Takata Settlement Reached in Bankruptcy With Injured Drivers, Justice Department

As part of a continuing effort to deal with massive liability and emerge from Chapter 11 bankruptcy, Takata Corp.’s U.S. subsidiary has reached a settlement that will provide compensation for those injured by recalled airbag inflators, its creditors and the Department of Justice. 

Takata is a Japanese automotive parts manufacturer, which was responsible for tens of millions of airbag recalls in the United States, and worldwide. It’s U.S. division, TK Holdings, Inc. went into bankruptcy due to the staggering costs and liability stemming from those recalls.

According to a report by Reuters News, recent court documents indicate that the company and a number of parties involved in pending Takata airbag lawsuits recently reached a settlement agreement that will allow the company to come out of bankruptcy.

It is the latest in a series of settlements over the Takata airbag recalls, which have included lawsuits from victims, investors, car owners, other auto manufacturers that used Takata airbags and the Justice Department.

The recalled airbags may unexpectedly explode under certain conditions, such as high humidity, causing the airbag to over-inflate and send shrapnel flying into the passenger compartment of the vehicle. An investigation by the National Highway Transportation Safety Administration (NHTSA) has suggested that ammonium nitrate based propellants used in the inflators may cause the airbag explosions and that the chemical may not be safe for inflator designs.

The rupturing Takata airbag inflator recalls are the largest and most complex recall to ever hit the auto industry. The recalls have affected about 100 million vehicles.

This latest Takata settlement involves the creation of a trust fund that will pay anywhere from $10,000 to $5 million for those who were injured or who lost a loved one due to an airbag rupture. The trust fund will be paid for partially by automakers who had also sued Takata, but were targeted themselves by a number of lawsuits.

A plan for the establishment of the company’s reorganization is expected to be filed with the U.S. Bankruptcy Court soon. A company called Key Safety Systems is expected to acquire parts of the company that are still viable.

Takata has already reached a $1 billion settlement with the Department of Justice over criminal charges linked to the recalls. In addition, Takata could face charges of wire fraud for putting out false and misleading information about the airbags, which have been linked to 11 deaths and at least 184 injuries in the U.S. alone. None of the settlements proposed so far resolve civil airbag recall lawsuits filed by consumers who were injured or lost loved ones to the exploding airbags.

Takata is currently in a settlement agreement with the NHTSA, following a November 2015 consent order. The agreement requires Takata to cooperate with the agency in all future actions involving the recall investigation, and demands that the NHTSA be head controller of the recall campaigns in the U.S., granting the agency exclusive control in organizing and prioritizing the recall process to speed up the repairs. In addition, the NHTSA fined Takata $200 million.

Nearly every major automaker has been impacted by the recalls, including Honda, General Motors, Ford, BMW, Mercedes Benz, Volkswagen, Nissan, Mitsubishi, Chrysler (FCA), Mazda, Toyota, and various others.

The potential deal comes as Takata and other parts suppliers struggle to repair tens of millions of defective airbag inflators that have been recalled over the last two years.

As the recall programs commenced in late 2014, both Takata and the impacted auto makers fell far behind in planning and coordinating recall repairs, as the number of impacted vehicles grew by the millions nearly every month.