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Product Liability and Effective Platform Immunity

| Mar 12, 2021 | Firm News |

Illinois has instituted a fairly robust system of liability for dangerously defective products, instituting strict liability for the manufacturers, as well as the distributors and retailers, and even potentially the marketers, of such products. The underlying logic of this liability is that these parties have the most straightforward ability to mitigate the harms caused by defective products, as well as the most potential economic incentive to ignore dangers if spared liability. Sometimes, even these protections can lead to somewhat counterintuitive results, though. Such was the case in the March 9th decision in Great Northern Insurance Company v. Amazon.Com, Inc. et al, Docket Number: 1:19-cv-00684 in the Federal Northern District of Illinois.

The case involves two hoverboards purchased from a third-party seller on Amazon, whose defective (and counterfeit, since they were advertised as Samsung but were literally Chinese knock-offs) batteries promptly caught fire after use, leading to a hefty homeowner’s insurance payoff and the insurance company suing everyone up and down the supply chain. On Tuesday, Amazon.com was able to get themselves dismissed on Summary Judgment from the suit, because the court ruled that they weren’t actually the seller or promoter of the sale.

Huh? Essentially, the strict liability regime starts to break down a bit when a website, Amazon.com in this case, is just acting as a virtual message board for a sale. Remember, the point of strict liability is to prevent defective products from getting to consumers by putting the liability in the best place to stop that—with the parties controlling the defective products. The Federal court pointed out that Illinois has place this with the parties that control the product, not just the purchasing process. Strict liability attaches when a defective product leaves the control of the party in the distribution chain. In this case, because it was a third-party seller, Amazon.com and it’s employees and agents never had control of the product at all. They provided the platform for the sale, but the defective hoverboards were shipped directly from the third-party sellers to the unfortunate purchasers.

Now, this may seem a bit unjust considering that just about half of everything sold through Amazon.com is by third-party sellers (and especially in this case where the actual sellers cannot even be properly served the lawsuit because the company resides in China). The federal court also took pains to point out that Amazon.com might theoretically fall into the “integral involvement in the overall producing and marketing enterprise” category of strict product liability discussed in the Illinois Supreme Court in Hebel v. Sherman Equip., 92 Ill. 2d 368 (1982), but that in this case Great Northern didn’t develop the facts to support that argument.

I should note that Amazon.com also received favorable rulings on two other counts, successfully arguing that they had not engaged in negligent misrepresentation or a violation of the Illinois Consumer fraud and Deceptive Business Practices Act, since the false or misleading statements on the listing were made by the third-party sellers and not Amazon itself. All in all, this ruling sets a very high level of immunity for third-party listings for the website. I wouldn’t be surprised to see this decision taken to the appellate court by Great Northern, although I’m sure they are weighing the possibility of getting a truly unfortunate precedent-setting decision if they lose the appeal at that level. Given that the federal courts are hesitant to expand liability based on state law, it might simply take more favorable state-level decisions to see movement in this area in the future.

Attorney Travis Dunn