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Federal Bailout Shields GM From Liability Over Defective Chevy Models

Federal Bailout Shields GM From Liability Over Defective Chevy Models

Not all motor vehicle accidents are the result of driver negligence. Often times, the vehicles themselves are defective. Normally an automobile manufacturer can be held liable for such defects. But unfortunately, political lobbying can tilt the playing field in favor of the manufacturers, denying legitimate victims their day in court.

Last year, General Motors paid a $35 million fine to the U.S. Department of Transportation after the company's “failure to report a safety defect” in the ignition switches of its Chevy Cobalt models led to dozens of reported accidents around the country. For example, in 2006 a 23-year-old New York man was killed when his Chevy Cobalt hit a schoolbus. His family sued General Motors, arguing the defective ignition switch led to his death.

GM spent years trying to deny any responsibility for the Cobalt's defective ignition switches. According to a March 2014 New York Times report, GM officials “told the families of accident victims and other customers that it did not have enough evidence of any defect in their cars,” and in some cases threatened retaliation against victims who planned to sue the company. Altogether, the defective Cobalts have been linked to at least 31 accidents, including a dozen fatalities.

GM Shareholders Prosper While Victims Suffer

But despite all this, GM is unlikely to face any further responsibility beyond its fine from the Department of Transportation. This is because under the terms of it 2009 bailout from the federal government, GM “was given immunity from product liability or wrongful death claims arising from accidents that occurred before it exited bankruptcy on July 10, 2009.” This covers the time period when most of the defective Cobalt accidents took place. So even though GM received nearly $10 billion from taxpayers as part of its bailout, it now receives an additional benefit in the form of immunity from lawsuits over a car the company has publicly acknowledged was defective and dangerous.

This is great news for shareholders of the restructured GM, but not for people injured by defective Cobalts. As Shikha Dalmia, a regulatory analyst for the Los Angeles-based Reason Foundation, noted recently, “GM saves close to $300 million in annual product liability claims because it is on the hook for a fewer of them.” And while liability shields are often part of corporate bankruptcy proceedings, Dalmia noted in GM's case, the company was not required to establish a separate trust fund to address claims from Cobalt victims. Instead, he writes, GM “can treat injured customers as shabbily as unsecured creditors,” meaning they can expect little to nothing from the shell of the old, pre-bailout company.

Injured Due to a Defective Car?

Despite GM's special treatment by government officials, auto manufacturers still have a legal duty to produce safe vehicles—and where defects are discovered, to report and address them promptly. If you have been seriously injured in an accident as the result of a defect in the design of a vehicle, it is important you receive independent legal advice. If you need to speak with an experienced New York personal injury lawyer , contact our offices right away.
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