Profits Over Lives -- Long-Hidden Documents Reveal GM Cost-Benefit Analyses Led to Severe Burn Injuries; Disregard for Safety Spurred Large Verdict

[UPDATE: In August 1999, Superior Court Judge Ernest Williams reduced the punitive damages award from $4.9 billion to $1.09 billion. At the same time he reaffirmed that punitive damages were warranted to punish GM for designing a fuel tank "in order to maximize profits, to the disregard of public safety." GM's outrageous behavior, as outlined below, continues to warrant a meaningful punitive damages award, both to punish their unconscionable actions and to provide a deterrent to other corporate wrongdoers.]

On July 9, 1999, a Los Angeles jury assessed a record $4.9 billion verdict against General Motors Corporation. The case involved six motorists who were severely burned after their 1979 Chevrolet Malibu exploded when a drunk driver hit the back of their car in a 1993 accident. The jury awarded the families $107 million in compensatory damages and charged GM $ 4.8 billion in punitive damages. The jury found GM 95% responsible for the injuries. (Anderson v. General Motors)

While the size of the verdict is huge, so was the wrongdoing of GM. Hundreds of company documents and the testimony of witnesses introduced in the case showed that, since the early 1970s, GM knew of the risk of gas tank explosions caused by the design and placement of the gas tanks in its cars and had safer alternatives, yet the company refused to spend an estimated $8.59 per car to make the tanks safer by moving them over the rear axle from the conventional, under-the-trunk location or taking other steps to make the cars safer. GM kept the gas tank under the trunk of its vehicles (including the model that exploded in the Anderson case) until the mid- to late-1980s.

In addition, documents and testimony showed that GM officials pressured the federal government -- including then-President Nixon -- to avoid the imposition of rules to make the tanks less likely to rupture and explode in low- and mid-speed rear-end collisions. It was GM's deliberate course of conduct over two decades, which GM itself knew would leave many of its customers maimed or dead, that convinced the jury to render such a large verdict against the company.

Cost-benefit analyses trumped safety concerns. One of the key documents introduced in the case was a 1973 memorandum titled "Value Analysis of Auto Fuel Fed Fire Related Fatalities."1 This memo, authored by GM engineer Edward Ivey of the company's Advance Design unit, evaluated the cost to GM of "burned deaths." (GM has tried to keep this memo secret and hired Ken Starr to argue their case.) Assuming the "value" or cost of a fatality is $200,000 and that each year there were 500 fatalities in GM cars where the bodies were burnt by fuel-fed fires, Ivey determined that "burned deaths" would cost the company $2.40 per vehicle, when the cost of lost lives was averaged over all cars sold. At the same time, Ivey determined the company should spend only $2.20 on each new vehicle to prevent these deaths. In other words, it would not be cost effective for GM to pay more than the $2.20 per car for each "burned death."

Another cost-benefit analysis was performed by GM engineering staff in March 1974. It, too, placed the value of a human life lost to a car accident at $200,000 and estimated that the company could cost-effectively spend only $2 per car for rear impact protection to prevent fuel-fed fires.2

GM had the technology to make its cars safer by moving the fuel tank but failed to implement safety changes because of cost and other factors. GM memos and other documents dating back to the early 1970s showed GM knew how to build a car with the safer, over-the-axle gas tank. In fact, it built at least one test model as early as 1971. Several GM documents acknowledged that the over-the-axle design could be safer in some crash circumstances, including rear-end crashes at higher speeds and against fixed barriers, but concerns about cost and customer acceptance of a little less luggage space in the trunk seemed to prevail over safety considerations.3

The net cost of moving the gas tank to the over-the-axle location was estimated by GM to be $8.59 per car -- a small amount but more than the $2 or so that the company decided it could spend to prevent its customers from burning to death after rear-end collisions.4

Cost of lawsuits was a factor in safety design. A May 1972 memo reveals how General Motors estimated the cost of potential lawsuits from rear-end crashes when deciding what safety measures should be adopted. The memo stated that 75 percent of lawsuits could be avoided by adopting a proposed government safety standard.5 However, GM decided it was cheaper to pay the lawsuit damages than to fix the gas tank defect.

GM lobbied at the highest level of government to block safety requirements. In the early 1970s, GM and the other "Big Three" auto companies lobbied key Nixon administration officials to forestall proposed safety standards that would have required gas tanks to withstand 30 mph rear collisions with fixed barriers. GM Chairman Roche secretly met with President Nixon in May 1971 to lobby against proposed federal safety rules. As a result, the Nixon administration reluctantly issued a watered-down standard after years of delay. At trial, the Anderson plaintiffs introduced evidence that during this time GM knew the current safety standard was inadequate and that it could meet much higher crash test speeds, yet it misled the government about what crash test speed could be achieved.6

The amount of punitive damages must be enough to punish and deter. The purposes of punitive damages in our legal system are to punish egregious, reprehensible conduct and to deter the defendant and others from engaging in similar behavior in the future. When the defendant is a giant, wealthy multinational corporation and its wrongdoing has been ongoing and particularly deplorable and harmful, as in the Anderson case, the amount of the punitive damages must be very large to have the desired effect on future corporate behavior.

