June 30, 2014 at 11:29 pm

GM sets no cap on recall victim compensation fund

Kenneth Feinberg (Jessica Hill / AP)

Washington — General Motors Co.’s victim compensation fund — which could face hundreds or even thousands of claims from anyone harmed in a crash in which air bags failed to deploy 2.6 million now-recalled Chevrolet Cobalts, Saturn Ions and other cars — will face significant challenges before it starts accepting claims.

The fund, announced Monday, faces significant questions from a member of Congress, lawyers and safety advocates over how difficult it will be to prove that crashes from a decade ago are linked to defective ignition switches. Some want the fund to accept claims beyond the Dec. 31 deadline. Others believe it should be used to punish GM — or expanded to cover ignition switch problems in other recalled GM cars.

One thing is certain: GM likely won’t get a final tally on victim compensation for a full year.

The Detroit automaker will place no overall cap on the compensation fund and will pay “whatever it takes” to resolve all claims, fund administrator Kenneth Feinberg said Monday at a press conference in Washington. He declined to offer any estimate of the total amount that will be paid until claims are reviewed.

“GM understands. GM wants to do the right thing — and the right thing is paying people who can document their claims, and that’s a challenge,” Feinberg said. “I would not dare estimate how many deaths or how many injuries until people file their claim and we evaluate the claim.”

The fund will be open to backseat passengers, as well as pedestrians and those in other vehicles involved in crashes. Victims and relatives of the deceased will need to prove the “proximate cause” of the crash was the ignition switch defect.

The fund will pay at least $1 million for each death claim, along with $300,000 payments to surviving spouses and children for pain and suffering. In addition, it will calculate the economic value of the life lost.

GM is allowed to dispute some of Feinberg’s findings and present evidence that questions claims. “At the end of the day, I’ve listened to the claimant, I’ve heard what you have to say, GM. I decide $5.1 million, that’s it. GM cannot appeal,” Feinberg said in an interview.

The fund could pay out hundreds of millions or even more than a billion dollars, according to estimates of some lawyers. The fund will accept claims from Aug. 1 through Dec. 3, and plans to pay claims 90 to 180 days after deeming them “substantially complete.”

'Devil is in the discretion'

Feinberg — who oversaw compensation funds related to the Sept. 11 terrorist attacks, the 2007 Virginia Tech shootings, the BP oil spill in the Gulf of Mexico and the Boston Marathon bombing — was hired by GM in late March to establish the fund.

The Washington lawyer acknowledged it will be “tricky” in some instances to prove crashes were linked to the defect. Some happened nearly a decade ago and the cars are long gone. The fund especially will want to see photographs of accident scenes and documentation of the crash.

He’ll be looking for circumstantial evidence that the ignition switch might have been the cause: police reports, “black box” data showing the key was turned off at the time of the crash, warranty and maintenance reports showing problems with stalling.

Sen. Richard Blumenthal, D-Conn., wants the time frame extended so victims can wait for results of a Justice Department investigation into GM’s conduct before making a decision. He said Feinberg must give “the benefit of the doubt to victims” who may struggle to come up with enough evidence.

“The devil is in the discretion,” Blumenthal said. “The fund offers GM a break from its tragically troubled past, and a bridge to a genuinely new GM — but only if the company fully and fairly embraces its compensation obligations.”

GM spokesman Tom Henderson declined to explain how the automaker would decide when it would offer evidence objecting to some claims.

Joanne Doroshow, who directs the Center for Justice & Democracy at New York Law School, said the plan falls short: “The proof and documentation required to prove a claim is onerous at best, but will be impossible for most and this is entirely GM’s fault. It is GM’s fault that significant time has passed while GM covered up this catastrophe, as documentation and evidence disappeared, and as GM misled victims into believing there was no reason to keep it if they even had it at all.”

