Subrogation Whitepaper - 'Toyota Recalls'

Author:Mr Cozen O'Connor's Subrogation & Recovery Department
Profession:Cozen O'Connor
 
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Prepared by Edward M. Ordonez

INTRODUCTION

Toyota's unprecedented recall of some 8.1 million vehicles will impact consumers, businesses, and their insurers all over the country and internationally. Since 1999, an estimated 2,000 complaints of sudden unintended acceleration in Toyota and Lexus vehicles have been reported to the National Highway Traffic Safety Administration [NHTSA].

Damage to person and property as a result of these apparent defects will result in numerous insurance claims throughout the fifty states. The breadth of this recall presents significant subrogation and recovery opportunities. At the same time, the potential complexity and fragmentation of these claims raise obstacles to their efficient and effective pursuit and prosecution.

Affected insurers must act quickly and expediently to review their past and pending claims involving Toyota vehicles. Given the expanse of the recall and the efforts directed by Toyota to rectify these manufacturing and design defects, it is possible, but unlikely given Toyota's penchant for vigorously contesting claims, that the automaker also will seek a forum for cost effective and expedient resolution of claims related to the defective vehicles.

The availability of multi-district litigation proceedings and mutual cooperation agreements may provide both the insurance industry and the automaker with a viable alternative to multiple forum litigation.

Either approach allows for the appointment of review masters and forensic experts to address liability and damages issues, towards the goal of implementing a mass tort settlement agreement.

This Subrogation Whitepaper is intended to provide the insurance industry with an outline of the legal considerations inherent in pursuing claims against Toyota relating to the recall. It addresses many of the potential causes of action, as well as possible pitfalls, such as potential defenses based on the statute of limitations or the economic loss doctrine. This Whitepaper is intended as a general guide, and should not be substituted for professional legal advice and careful evaluation of the specific facts of every case.

BACKGROUND

Per governmental reports, evidence had been developing for years that Toyota cars may suddenly accelerate. Toyota had originally blamed the problem on floor mats pinning the gas pedal. However, Toyota has known about the gas-pedal problem for more than a year and, until the recent recalls, did not undertake any mass remediation efforts.

MODELS AFFECTED

Following is a list of recalled models as of February 17, 2010:

2005-2010 Avalon 2010 Prius 2007-2010 Camry 2009-2010 RAV4 2009-2010 Corolla 2008-2010 Sequoia 2008-2010 Highlander 2005-2010 Tacoma 2009-2010 Matrix 2007-2010 Tundra 2004-2009 Prius 2009-2010 VENZA1 2009-2010 Pontiac Vibe2 TIMELINE OF THE RECALL

The current recall finds its genesis in Toyota's 2002 redesigned Camry sedan. Instead of physically connecting to the engine with a mechanical cable, the new pedal used electronic sensors to send signals to a computer controlling the engine. The main advantage is fuel efficiency. Eventually, the same technology migrated to other Toyota models including the Lexus ES sedan.

By 2004, the NHTSA received complaints that Camry and Lexus ES models sometimes accelerated suddenly without the driver hitting the gas. The NHTSA investigated 37 complaints. Initially, the NHTSA had decided to limit the probe to incidents involving brief bursts of acceleration, excluding so-called "long duration" incidents in which cars allegedly continued racing down the road after the driver applied the brakes. Investigators believed that it would be more effective to isolate any possible defect by focusing on shorter incidents. Longer incidents were excluded because they showed more signs of driver error such as mistaking the accelerator for the brake. Of the 37 incidents, 27 were categorized as long-duration and not investigated. On July 22, 2004, the probe was closed because NHTSA found no pattern of safety problems.

A lawsuit was filed in Michigan related to one fatal crash. In that accident, a 2005 Camry allegedly accelerated out of control, and sped up to 80 miles an hour before crashing and killing its driver.

In 2005 and 2006, the NHTSA received hundreds of reports of unintended acceleration involving Toyotas. Toyota refused to acknowledge the problem. Instead, it filed responses arguing that no systemic defect or trend could be found in the complaints.

On November 15, 2005, Toyota, asked NHTSA to drop its probe into sudden acceleration, arguing that no defect existed.

In March 2007, the agency opened a new probe, focusing on whether the gas pedal in the Lexus ES350 sedan could get caught beneath the floor mats. 59 of 600 respondents had experienced unintended acceleration, although some attributed it to causes other than the floor mats.

