The legal world is blowing up this month with multiple lawsuits filed against General Motors Corp. over its faulty ignition switches that cause cars to lose power while driving down the road. The results are often deadly accidents, with the car’s airbags not deploying.

A New York Times article succinctly summarizes what G.M. did:

It was nearly five years ago that any doubts were laid to rest among engineers at General Motors about a dangerous and faulty ignition switch. At a meeting on May 15, 2009, they learned that data in the black boxes of Chevrolet Cobalts confirmed a potentially fatal defect existed in hundreds of thousands of cars. 

But in the months and years that followed, as a trove of internal documents and studies mounted, G.M. told the families of accident victims and other customers that it did not have enough evidence of any defect in their cars, interviews, letters and legal documents show. Last month, G.M. recalled 1.6 million Cobalts and other small cars, saying that if the switch was bumped or weighed down it could shut off the engine’s power and disable air bags.

My Take:

The obvious question is why would a corporation believe that  it can threaten people with financial ruin if they file a lawsuit over a defect that the company knows exists? The answer is because the company thinks it can.

Why would General Motors determine that misleading the public was a winning strategy? Several possible reasons jump out.

With its 2009 bankruptcy filing, the company believes it is protected from lawsuits over injuries that occurred before the bankruptcy filing. Also, with tort reform damages caps and “tort reformed” juries in most states, the risk of litigation is much less today than it was 10-15 years ago.

Products liability litigation is a dying practice area due to the high costs of litigation and fact that defendants’ risk is capped in most jurisdictions. If a company can make you spend $500,000 to litigate against it, but you can only recover $1 million if you win the case, the economics just don’t work from the plaintiff’s side.

This is the world we live in. What G.M. did may be reprehensible. But we shouldn’t be surprised.