Toyota faces massive legal liability
Toyota Motor Corp.'s massive recalls for acceleration and braking problems are creating a huge legal liability for the company -- and Toyota owners may share in the pain.
The Japanese automaker faces dozens of lawsuits over injuries and deaths attributed to safety problems, with many more suits expected. Lawyers and legal experts said the lawsuits could be particularly expensive for the automaker if plaintiffs prove that Toyota was aware of problems but failed to correct them.
On top of that, there are at least 30 lawsuits seeking class-action status to recover damages for the reduced value of the cars and the lost use of vehicles during repairs.
“This has the potential to be the biggest product liability case in the automotive industry,” said Richard Cupp, a professor at Pepperdine University School of Law.
Toyota drivers also face their own share of woes from the recalls.
They might have to pay a portion of any damages from an accident resulting from a known safety defect that they didn’t get fixed promptly, said Marshall Shapo, who teaches product liability law at Northwestern University.
The drop in the resale value of Toyota and Lexus autos could also prompt insurers to reduce what they pay when a Toyota is destroyed in an accident.
But the biggest liability will fall on Toyota, which as a matter of policy declined to talk about pending cases.
Legal expenses and damages resulting from the safety defects could tack billions of dollars onto the $2 billion that Toyota had said it would cost the company in repairs and lost sales. That was before the global recall of 437,000 Prius and Lexus hybrids this week. Since fall, Toyota has issued 10 million recall notices for problems related to unintended acceleration, with about 2 million vehicles subject to more than one recall.
P. Tim Howard, a Northeastern University law professor, is leading a team of 22 law firms in 16 states that are pursuing a class-action lawsuit seeking compensation for lost car value. He said the suit could rival tobacco litigation in its complexity.
All the suits could end up before a single federal judge, perhaps in Los Angeles, because Toyota’s U.S. sales operation is based in Torrance, Howard said.
“It’s easy to prove damages here. You don’t think you’re damaged, try to sell your Toyota and see if you can get for it today what you could have four weeks ago,” Howard said.
Auto pricing experts such as Kelley Blue Book and Edmunds.com have started to document declines in the value of Toyota’s products. Kelley says prices for used Toyotas caught up in the recalls have dropped 2.5% to 4.5%, depending on the model. Edmunds.com estimates that used Toyota models are down about 3% for retail and about 6% on trade-in value.
Howard noted that if a typical vehicle was worth just $10,000 before the recalls and drops 3.5% in value, that’s $350 per car. Multiply that by 6 million -- the approximate number of Toyota autos recalled in the U.S. -- and the potential damages reach $2.1 billion. If a trial attorney can prove allegations that Toyota hid its knowledge of the defects, punitive damages could easily double the tab, other product liability law experts said.
Normally, diminished-value lawsuits are difficult to pursue, and the Toyota case presents challenges for class-action attorneys, Cupp said. Each member of the class will have a car with a slightly different age, mileage and condition from every other member of the group, he said.
But the case also has some advantages that similar lawsuits would not. The concept will be something that jurors can easily understand and relate to, Cupp said. And attorneys will be able to point to independent estimates from Kelley and Edmunds, auto information brand names that many on the jury will have heard of and would trust, he said.
The flood of liability lawsuits involving motorists who were injured or killed in accidents blamed on vehicle defects could be even more challenging for Toyota, Cupp said.
“Toyota will be dealing with jurors who have already heard bad things about Toyota, and in some instances, Toyota has acknowledged bad things about itself. There will be blood in the water,” Cupp said.
For example, Toyota’s conflicting statements about sudden-acceleration complaints are raising doubts about whether the company knows the exact cause of the defects, Rep. Henry A. Waxman (D-Beverly Hills), the chairman of the House committee investigating the automaker, told The Times this week.
Toyota is swimming against a tide of negative news that consumer surveys and industry research indicate is damaging its vaunted image for building reliable and safe vehicles.
That increases pressure on the automaker to settle claims, “because every time there’s a jury verdict with a big reward, it is going to remind everyone and do more damage to the company’s image,” Cupp said.
One lawsuit filed last week by the husband and adult son of an Upland woman contends that a defect caused the woman’s 2006 Camry to unexpectedly accelerate to 100 mph and crash into a light pole in August, killing her. The motorist, Noriko Uno, applied the brakes and pulled the emergency brake but was unable to gain control of the car, said the Uno family’s attorney, Garo Mardirossian. The lawsuit, which seeks compensatory and punitive damages, alleges that an electronic problem -- not floor mats or sticky gas pedals -- caused the crash.
“They haven’t addressed the sudden-acceleration issue,” Mardirossian said. “All they’ve tried to do is take the attention away from what the real problem is.”
To put Toyota’s potential exposure in context, consider a $368-million verdict against Ford Motor Co., which was blamed in the rollover of an Explorer that rendered a San Diego woman quadriplegic in 2002. The verdict was reduced on appeal to $82 million and the U.S. Supreme Court in November declined to reduce the damages.
In 1978, an Orange County jury ordered Ford to pay $125 million in punitive damages to a teenager who was critically burned when a rear-end collision caused the gas tank in a Pinto to explode. That award was reduced to $6.6 million.
Toyota’s liability could exceed what Ford faced in the Explorer rollover cases, Mardirossian said.
“It might be even bigger because of the number of vehicles. Ford was one model. This is many, many vehicles.”
David Owen, a law professor at the University of South Carolina, said the litigation in the coming months could tie up Toyota for two to four years. He believes the company’s exposure in the class-action case would be unlikely to exceed $1 billion -- a manageable figure for the world’s largest automobile manufacturer. The company reported more than $200 billion in worldwide sales for the fiscal year that ended in March 2009.
“I’m considering $1 billion or $2 billion or even $3 billion as not catastrophic to the company,” Owen said. “If it were a much smaller company it could be very destructive, but it won’t be to Toyota.
“Just as Ford rebounded from the Explorer problems in the early 2000s, my guess is Toyota in five years will have this completely behind them . . . and the economic damages to the company will prove to have been painful but far from devastating,” he said.
For drivers, it’s not all bad news. Many insurance companies will seek reimbursement from the automaker for damages from any accidents that are linked to a Toyota safety defect.
Drivers in such instances would probably get their deductible waived or repaid, and the accident wouldn’t count against their driving record.
And it’s unlikely that there will be any changes in the premiums people pay to insure Toyotas. A person’s driving record, age and years behind the wheel far outweigh reparable safety defects in vehicles when rates are calculated. The full legal and financial effects of the Toyota recalls are expected to take years to play out.
“We are just seeing the tip of the iceberg,” said Pete Moraga, spokesman for the Insurance Information Network of California. “This has the potential of being much bigger, and it depends on what Toyota does and whether it actually fixes the problem.”