By Andrew Scurria
A U.S. appeals court shielded General Motors Co. from punitive damages stemming from alleged misconduct from before the auto maker's 2009 bankruptcy, limiting its liability for faulty ignition switches linked to more than 100 deaths.
The new company that emerged from GM's government-brokered bankruptcy a decade ago can't be liable for punitive damages based on actions taken by its corporate predecessor, according to the U.S. Court of Appeals for the Second Circuit in New York.
Tuesday's decision marks a defeat for consumers suing GM for injuries and deaths tied to defective ignition switches in millions of vehicles that were recalled in 2014. The safety problem sparked a wave of lawsuits seeking compensation for crashes linked to ignition malfunctions and to the vehicles' diminished value.
GM has at various points sought to block claims that trace back to before its bankruptcy process, saying the restructuring barred them from being asserted against the reorganized company.
Robert Hilliard, the Texas lawyer who represents some of the vehicle owners, said "gross negligent conduct during the ignition switch debacle at GM was a given." But under the appellate ruling, potential settlements for consumers suing GM won't take its "egregious conduct" into account, he said.
GM won't "pay for its sins," Mr. Hilliard said.
A GM spokesperson said the ruling affirmed prior court decisions on the issue of punitive damages. The company still could be exposed to punitive damages arising out of conduct that took place after 2009.
Disputes over the defect claims are a legacy of GM's $50 billion taxpayer bailout and restructuring, in which a "new GM" was created as a buyer for the company's assets while the separate "old GM" retained liabilities for the bankruptcy court to sort out.
Since then, New York courts have grappled with how broadly to apply the liability shield and what types of claims GM is immune from.
The ruling affects lawsuits on account of 2.6 million older Chevrolet Cobalts and other recalled cars that were equipped with ignition switches prone to slipping out of the run position and disabling safety features, including air bags. In 2015, a bankruptcy judge suggested punitive damages against GM could amount to millions, if not billions, of dollars, though any actual exposure would depend on whether claims against the company were settled or ultimately successful.
Punitive damages are meant to punish corporations for reckless or intentional wrongdoing, such as selling products while knowing of defects, and can sometimes result in large jury awards. Consumers are still suing for the economic losses tied to ignition problem, and those claims make up the bulk of GM's remaining exposure surrounding the defect.
Write to Andrew Scurria at Andrew.Scurria@wsj.com