Kenneth Feinberg said there is no limit on the total amount he can pay people harmed in crashes caused by faulty General Motors ignition switches.
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WASHINGTON — Kenneth Feinberg is prepared to pay out billions of General Motors’ money to victims of crashes in GM small cars — provided they can prove the cars’ ignition switches caused the crash.
GM links 13 deaths to a defective ignition switch in cars such as the Chevrolet Cobalt and Saturn Ion. But trial lawyers and lawmakers say claims of wrongful death and injury could total in the hundreds.
Feinberg, the country’s eminent compensation expert, said GM has placed no limit on the total amount he can pay to injured people or relatives of those killed. And he alone — not GM — will decide how much they each will get, even though he is being paid by the company.
In an interview before formally announcing the plan today, Feinberg wouldn’t estimate the ultimate cost for GM, saying he has no idea how many death or injury claims he will get. Based on the methodology he plans to employ, a large amount of claims could mean a sum running into the hundreds of millions of dollars, if not billions.
“GM is committed under this program to paying whatever it takes to compensate all eligible claimants,” he said. “There is no aggregate cap to this program.”
With the plan, GM is trying to limit its legal liabilities, control the damage to its image and eventually move beyond the crisis caused by its failure to correct the ignition switch problem for more than a decade, even as it learned of fatal crashes. The company recalled 2.6 million older small cars earlier this year to replace the switches.
Only those hurt in crashes caused by the small-car ignition switches are eligible, so the program excludes other GM safety problems. People filing claims will have to prove that the switches caused the crashes. Once their claim is settled, they give up their right to sue the company.
Claims can be filed from Aug. 1 to Dec. 31, and Feinberg promises payment in 90 to 180 days in most cases. People who previously settled lawsuits with GM are eligible to apply for more compensation.
Legal experts say GM has almost no defenses left in crash lawsuits because it admitted the switches are defective and that its employees were negligent in failing to recall the cars. A GM-funded probe by an outside attorney blamed the delays on a dysfunctional corporate culture and misconduct by some employees. The company has dismissed 15 workers in the case.
Feinberg said he won’t consider whether a crash happened before GM left bankruptcy protection in July of 2009. Under its bankruptcy deal, “New GM” — the company that emerged from court protection — is shielded from claims stemming from crashes that happened before the bankruptcy. Those claims go to “Old GM,” the remnants of the company left behind in the bankruptcy, which has few assets.
Crashes that occurred after the bankruptcy could get big judgments in court, so it may take more money for Feinberg to settle them. Lawyers are challenging the bankruptcy shield, and if that fails, pre-bankruptcy claimants may have to settle with Feinberg.
The faulty ignition switches can slip from “run” to “accessory,” unexpectedly shutting off the engines. That knocks out power steering and brakes and can cause drivers to lose control. In addition, the air bags won’t inflate due to lack of power, so they won’t protect people in a crash. Feinberg said if the air bags inflated, that negates a claim because that means the crash wasn’t caused by the switch.
Drivers, passengers, pedestrians and occupants of cars hit by GM vehicles are eligible for payment, Feinberg said.
Feinberg will follow the same methodology he used when he handled a $7 billion government fund for victims of the Sept. 11, 2001, terrorist attacks. He has detailed formulas setting payments based on a victim’s age, earnings potential and severity of injuries.
Those injured can either follow the formula and get a quick payment, or try to justify a bigger payment through “an individual negotiation tied to the extraordinary circumstances of the claim,” Feinberg said. Claimants still not satisfied after that can sue GM.
Under Feinberg’s formula, for example, relatives of a deceased 25-year-old earning $75,000 per year who is married with two children would get $5.1 million. But the relatives could build a case to get more, he said. Severely injured people could get more money than some death cases, Feinberg said. For example, a 40-year-old earning $70,000 per year who is married with no children and became a paraplegic in a crash would get $6.6 million under the formula.
Feinberg will limit how much he’ll pay people with less-serious injuries, based on how long they stayed in the hospital, similar to the way he compensated victims of the Boston Marathon bombings. But there is no cap on potential payments to relatives of those killed and people with serious injuries that caused brain damage, amputation, serious burns or paralysis. In addition, Feinberg said it won’t matter whether drivers contributed to their crashes by drinking alcohol, texting or failing to wear seat belts.
“GM has agreed that it cannot challenge my ultimate determination,” Feinberg said. “They have no right to appeal.”
With the Sept. 11 fund, the average award to families of those killed was $2.1 million though 2,880 claims. The fund also paid an average of about $400,000 each for the 2,680 accepted claims of injuries stemming from the attacks. The smallest injury award was $500, the largest $8.6 million, according to the report. Only about 80 lawsuits rose from the attacks.
Feinberg acknowledged that some people will question his fairness, given that he was hired by GM.
“The only way you overcome that problem is by demonstrating through the awards that the program is fair,” he said. “The sooner we get claims out the door and paid, the sooner you hope people will disabuse themselves of that concern.”