told GM it might be subject to punitive damages in 2010, a year after a woman died of brain trauma when her 2006 Cobalt swiped a Volkswagen and hit a tree, Valukas said. She wore a seat belt and her airbags didn’t work, according to the report.

Defending GM might be difficult because a “sensing anomaly” had caused the airbags to fail, the law firm said, citing an airbag expert.

“A significant plaintiff’s verdict is likely under these unusual circumstances in which an apparent malfunction (sensing system anomaly) prevented airbag deployment in this severe frontal impact,” it said.

Airbag Failure

In 2011, after reviewing another airbag case, King & Spalding told GM’s product investigation team that such failures should be urgently investigated to find the root cause. In February of that year, a woman who lost control of her mother’s 2007 Cobalt and hit a tree was hospitalized for nine days.

Analyzing an accident involving a 2005 Cobalt, the law firm Eckert Seamans in 2012 tied the airbag failure to the ignition’s being in the accessory position instead of the run mode, saying GM’s legal risks were rising with the number of similar cases.

“Those other incidents put GM at risk for imposition of punitive damages,” it said. GM settled the suit, resulting from a 2009 accident when a driver lost control of a 2005 cobalt on black ice and hit two trees 60 feet off the road. The passenger beside her, unbelted, suffered head injuries and rib fractures.

“It will be difficult to explain why the ignition switch toggled to accessory mode simply from running off-road,” the law firm said.

The carmaker settled with Cooper after King & Spalding said a jury would almost certainly find the faulty ignition switch “unreasonably dangerous.” The $5 million deal was the most GM could pay without consulting GM’s top inside lawyer, Valukas said.

--With assistance from Margaret Cronin Fisk in Detroit.