GM’s Victim Compensation Plan a Corporate Settlement Mill?

Earlier this year, General Motors Co. hired Kenneth Feinberg, a victim compensation expert, to oversee payment to those injured in crashes caused by faulty ignition switches in GM cars.

GM says it’s trying to do the right thing by making the payments. The company says at least 54 crashes and 13 deaths were caused by the problem, but lawyers and lawmakers say there will be hundreds of claims.

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The Associated Press outlined the details of the compensation in a recent article.

ELIGIBLITY: Drivers, passengers, pedestrians, and people in other cars involved in crashes with the GM vehicles who suffered physical injuries or relatives of people killed in crashes. Property damage claims and claims of psychological injury won’t be included.

DEADLINE: People can begin applying for compensation Aug. 1. The deadline for filing a claim is Dec. 31. Feinberg expects most claims to be processed in 90 to 180 days.

COMPENSATION LIMITS: None for deaths or extreme injuries such as permanent brain damage, loss of limbs, paralysis and serious burns. Less serious injuries are limited by formulas similar to what Feinberg used to compensate those injured in the Boston Marathon bombings. People can get quick settlements based on formulas for death and extreme injuries, or they can try to prove to Feinberg that they should get more money by proving extraordinary circumstances. Feinberg says GM has placed no limit on the total he can spend. Lawyers say it will be in the billions.

BURDEN OF PROOF: Claims must show that the crashes were caused by faulty GM small-car ignition switches. The switches can unexpectedly slip from “run” to “accessory,” shutting off the engines and causing loss of power steering and brakes. The air bags also are disabled. Crashes in which the air bags deployed likely won’t be eligible, because of the air bags worked, the switch was working too. Feinberg said people with extenuating circumstances – i.e. drivers who were drunk or speeding – can still apply for compensation.

RIGHT TO SUE: Those who settle with Feinberg give up their right to sue.

AFFECTED MODELS: About 2.6 million small cars worldwide, including the 2005-2007 Chevrolet Cobalt and Pontiac G5; 2003-2007 Saturn Ion; 2006-2007 Chevrolet HHR, Pontiac Solstice and Saturn Sky; 2005-2007 Pontiac Pursuit; 2007 Opel/Vauxhall GT and 2007 Daewoo G2X. New models (2008-2011) of the same cars that got the switches as replacement parts are also included.

In addition, GM announced it would reopen claims settled prior to a 2009 bankruptcy.

“The idea of General Motors reopening claims that have already been settled could have two advantages for GM,” said Royal Oakes, a partner at the Los Angeles law firm of Barger & Wolen.

The California-based attorney said the first benefit to GM is the general idea that when there is a publication relations disaster, a company should take steps to surprise the general public with how positive and helpful it is.

“This is the kind of the step that could accomplish that goal,” Oakes said.

That’s because it conveys the idea that GM is concerned with making things right to the point it is willing to reopen closed claims.

The second reason is that the company could lose the fight against the bankruptcy shield.

“That bankruptcy shield is under legal attack…and there is a chance it will have a diminished effect,” said Oakes, indicating GM would then have to deal with those claims anyway.

“It’s possible by reopening old claims GM might allow parties to argue that waivers of liability or releases are unenforceable,” he said.

But if settlement isn’t achieved in those old claims and they go to trial, GM will have the right to argue driver negligence, if applicable

Ultimately, the auto manufacturer is working to improve its public image and get injury settlements on the books.

“GM has clear goals here, they want to limit their liability by engineering a lot of settlements, they want to control the damage to their image by appearing to be generous and wanting to resolve this quickly,” Oakes said.

According to a paper by Dana Remus, associate professor of law at the University of North Carolina School of Law and Adam S. Zimmerman, associate professor of law at the Los Angeles Loyola Law School, the mass settlement program created by GM is not unique.

In their paper, The Corporate Settlement Mill, released earlier this year, the authors liken corporate mass settlement programs to no fault programs. There are benefits to this type of program over a case by case court decision basis they noted, like faster and more consistent outcomes while relieving the court system of a backlog of cases and allowing unrepresented claimants to settle their own claims.

The paper also noted the cons to this type of en mass settlement program. It can encourage widespread abuse as well as future bad behavior by corporations and decrease transparency.

The authors state, “And by removing whole classes of disputes from the public realm of the courts, corporate settlement mills may undermine the rule of law.”

The authors outline the risks associated with corporate settlement mills and recommend regulations to police against coercion. They question the reasoning behind the shift in public functions to private corporations in overseeing these types of settlements, noting that corporate settlement mills are subject to weak oversight. In addition, they voiced concern over claimants unknowingly waiving their legal rights.

The authors noted that unlike class action settlements, settlements made within these types of programs require no formal court approval. There’s no addressing of the fault or liability of the defendant, they said. In fact, the programs usually only seek to determine the harm done to the claimant.

They recommended soliciting participation in the settlement program design from stakeholders, like claimants, and revising the ethical standards for attorneys in communicating with represented and non-represented claimants to guard against coercion.

The AP contributed to this article.