The Anderson jury could have reasonably decided that a $4.8 billion punitive damage assessment was needed to get GM's attention. General Motors is the largest corporation in the world. The company's sales average $162 billion a year, or $442 million a day. The jury's verdict represents just 11 days of GM's sales. GM's cash on hand averages $12 billion and it has $13 billion in available credit. Moreover, the company spends approximately $4 billion a year on advertising.7 These are all factors the jury considered when determining how much it would take to punish GM and assure it did not make such cold calculations about the value of human life ever again.

Caps on punitive damages prevent juries from meeting the purposes of punitive damages. If there were an arbitrary statutory cap on punitive damages in this case -- the kind of cap promoted by the corporate immunity lobby, including GM, for years -- the jury in the Anderson case would not have been able to assess punitive damages in an amount that would have made a difference to a company the size of GM. For example, if there were a cap of two times compensatory damages, as has been proposed in federal legislation,8 the most that GM would be forced to pay for its wrongdoing in this case would have been only $214 million -- an amount that is less than half of the company's sales for a single day.

Legislatively imposed limits on punitive damages allow companies like GM to make the price of wrongdoing just another cost of business. As GM's own documents introduced in the Anderson case clearly show, some companies calculate the cost of potential injuries and lawsuits when deciding how much to spend to prevent those costs. If punitive damages are capped at fixed amounts, they are

made predictable and easy to determine as a cost of doing business -- completely undermining the deterrent effect these damages are meant to have. While it is not surprising that some businesses complain about the unpredictability of punitive damages, it is their unpredictability that makes them an effective tool in our system of justice to keep corporate wrongdoing in check, just as the unpredictability of going to jail is a deterrent to criminal behavior.

Punitive damage assessments are rare, but they serve a critical role. Although corporate interests claim that punitive damages are awarded too frequently, in fact, they are extremely unusual -- awarded in only 2.6 percent of all products liability verdicts.9 Although rare, they have critical social importance lying not in their frequency but in the "signals" they send to the rest of society. According to the Rand Institute for Civil Justice: "The jury's decision in any particular case indicates the potential costs of engaging in behavior similar to the defendant's .... Punitive damages are designed to punish a defendant for grossly inappropriate actions and, in so doing, to deter future such actions by signaling that their consequences can be severe."10

Conclusion. From the company's own documents, it is clear that General Motors decided that it was more profitable to simply pay victims and their families for any deaths or injuries caused by defective, exploding gas tanks than it was to fix the design of the car. Rightly, the jury in Anderson chose to hold GM responsible for the consequences of this callous calculation. While an appeals court will undoubtedly judge whether the amount selected by the jury was right, this is exactly the kind of case where it is a benefit to the public that a very large punitive damages verdict was imposed.

Notes

  1. "Value Analysis of Auto Fuel Fed Fire Related Fatalities," prepared by Edward Ivey, GM Advance Design Unit, June 29, 1973.
  2. "MVSS Amendments," prepared by R.G. Fischer, GM Engineering Staff, March 28, 1974.
  3. Memo of T.R. Leonard, GM Fuel System Engineer, January 12, 1971; Presentation by Paul Mutty, GM Senior Project Engineer (undated).
  4. Memo of T.R. Leonard, GM Fuel System Engineer, January 12, 1971.
  5. Presentation on fuel system integrity by Ron Ewell, GM Engineering Analyst, May 1972.
  6. See, for example, "Comments of General Motors Corporation with Respect to Notice of Proposed Rule Making, Fuel System Integrity, Docket 70-20," Nov. 30, 1970 (stating that GM could not meet proposed federal requirements for a 30 m.p.h. rear collision fixed barrier test, and the proposed requirement that there be no fuel spillage during such accidents was unnecessary and excessive).
  7. These figures are from GM annual reports and 10Qs (SEC filings) that were introduced at trial.
  8. This is the amount of the punitive damages cap that was in H.R. 956 during the 104th Congress, the product liability bill vetoed by President Clinton in May, 1996.
  9. Erik Moller, Nicholas M. Pace, Stephen J. Carroll, Punitive Damages in Financial Injury Jury Verdicts, Rand Institute for Civil Justice 10 (1997).
  10. Id.