State reaches settlement with Takata over defective airbags

Indiana Attorney General Curtis Hill announced a settlement Tuesday with TK Holdings Inc. — the U.S. subsidiary of Takata — over allegations that the company concealed deadly safety issues related to airbag systems installed in a wide variety of vehicles.

TK Holdings Inc. filed for Chapter 11 bankruptcy in June 2017, and its reorganization plan has been confirmed by the U.S. Bankruptcy Court for the District of Delaware. The bankruptcy came in the wake of a January 2017 agreement in which the company arranged to pay $1 billion in penalties to U.S. regulators, consumers and car manufacturers.

In addition to Indiana, the settlement with TK Holdings Inc. is joined by the attorneys general of 43 other states and Washington, D.C. It concludes a multistate investigation into the company’s failure to disclose in a timely manner known safety defects associated with certain airbag inflators.

Beginning in 2008, auto manufacturers issued multiple recalls of vehicles containing these airbag inflators in response to ruptures upon deployment of the airbag.

More than 50 million airbags in 37 million-plus vehicles have been recalled to date. Additional recalls are anticipated through the end of 2019, likely bringing the total number of affected airbags to anywhere between 65 million and 70 million.

The recalls involved the use of phase-stabilized ammonium nitrate to inflate airbags upon deployment. As the compound was exposed to heat and humidity over time, particularly in warmer and wetter parts of the country, the propellant degraded.

Consequently, upon deployment the inflator could rupture explosively, destroying the metal casing surrounding the propellant and spraying shrapnel into the vehicle’s passenger cabin. At least 20 people have died worldwide and hundreds more have been injured because of this defect, Hill said.

The multistate action alleged that the company knew that the airbag inflator posed a safety defect because of testing failures. TK Holdings Inc.’s parent company pleaded guilty to manipulating testing data and submitting false and misleading reports to auto manufacturers.

The company knew about several ruptures that occurred as early as 2004, but appropriate action to recall these unsafe inflators did not occur until November 2014. Despite this knowledge, the company failed to properly notify regulators and the public of the danger posed by this defect.

The states alleged that these actions were unfair and deceptive and that the automaker’s actions violated state consumer protection laws, including Indiana’s Deceptive Consumer Sales Act.

Under the consent decree and settlement agreement, TK Holdings Inc. and its successor, Reorganized TK Holdings, shall:

• Not advertise or otherwise represent the safety of its airbag systems or phase-stabilized ammonium nitrate in any way that is false, deceptive or misleading;

• Not represent that its airbags are safe unless supported by competent and reliable scientific or engineering evidence;

• Not falsify or manipulate testing data, or provide any testing data that the companies know is inaccurate;

• Except as needed to fulfill its obligations under the various recalls, sell any airbag systems using PSAN as a propellant;

• Comply with state and federal law as well as the consent order and coordinated remedy order; and

• Continue to cooperate with auto manufacturers to ensure that replacement airbag inflators are made available as expeditiously as possible from all possible sources.

TK Holdings Inc. has also agreed to reimburse the multistate coalition for its investigative costs, and for the entry of stipulated civil penalty in the amount of $650 million.

The multistate coalition agreed that, given the pending bankruptcy and the company’s inability to pay its debts, this penalty would be subordinated to maximize the recovery available to consumers who were victims of this airbag defect.William McCleery, Hill’s deputy communications director, said as a result, the state does not anticipate receiving any money under this settlement.

“Takata is bankrupt. The actual monetary payment coming to the states involved in the settlement is $200,000, which will be used to reimburse the multistate coalition for investigative costs related to this case,” he said. “The most important part of this settlement is the injunctive relief used to directly assist consumers themselves. Further, although the $650 million penalty is unlikely ever to … be paid, it holds significant value as a precedent in these types of consumer protection settlements.”