GM’s Bankruptcy

Legal Articles | March 19, 2010

GM’s Bankruptcy Provides Some Protection for Injured But Falls Short

On July 10, the new, largely government-owned GM emerged from bankruptcy, shedding billions of dollars in debt as well as 20,000 US jobs, 2400 dealerships, 14 plants and three brand names.

While much of the attention is on the sleeker company that promises to wisely use American tax-payer dollars and invest in cleaner, more environmentally-friendly vehicles, the stories of thousands of Americans injured by GM manufactured products remain untold. These people have been left behind in bankruptcy court, waiting to hear if they will receive anything from the old company’s liquidated assets.

A Limit on the Company’s Liability

Much like Chrysler before it, the approved GM bankruptcy plan includes a release from liability for any claims arising from GM-manufactured vehicles before the company emerged from bankruptcy. This means that the new GM cannot be held responsible in a court of law for any injuries caused by its products anytime before July 10.

However, unlike Chrysler, the new GM has accepted liability for any injuries caused by GM vehicles from July 10 onwards, whether the vehicle was manufactured by the old GM or the new GM. Conversely, in the Chrysler bankruptcy, the new Chrysler only accepted liability for defects in vehicles manufactured by the new Chrysler. Anyone with claims associated with vehicles produced by the old Chrysler will not be able to bring them against the new company, regardless of when the injury occurs.

Originally, GM pursued the same limit on liability as was granted to Chrysler. But after the public outrage against the automaker for escaping liability in addition to pressure from consumer advocacy groups, several state Attorneys General and private and public attorneys, GM eventually agreed to accept a greater range of liability than the other car company. However, the GM plan still falls far short of what American consumers not only deserve, but are owed.

Old Claims vs. New Claims

The difference between the attachment of liability for old and new claims has left many scratching their heads, wondering why the bankruptcy court is allowing car manufacturers to pick and choose which legal claims it will accept.

To understand the bizarre nature of this result, one need only consider a hypothetical car accident, wherein someone was harmed as the result of a defective roof design. If this accident occurred last year and the lawsuit was filed before the GM bankruptcy was finalized, the person has no viable recourse against GM. The legal liability would fall upon old GM, which has a long list of creditors and very limited assets.

If instead the exact same accident with an identical vehicle happened tomorrow, the injured person could pursue a legal claim against the new GM. From a pragmatic standpoint for an injured person, this outcome makes absolutely no sense. A person’s ability to recover for injuries caused by a defective product should not depend on the point in time when the person is injured.

An Unjust Result for the Injured

This result seems even more absurd when the bankruptcy court had other options to ensure a fairer outcome for Americans injured by the car manufacturer’s products. For example, the bankruptcy court could have set aside money from new GM’s assets specifically for legitimate product liability claims by consumers. A similar type of victim’s compensation fund was created by courts that handled bankruptcy matters for asbestos manufacturers. Although the fund may not have provided full compensation, it would have been better than the nothing victims now are receiving.

To prevent car manufacturers from skirting their financial and moral obligation to pay for injuries caused by their products, Congressman André Carson introduced the Jeremy Warriner Consumer Protection Act of 2009 in the House of Representatives at the end of June. If passed, the Act would require certain vehicle manufacturers to carry liability insurance to cover consumer claims. Accordingly, victims with legal claims that otherwise would have been invalidated by the companies’ bankruptcies may be able to seek compensation.


Even though GM’s bankruptcy provided more coverage for potential future victims of GM-produced vehicles than the Chrysler bankruptcy, the plan still falls far short of what the public deserves. A person’s ability to recover for their injuries should not depend on whether they were injured one year ago or one year from today. The bankruptcy court has allowed GM to deny legal rights to consumers who trusted in the company.