Court Ruling Exposes GM to Punitive Damages Over Ignition Switches

A new ruling by the federal judge who presided over General Motors Corp.’s 2009 bankruptcy could expose post-bankruptcy General Motors Co. to a wave of costly punitive damage awards linked to the company’s defective ignition switches.

The decision by Judge Robert Gerber in New York City notes that “New” GM was shielded against liabilities incurred by “Old” GM. That protection has limited the ability of plaintiffs to collect damages from New GM for the flawed switches, which were designed before Old GM went bankrupt.

But Gerber says plaintiffs may have a case for punitive damage claims after all—if they can prove the new company knew about the defects and actively covered up the problem. His decision applies to victims of crashes caused by the switches and to owners who say the scandal sapped the resale value of their vehicles.

Gerber notes that New GM could be held accountable for knowledge or conduct it “inherited” from Old GM in the form of employee knowledge and documents. But he cautions that punitive damages, which are intended to punish the defendant, can be sought only to the extent that claims are “based on New GM knowledge or conduct alone.” 

Plaintiff attorneys consider the ruling a “major win” for plaintiffs. They contend that proving a GM cover-up won’t be difficult, because GM had admitted it knew about problems with the switches for a decade before recalling 2.6 million of them in February 2014.

The lawyers also note that GM admitted in a $900 million criminal settlement with the U.S. Dept. of Justice in September that it mislead safety regulators about the problem and was slow to alert them about the defect.

GM argues that lawsuits filed to date have not established a willful cover-up. The company has long contended that it (along with federal safety officials) didn’t realize the safety implications of the defect until a few months before issuing the recall.

The flawed switches can be easily jogged out of the “run” position, thereby turning off the engine and killing power to the brakes, steering and airbags. An independent compensation panel set up by GM concluded in August that the switches were responsible for 124 fatalities and 275 significant injuries.