At the same time GM has announced more recalls, it has announced a limited compensation fund for some of the victims of injuries caused by their defective cars. This is not surprising since there had been reports of GM hiring Ken Feinberg some time ago. (See here and here.)
I have not read the details of the compensation system so I will limit my comments to the reports I have seen in the press. First, the good news: According to Feinberg (as quoted in this article the day after he announced the compensation fund), the fund will pay $1 million for each death plus a calculation of lifetime earnings lost as well as $300,000 for a spouse and for each dependent. In addition, GM would not hold driver negligence against anyone who files a claim and it will not claim to be protected from having to compensate victims of accidents before its July 10, 2009 bankruptcy restructuring agreement. There will be no cap on the overall amount of money G.M. has agreed to spend on victims’ payments. Even families who have already settled lawsuits with G.M.related to the ignition switch defect would be eligible for payouts (after deducting the amount already received from the total).
Obviously accepting compensation from the fund means the victims will waive their right to sue. But this is not necessarily a bad thing if the compensation from the fund is equivalent to, or close enough to, that which the victims would expect to recover in a lawsuit. And, very importantly, Feinberg claims the victims would be able to collect their funds faster than if they chose to go through litigation.
This all sounds good, but there is always a catch. First, one thing the claimants give up when giving up their right to sue is the chance to recover punitive damages, which - given what we know now - you would expect would be huge if the cases ever get before a jury. Second, the compensation fund only applies to those who suffered injuries related to the 2.6 million cars recalled in February. When you consider that GM has recalled almost 30 million cars for a variety of defects, the fund actually only covers a small amount of cars and victims. Third, in order to qualify, claimants will have to prove that the defect was the proximate cause of their injury. This will not be easy. Many of the claimants will undoubtedly struggle to collect such evidence because they may no longer have the cars or the paperwork from accidents that took place years earlier. As a result, claimants will have to hire lawyers who will in turn have to gather the evidence necessary to prove their claims (including having to hire experts), all of which will likely result in expenses about as high as those they would incur if they were going to litigate the cases anyway. Finally, to help avoid these costs, Mr. Feinberg has said his team will help people complete their claims. This is the type of conduct that led a federal judge to find that it was misleading for Feinberg to call himself "neutral" or "independent" in administering BP's $20 billion oil spill victim compensation fund and that generated a big debate as to whether he acted unethically in the process. See here, here, here and here.
Of course, as is true of most things, the devil is in the details. It is possible the fund will turn out to be a great alternative to litigation and a fair way to resolve the claims. But if the deal sounds too good to be true, it probably is. GM would not be doing this if it did not think it was a great advantage to them in some way. They are not in the business of helping people. They are trying to save money and their reputation. (And a big part of those savings will come in the form of not having to pay for punitive damages.)
We will just have to wait and see. Meanwhile, the New York Times seems to be impressed. Here is an OpEd piece praising the compensation fund approach and an Editorial, which praises the program but says GM should do more.