New GM to Accept Some Liability Claims on Existing Products
Monday, June 29, 2009
General Motors will assume responsibility for product liability claims filed after the carmaker emerges from bankruptcy protection, a concession that removes a potential obstacle to the Obama administration's plan for the company's quick restructuring.
Under the deal reached by the administration, GM and state attorneys general, the automaker will accept claims arising from defective-vehicle accidents that occur after it emerges from Chapter 11 proceedings. Consumers could file the claims even if their vehicles were made by the "old" GM. However, those with past claims would have to pursue the GM left behind in bankruptcy with nothing but unwanted assets, debts and other liabilities. That means these consumers are likely to recover little, if anything.
Under GM's original restructuring plan, the automaker was to have sold its valuable assets to a new GM "free and clear" of liens, including existing and future liability claims on cars the old GM produced. Consumer watchdogs and many state attorneys general, including Maryland's, have objected, saying such a sale would deprive individuals of "key legal rights."
The modification, outlined in court papers filed by GM late Friday, is a partial victory for the consumer groups and attorneys general, who took their case to Congress and pressured the Obama administration to make the automaker accept all product liability claims. GM acquiesced only on future claims; case law on that issue is unsettled and could have held up the quick bankruptcy proceedings sought by the Obama administration. The federal government, which has committed more than $50 billion to the restructuring, is to take a 61 percent stake in the new GM.
A hearing on the sale is scheduled for tomorrow.
In a court filing, GM noted that it was making the amendment "to alleviate certain concerns that have been raised on behalf of consumers" even though it was not legally obligated to do so.
Consumer groups welcomed the amendment but said the automaker, along with Chrysler, should do more. After bankruptcy proceedings similar to those being pursued by GM, Chrysler's assets were sold to a new entity led by Italian automaker Fiat, free of existing and future product liability claims.
On Friday Rep. André Carson (D-Ind.) introduced legislation that would require automakers to purchase liability insurance if they are owned by the federal government or have federal loans. This insurance must protect against past and future claims, even after a bankruptcy filing.
"Congress still needs to step in and do something for Chrysler victims," said Joanne Doroshow, executive director of the Center for Justice and Democracy. "That bankruptcy is over. The only way for victims to get help is if there's a law that establishes it."