On June 30, compensation expert Kenneth R. Feinberg unveiled a plan to give restitution to victims of accidents related to the fatal ignition flaw in 2.6 million General Motors vehicles. The plan—designed to be as generous as other compensation plans Feinberg has overseen, including payouts to victims of the 2013 Boston Marathon bombings—is part of GM’s efforts to restore public trust and reduce the number of costly lawsuits it could face, Hilary Stout reports in the New York Times. GM had faced heavy criticism for failing to disclose the defect for more than a decade.
The plan guarantees at least $1 million for families of those who died in accidents caused by the ignition problem. A calculation of the deceased’s lifetime earnings plus $300,000 for a spouse and for each dependent will be added to the $1 million payout. People who received life-altering catastrophic injuries as a result of the ignition defect could earn more, and those who received minor injuries can also be compensated for medical fees.
“General Motors basically has said whatever it costs to pay all eligible claims, they will pay it,” said Feinberg.
To entice victims’ relatives to take the deal, GM promises not to hold driver negligence (such as for intoxication or speeding) against them and to make the payments quickly, within 90 days for many victims. GM also has not capped the overall amount of money it may spend on the payments. In return, victims would have to agree to waive the right to sue, but only after finding out how much GM will offer them and agreeing to the deal.
News of the compensation program was dampened by an announcement the same day that GM was recalling 8.4 million more vehicles worldwide for a similar ignition defect, which causes cars to suddenly shut down and disable air bags while being driven.
One lawyer representing many families with death and injury claims told the Times he would advise all his clients to go through the GM compensation program to find out what their award would be; at that point, he implied, he would weigh the amount offer against the potential risks and benefits of a lawsuit.
Compensation programs created and funded by organizations responsible for causing harm face an uphill battle in terms of winning over the trust of victims and their families. First, parties involved in conflict resolution (and negotiation more generally) tend to engage in reactive devaluation—that is, they distrust and downplay the merit of offers from the other side simply because they come from an “opponent.” One plaintiffs’ lawyer expressed skepticism about the GM plan on the grounds that Feinberg was “calling all the shots” on behalf of the automaker, for example.
Second, Feinberg and his team faced the difficult task of assigning dollar amounts to compensate for different forms of injuries, suffering, grief, and financial losses. At least some victims are likely to disagree with GM about how much they deserve to be compensated. In addition, victims can be expected to have strong fairness concerns that lead them to compare the amount offered to them to the amount offered to other victims.
Finally, people tend to be overly optimistic about their odds of winning a lawsuit. Consequently, some victims could risk their guaranteed payout from GM in hopes of doing better in court. Such gambles may be a bad bet for many.
Feinberg may be able to help the victims and their families avoid taking undue risks by applying objective standards of fairness and showing them how other compensation plans he has managed have played out for victims. In addition, the victims would be wise to consult experts who do not have a financial stake in their decision—that is, experts other than their own lawyers—as they try to determine which path to follow.