GM to Assume Liability For Future Product Liability Claims

Posted on June 28, 2009

General Motors has agreed to shoulder defect liability for product liability of their cars, even after the company emerges from bankruptcy. All claims against the company must be adjudicated in a bankruptcy proceeding, which had all the states' attorneys general worried about GM car owners' rights. Under the settlement, GM will assume legal responsibility for injuries suffered by consumers who are injured by a product defect in GM cars.
The concession means consumers who are injured in car accidents after GM emerges from bankruptcy protection will be able to bring product-liability claims against the government-owned auto maker. Under GM's original bankruptcy plan, the auto maker planned to leave such liabilities behind after selling its "good" assets to a new GM owned by the government. That meant future car-accident victims who believe that faulty manufacturing by the old GM caused their injuries would be unable to sue the new GM. Instead, they would have been treated as unsecured creditors, fighting over the remains of GM's old bankruptcy estate.

GM's agreement to take responsibility for future product-liability claims, outlined in a court filing late Friday, represents a partial victory for more than a dozen state attorneys general and several consumer-advocacy groups. They had objected to GM's original plan to shed these liabilities, arguing it would rob future car-accident victims of their legal rights because they would have no way of knowing they might be entitled to claims.

GM advisers, members of President Barack Obama's auto task force and the attorneys general negotiated for several days to address concerns about product-liability claims, among other issues. The talks heated up Friday ahead of GM's Tuesday court date, when it will ask a judge to approve the auto maker's plan to create a new GM by selling its desirable assets to the government.
The move is considered a legal victory for consumers. Chrysler, which just emerged from bankruptcy, is not responsible for those types of claims in the future. The assumption of liability only applies to future claims made against the new GM. Current claimants will be treated as unsecured creditors and are likely to get little or nothing.