In some ignition switch cases, line between New GM and Old GM blurs

Punitive damages issue may be resolved in GM ignition switch injury, wrongful death cases

General Motors Co. finds itself in an interesting, though not enviable, position. The corporation recalled millions of vehicles last year after receiving reports of injuries and deaths related to ignition switch failures in older model compact and economy cars. Victims and their families filed personal injury and wrongful death claims against the carmaker, as did a class of owners who claimed the recall had diminished the value of their cars. GM was in trouble.

The defective part was not the only problem for GM, though. The corporation apparently knew of the danger for a while before instituting the recall. When this came out, more civil suits were filed, this time claiming fraud, and the federal government launched a criminal investigation. Reuters reported in September 2015 that the company had reached a settlement with the government; many of the civil cases have settled, some through a fund GM created.

In a "just when you thought it was safe to go back in the water" moment, GM recently learned that it may be liable for punitive damages in the personal injury and wrongful death claims.

What are punitive damages?

Punitive damages are not meant to compensate a victim for expenses incurred or lost wages -- all the things that are meant to make the victim (or the victim's survivors) whole. Punitive damages are awarded when the defendant has acted with malice, recklessness or gross negligence.

States and the federal government handle punitive damages decisions differently. For example, here in Texas, the jury must answer two questions unanimously: Did the plaintiff prove by clear and convincing evidence that punitive damages are warranted, and how much should the damage award be? The jury must answer yes to the first question before it can consider the second.

What about the bankruptcy?

What makes GM's situation interesting is how those damages will be handled. GM declared bankruptcy in 2009. The court's approach was to split GM into "New GM" and "Old GM," with the latter taking on the most onerous liabilities.

Those liabilities did not include damages associated with post-sale injuries or fatalities involving Old GM cars and trucks. The ignition switch recall involved vehicles from model years 2003 to 2010, but New GM agreed to take these on. The question was whether New GM had also taken on liability for punitive damages, since it was Old GM that failed to disclose the danger.

The court ruled that New GM may be liable for punitive damages but "only to the extent ... they are based on New GM knowledge or conduct alone." That could have been bad news for plaintiffs, but the court added that plaintiffs could prevail if they proved that New GM had inherited employees who were in-the-know or documents that confirmed the company's knowledge of the defect.

Punitive damages are never a slam-dunk, but plaintiffs' attorneys see the court's decision as a win.