By Jonathan Stempel
NEW YORK (Reuters) - A federal appeals court said General Motors Co (NYSE:GM) is not liable for punitive damages over accidents that occurred after its 2009 bankruptcy and involved vehicles it produced earlier, including vehicles with faulty ignition switches.
The 2nd U.S. Circuit Court of Appeals in Manhattan said on Tuesday that the automaker did not agree to contractually assume liability for punitive damages as part of its federally-backed Chapter 11 reorganization.
GM filed for bankruptcy in June 2009, and its best assets were transferred to a new Detroit-based company with the same name. The other assets and many liabilities stayed with "Old GM," which is also known as Motors Liquidation Co.
Tuesday's 3-0 decision may help GM reduce its ultimate exposure in nationwide litigation over defective ignition switches in several Chevrolet, Pontiac and Saturn models.
It is also a defeat for drivers involved in post-bankruptcy accidents, including those who collided with older GM vehicles driven by others, as well as their law firms.
The ignition switch defect could cause engine stalls and keep airbags from deploying, and has been linked to 124 deaths.
A lawyer for the drivers and their law firms did not immediately respond to requests for comment. GM had no comment.
Circuit Judge Dennis Jacobs said GM's agreement to acquire assets "free and clear" of most liabilities excused it from punitive damages claims for Old GM's conduct.
He also noted that the judge who oversaw the bankruptcy concluded that the new company could not be liable for claims that the "deeply insolvent" Old GM would never have paid.
The decision upheld a May 2018 ruling by U.S. District Judge Jesse Furman in Manhattan, who oversees the ignition switch litigation.
Drivers have sought a variety of damages in that litigation, including for declining resale values.
GM has recalled more than 2.6 million vehicles since 2014 over ignition switch problems.
It has also paid more than $2.6 billion in related penalties and settlements, including $900 million to settle a U.S. Department of Justice criminal case.
The case is In re: Motors Liquidation Co, 2nd U.S. Circuit Court of Appeals, No. 18-1940.