Recall delayed for years

The automaker delayed recalling the cars for more than a decade after some in the company became aware of a problem with ignition switches that turn too easily. The key can accidentally shut down the engine when bumped or when the car is in an accident; that not only turns off the air bags — it also disables power steering and power brakes, leading to possible loss of control. GM has linked the defect to 13 deaths and 54 crashes.

GM’s tally doesn’t include backseat passengers killed in the cars, because even if front air bags had inflated, those passengers wouldn’t have been protected. Under Feinberg’s rules, if the crash was linked to the ignition switch defect, they will qualify. “On any particular claim, (GM) must honor my decision,” Feinberg said.

If there’s not enough information, the fund will follow up. “Lawyers know how to do this,” Feinberg said, saying that representation by a lawyer would be “very valuable — not required.”

He said if air bags did inflate in an accident, then claims will be rejected: “Air bag deployment means the power was on.”

Sean Kane, president of Safety Research and Strategies which provides expert testimony in court cases, said he wants to see the “technical support” for that decision, given claims from lawyers that some drivers may have had steering issues even if the air bag did deploy. Feinberg said he is willing to look at evidence that some vehicles in which air bags deployed could have had problems.

The fund will not seek to reduce awards because of what’s known as “contributory negligence” — because a driver was drunk, texting, speeding or not wearing a seat belt.

Lawsuits won't go away

The automaker may still face lawsuits from victims who opt not to take part, not to mention more than 80 lawsuits from owners of cars seeking billions for what they say is the diminished resale value — the program won’t compensate for lost value. Investigations by the Justice Department, Securities and Exchange Commission and a dozen state attorneys general will likely take years and could cost billions.

Compensation won’t be open to owners of other GM cars with ignition switch problems, including the recent recalls of 510,000 Camaros or 3.4 million Impalas and other cars.

The automaker’s 2009 bankruptcy restructuring — which gave it immunity from most product liability claims from before June 2009 — is not a bar to claims. Those who previously settled a lawsuit over a crash they believe is linked to the ignition switch defect can reopen claims even if they signed a release.

GM CEO Mary Barra said the automaker was pleased that Feinberg “has completed the next step with our ignition switch compensation program to help victims and their families. We are taking responsibility for what has happened by treating them with compassion, decency and fairness. To that end, we are looking forward to Mr. Feinberg handling claims in a fair and expeditious manner.”

3 compensation categories

The compensation fund for those harmed in 2.6 million GM cars recalled for defective ignition switches establishes three broad categories for awards:
■Those killed in crashes.
■Those with catastrophic injuries — including loss of limbs, brain damage and severe burns.
■Those with less severe injuries that may have required hospitalization or outpatient treatment.
Compensation fund administrator Ken Feinberg said claims for fatalities or serious injuries will be able to choose from two tracks: opting for the “national average” for compensation, or another track that takes into account individual circumstances.
■The national average track uses a formula that considers age, income and marital status. It uses as its basis $1 million for all deaths, with $300,000 payments to surviving spouses and children for pain and suffering. In addition, it will calculate the economic value of the life lost.Forexample, the estate of a 25-year-old killed in a crash, earning $75,000 a year, married with two children would be eligible for a $5.1 million award.
A 40-year-old paraplegic who makes $70,000 a year, married without children would be eligible for $6.6 million.
The GM fund looked at the Boston Marathon fund as a basis to compensate for less-serious injuries: A five-day hospitalization after a crash would result in a $70,000 award; a 10-day stay would be $170,000.
■The other track looks at individual circumstances. Feinberg offered this possible scenario of someone injured in a crash: “ ‘I had this wonderful job and as a result of this accident I couldn’t take it,’ or ‘I was all set to go to a four-year scholarship to a wonderful school.’ We’ll take that into consideration.”
Those who file claims don’t have to give up their right to sue until they accept an offer by the victim compensation fund. “Until they know whether they are eligible and how much they will receive, they are under no obligation,” Feinberg said.
David Shepardson