By Rodd Zolkos and Judy Greenwald, Crain News Service
DETROIT (July 9, 2014) — General Motors Co. will not be looking for liability insurance funds to help pay for claims stemming from its ignition-switch safety crisis.
“It will be done through cash on hand, no insurance,” David Roman, GM's director of financial communications, told Crain's Business Insurance magazine, a sister publication of Tire Business.
GM's open-ended compensation fund, unveiled June 30 by attorney Kenneth Feinberg, will provide a claims-paying vehicle for individuals killed or injured in accidents caused by defective ignition switches and is a big step toward curbing damage to the auto maker's reputation.
While some estimates say the fund could cost the company billions of dollars, Mr. Feinberg is solely responsible for setting the amount of compensation it pays.
“There's no cap on it,” Mr. Roman said. “Mr. Feinberg will have the final determination on numbers.”
Under the compensation fund, family members of those killed as a result of defective switches are eligible for at least $1 million; other factors may increase the compensation. Those injured in accidents caused by the defective switches also are eligible for compensation. At least 13 deaths have been tied to accidents resulting from the defective switch, and GM has recalled 2.6 million older-model cars to fix the problem.
“For General Motors, their reputation at this point is at risk,” said Nir Kossovsky, CEO of Steel City Re, a Pittsburgh-based broker and adviser specializing in corporate reputation management and risk transfer.
“They've arguably made one of the best strategic moves for reputation restoration. It will be expensive, but it beats the alternative,” he said.
Despite the potential cost of the GM Ignition Compensation Claims Resolution Facility, it's the right direction for the company to address the crisis, other crisis management experts agree.