GM Bailout may Nullify Some Crash Victims’ Claims

Recent news that heads rolled at General Motors may reassure some that the company is taking responsibility for becoming aware of defective devices in its vehicles but not taking steps to cure the problem before more people died.

Now, lawsuits over the faulty ignition switches are bringing to light a fact many consumers are probably not aware of: when the US government agreed to bail out GM during the recession, the structure of the deal assured GM’s bank lenders were paid back, while leaving many creditors in the dust. Liability appears to have been wiped out for any existing judgments against the company.

This move really adds insult to tragic injury. While the bank debts may have been secured, therefore, technically placing them higher in the bankruptcy repayment order, those banks knew and assumed their lending risks. Families with loved ones killed due to manufacturing defects did not choose to become unsecured creditors.

One old case involved a family whose adult daughter was killed in her 1998 Dodge Caravan when her airbag failed to deploy due to a manufacturing defect. Chrysler was found liable in 2009 and the jury awarded her surviving child and family $2.2 million.

Before Chrysler paid the damages, the deal was struck for the government-brokered bankruptcy and bailout of $12.5 billion. Now, Chrysler still hasn’t paid that family their court-awarded damages, and may not have to.

After many state Attorneys General complained about the deal, GM and Chrysler agreed to remain liable for lawsuits involving accidents occurring after the bankruptcy sales. But for consumers who had already filed lawsuits or even had already been awarded damages before the bankruptcies – they may likely get far less than they might be owed.

Plaintiffs with pre-bankruptcy/bailout cases have been agreeing to settlements, such as 30 cents on the dollar, which can be paid out with shares and warrants from a trust that received a percent of new stock for unsecured creditors’ debts.

Some victims and families with pre-bailout suits are holding out for more of what they’re entitled to – but their legal road ahead is not certain.

In GM’s case, everyone agrees the company is liable for actions filed after its bankruptcy filing date in 2009 – but a new wrinkle comes with the ignition suits. In one family’s case, their daughter died while driving a Chevrolet Cobalt — one of the cars GM now admits had the deadly ignition defect. Their daughter’s accident occurred before the bankruptcy-bailout, but there is hope that because GM knew about the problem before the bankruptcy and failed to fix it, GM might be held liable.

The LA Times reports that the number of deaths related to the faulty ignition switch could be more than 300. More than half of those accidents occurred before the bankruptcy.