When General Motors filed for bankruptcy in 2009, the company was facing more problems than it let on. The company had sold several cars with faulty ignition switches that caused serious injury and death and resulted in a number of defective vehicle lawsuits.
GM had installed faulty ignition switches in various small car models including the Chevrolet Cobalt. These ignition switches have been known to slip position when the car is running. This results in the car stalling unexpectedly. These incidents have been linked to injuries to more than 275 people and 124 deaths.
Filing for Bankruptcy
While this may seem like a cut and dry case for those affected by the faulty ignition switches, GM complicated things for plaintiffs by filing for bankruptcy. The company filing for bankruptcy was funded by the government. The terms of the bankruptcy were that the company that emerged following the filing i.e. New GM, would be indemnified against any claims that were filed against the Old GM, the company that existed before filing for bankruptcy.
This meant that claimants for the faulty ignition switches could not file claims against the company that emerged following the bankruptcy. This meant that over 1,000 injury and death lawsuits couldn’t be brought against the company.
The Turning Point
However, a recent ruling by the US Court of Appeals for the Second Circuit offers claimants a glimmer of hope. The three-judge panel ruled that GM could no longer use its bankruptcy filing as a defense against the claims for faulty ignition switches. This is because the company failed to reveal its knowledge of the faulty ignition switches to the court at the time of filing the bankruptcy.
According to the Court, GM prevented victims of crashes from filing claims by failing to reveal information about the faulty switches. The company also prevented victims from contesting their filing for bankruptcy. This, in essence, robbed the claimants of due process.
However, following this ruling, GM will be exposed to thousands of lawsuits for the faulty ignition switches. Apart from the 1,000 lawsuits that were put on hold as the appeals decision was being awaited, there are at least 100 lawsuits against GM that are still pending.
The Next Move
All eyes are now on GM wondering what it will do next. GM may opt to appeal the decision and try to get it overturned.
Those who settled for compensation with GM for death or injury cases received a total of $549.5 million from the company. However, the question arises whether this ruling will affect those who settled. According to compensation experts, claimants who already settled waived their rights to sue by settling. However, the ruling may result in the cases being reopened.