Blame trial lawyers for GM ignition switch disaster – law prof

November 5, 2014

The conventional narrative of the GM ignition switch fiasco – and, for that matter, most coverups of automotive defects – casts victims’ lawyers as heroes, exposing the corporate cynicism that puts profits before safety. Defective ignition switches came to light because plaintiffs’ lawyers prosecuted products liability cases against GM, just as they did in previous automotive scandals that proved the hazards of Ford Pinto fuel lines, Dodge Caravan door latches, and GM pickup truck and Chevy Malibu gas tanks. It’s intuitive to assume that these cases make the marketplace safer. That’s the point, after all, of tort litigation – and especially of the gigantic punitive damages awards that notorious car-defect cases have provoked. Companies are supposed to be so afraid of ending up on the wrong side of a jury verdict that they are more likely to evaluate safety risks.

The opposite might actually be true, according to a law and economics professor at Vanderbilt University.

In a forthcoming paper, “Pricing Lives for Corporate Risk Decisions,” risk and regulatory expert W. Kip Viscusi argues that GM apparently avoided analyzing the risks and benefits of its faulty ignition switches because it didn’t want the results to end up in the hands of trial lawyers. “The company’s systematic neglect of safety is not an institutional quirk but was a likely response to past treatment of corporate risk analyses in tort cases,” wrote Viscusi, who holds appointments in Vanderbilt’s law and business schools. The paper, which I first heard about from Ted Frank at the Center for Class Action Fairness, will be published in the May 2015 Vanderbilt Law Review.

As the professor recounts, in the 1990s GM was hit with at least three blockbuster punitive damages verdicts at the hands of jurors who were apparently enraged by risk-benefit analyses that weighed the cost of safety improvements against the value of the lives that would be lost without them. The company’s reaction, Viscusi said, was apparently to develop “a bunker mentality in which honest efforts to confront safety issues and take action to address safety problems were discouraged.” Citing Anton Valukasreport on the ignition switch fiasco as well as GM’s agreement with federal regulators, the professor said that instead of evaluating the risk of defects, the company advised employees not to use certain words and phrases – including “safety” and “dangerous” – and perfected the “GM nod,” in which people at meetings all agreed to take action but no one actually did anything.

Viscusi acknowledged that we don’t know for sure whether GM conducted a study of the risks and benefits of recalling cars with faulty ignition switches. The company seems to have assessed the problem and considered the cost of a recall, the professor said, but not to have analyzed “the full extent of the adverse health impacts that … resulted from the defect.”

The logical inference, he said, is that the omission was intentional. GM, he speculated, was apparently so fearful about how safety studies would play to jurors considering punitive damages that it just didn’t talk about the systemic risk the company faced. GM lawyers worried about resolving individual ignition swift cases before they reached a jury, not about assessing the company’s overall response to the defect. Obviously, that willful corporate deafness turned out to be disastrous for the victims of ignition switch defects – and also for GM. (I don’t mean, of course, to suggest that there’s any kind of equivalence between the company and its victims.)

Viscusi has a couple of interesting ideas to encourage carmakers to conduct risk-benefit studies despite the prospect of product liability litigation. One of the big problems with the automaker safety studies that prompted jurors to award huge damages, he said, was that they undervalued the lives that would be lost if defects weren’t fixed. The professor suggests that instead of basing risk calculations on victims’ projected compensatory damages, automakers rely on the U.S. Department of Transportation’s “value of statistical life” (or VSL) benchmark, which is derived from the wage premium that transportation workers receive for accepting the risk of fatalities. The benchmark, currently $9.1 million, is typically an order of magnitude greater than the compensatory damages a defect victim could expect to receive in court, according to Viscusi, and is a more realistic way to estimate the market link between consumers and safety improvements.

If auto companies conduct risk-benefit analyses using the VSL benchmark – and make safety decisions in accordance with regulators’ risk calculations – they should be rewarded in the courtroom, Viscusi says. He proposes that plaintiffs not be permitted to introduce risk analyses in those circumstances but says that if car companies refuse to make economically justified changes, plaintiffs should be allowed to use their safety studies against them. It might even make sense, according to Viscusi, for Congress to adopt a regulatory compliance defense for automakers, akin to defenses for medical device and pharmaceutical companies overseen by the Food and Drug Administration.

In an interview Wednesday, Viscusi told me he’s sure that plaintiffs’ lawyers would oppose any congressional promise of protection for carmakers, which would eat into potential punitive damages. I suggested a trade-off that would also permit victims to claim compensatory damages based on the Transportation Department’s VSL benchmark. Viscusi said he supports regulatory fines based on the VSL but not damages for victims.

But the status quo, Viscusi said, isn’t good for companies or consumers. “From the standpoint of the companies, if every time you do the analysis you get clobbered for hundreds of millions of dollars in punitive damages, that does discourage you from doing the analysis.”

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