On June, 11, 2007, Toyota again responded that no defect existed.

In August 2007, the NHTSA requested Toyota to issue a Lexus and Camry recall to remove the floor mats blamed for the acceleration problems. Although NHTSA believed that the problems were related to the gas pedal itself, Toyota maintained that the cause was simply the floor mats. Toyota ended up recalling 55,000 Camry and ES350 models from 2007 and 2008.

On April 19, 2008, Guadalupe Alberto was driving a 2005 Camry when her car suddenly accelerated to 80 miles per hour. According to the lawsuit, the car went out of control before colliding with a tree and killing Ms. Alberto. Floor mats couldn't have caused the Camry to accelerate because Ms. Alberto had removed her mats several days before the accident. The suit is pending.

In late 2008, NHTSA investigated an accident in Minnesota in which a Lexus ES accelerated for two miles on a highway before the driver could regain control. Toyota stated that the driver's side floor mat was the cause.

At the close of 2008, Toyota also experienced a similar problem in Europe. Toyota did not share information related to these issues, even with its U.S. division. At this time, the European issue hasn't been linked to accidents and, according to Toyota, isn't related to sudden acceleration because it happens near idle speeds.

In August 2009, another fatal accident in the U.S. put Toyota in the spotlight. Mark Saylor, a California Highway Patrol officer, was driving a Lexus ES350 near San Diego when it accelerated to more than 100 mph. The tragic crash, in which the driver and all passengers were killed, caught national attention because one of the occupants had called 911 during the incident.

On September 25, 2009, NHTSA informed Toyota that it needed to conduct further investigation into whether the pedals were defective.

On October 5, 2009, Toyota recalled 3.8 million vehicles to fix the floor-mat issue.

On November 3, 2009, Toyota issued a statement that NHTSA had concluded that "no defect exists" in the recalled vehicles. The next day, NHTSA called Toyota's statement "inaccurate and misleading."

On December 15, 2009, NHTSA officials met with Toyota executives. NHTSA believed that Toyota was taking too long to respond to its safety concerns. Toyota's view was that users needed to install the mats properly.

On January 23, 2010, Toyota recalled 2.3 million additional vehicles.

On January 26, 2010, Toyota stopped selling the affected models.

On February 8, 2010, Toyota received a grand jury subpoena from the Southern District of New York. Just over a week later, Toyota received a subpoena from the Securities and Exchange Commission.

On February 24-25, 2010, Congress held hearings and an inquiry into the recalls. Transportation Secretary Raymond LaHood and Toyota President Akio Toyoda both testified during these hearings. Toyota's North American COO, Yoshimi Inaba testified that Toyota did not properly share information related to the recall. James E. Lentz III, the President of Toyota Motor Sales U.S.A., told the House Energy and Commerce Committee that the prescribed repairs might "not totally" solve the problem and that Toyota was still examining the sudden acceleration problem, including the possibility that the electronics system might be at fault.3

CURRENT RECALL LAWSUITS

Since Toyota announced a recall of 8 million vehicles because of a defective gas pedal on January 21, at least 30 lawsuits seeking class-action status have been filed against the world's largest automaker. Mostly based on economic loss, these class action lawsuits allege that the recall has impaired the resale value of Toyota models.

Cases related to injuries and deaths are the most obvious cases that will be brought against Toyota. Already at least 19 crash deaths may be linked to accelerator problems in Toyota vehicles. There also have been an unknown number of injuries that could yet result in lawsuits. A $200 million suit was filed in Texas relating to a deadly 2009 crash involving a Toyota Corolla.

Auto insurers also are likely to pursue cases against Toyota for losses that may prove to have been caused by faulty vehicles.4

CAUSES OF ACTION

Plaintiffs in the Toyota recall cases likely will allege causes of action that include negligence, strict product liability, breach of implied warranty of merchantability, and violation of state consumer protection statutes. A summary of these causes of action is presented below.

NEGLIGENCE

In negligence cases, the defendant's conduct is a primary focus of the inquiry to determine whether a defendant is liable for a product defect. In order to prevail in any negligence action, the plaintiff must allege and prove: (1) the defendant owed a legal duty, (2) the defendant breached the duty, and (3) the breach proximately caused plaintiff's injury. Negligence claims for product defects can include failure to properly design a product, failure to properly manufacture a product, or failure to warn of a product's dangerous condition. Negligence claims based on Toyota's failure to come forward with the...

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