Judge rejects claims against GM over ignition switch

A federal judge has rejected certain claims against General Motors for economic damages stemming from the company’s massive ignition switch recall.

On April 14, U.S. District Judge Robert Gerber strictly enforced the terms of the bankruptcy, which shields the automaker from pre-bankruptcy liabilities. The judge, who also presided over the GM bankruptcy, ruled that only economic-loss cases that involve the post-bankruptcy company can move forward. He estimated that the total claims for economic damages could have amounted to $7 billion to $10 billion spread across the millions of cars subject to the GM recall.

The defect has been blamed for 84 deaths in accidents that occurred when a bumped or jostled ignition switch shut off power to the car, which also disabled the airbags. General Motors has set aside an unlimited fund to compensate accident victims or their families, administered by attorney Kenneth Feinberg. Those claims are not subject to yesterday’s ruling.

The question was whether loss-of-value damages stemming from the defective ignition switch, which was designed by “Old GM,” should be treated like warranty and recall liabilities and borne by the “New GM,” as the post-bankruptcy company is known.

Learn more in "The truth about recalls."

Under the terms of GM’s bankruptcy, the company was divided into good and bad halves: The New GM got all of the profitable assets, while the Old GM got most of its liabilities – everything from underperforming factories to bad loans and legal claims.

Any claims filed before the June 1, 2009, bankruptcy would be paid by the old, broke GM, now renamed Motors Liquidation Company. According to a Reuters report, those claimants are receiving 29 cents on the dollar for their assets. Claims filed after that point, along with the costs of certain warranty repairs and recalls on older models would be borne by the new, profitable GM.