4th Circuit rejects insurer’s subrogation suit against Amazon

The U.S. Court of Appeals for the Fourth Circuit has affirmed a district court’s decision rejecting an insurance company’s subrogation action against Amazon.com, Inc., finding that Amazon was not the seller of an allegedly defective product on its website and, therefore, that Amazon could not be held liable under Maryland products liability law for the damage the product allegedly caused.

The Case

Trung Cao, a Maryland resident, purchased a headlamp on Amazon’s website and then gave it as a gift to friends who lived in Maryland. The document evidencing the transaction stated that the headlamp was “sold by: Dream Light” and “Fulfilled by: Amazon.”

The arrangement between Dream Light and Amazon was governed by Amazon’s “Amazon Services Business Solutions Agreement” and included “fulfillment” services offered by Amazon. Under the fulfillment program, Amazon provided logistics services for a fee. A company could ship its inventory to an Amazon warehouse for storage and, once an order was received online for a product, Amazon would retrieve the product from inventory, box it, and ship it to the purchaser.

In this case, Dream Light shipped its headlamps to Amazon’s warehouse in Virginia, and, when  Cao’s order for one came in, Amazon packaged and shipped it to Cao using a third-party shipper. As part of its fulfillment services, Amazon also collected payment and, after withdrawing its service fee, remitted the balance to Dream Light.

Dream Light set the price for the headlamp and created the content of the product’s description used on the Amazon site.

The headlamp’s batteries apparently malfunctioned, igniting Cao’s friends’ house and causing more than $300,000 in damages.

Erie Insurance Company, which insured the house, paid the loss and then, as subrogee, brought an action to obtain reimbursement from Amazon for negligence, breach of warranty, and strict liability in tort.

Erie argued that Amazon had liability under Maryland law because it was the “seller” of the headlamp. In particular, Erie contended that:

1. Based on the services that Amazon provided in the transaction, it was a seller;
2. In any event, Amazon was a “distributor,” which Maryland law deemed to be a seller; and
3. Amazon was an “entrustee,” as used in Maryland’s Uniform Commercial Code and, therefore, that Amazon passed title to the purchaser of the headlamp and thus should be considered a seller.

The U.S. District Court for the District of Maryland granted summary judgment to Amazon, concluding that Amazon was not the seller of the headlamp and, therefore, did not have liability for its defective condition.

In reaching that conclusion, the court focused on the nature of Amazon’s fulfillment services program:

The question is whether the circumstances of this case in which Amazon “fulfilled” the order converts Amazon into the status of the seller.  . . . The fulfillment role as far as Amazon is concerned is that it stored the product at the expense and risk of the seller Dream Light. That it allowed the merchandise to be advertised on Amazon’s webpage. That if a purchase was made, Amazon would take the product from its fulfillment center, put it in a box and send it to the purchaser who made arrangements to buy the Dream Light.

Amazon would collect the money and ultimately remit to Dream Light whatever is leftover after Amazon has covered its various charges.  . . .

I conclude that the case can be disposed of favorably to Amazon on summary judgment because it is not a seller.

The district court also held that Amazon was immune from suit under the Communications Decency Act, 47 U.S.C. § 230(c)(1), a federal law protecting internet intermediaries in the online publication of a third-party’s information.

Erie appealed to the Fourth Circuit.

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The Fourth Circuit’s decision

The circuit court affirmed, concluding that although Amazon was not immune under Section 230(c)(1), Amazon was not the “seller” of the headlamp and, therefore, did not have liability under Maryland law for products liability claims asserted by reason of the product’s allegedly defective condition.

In its decision the Fourth Circuit first explained that the Communications Decency Act provides immunity for claims against providers of interactive computer services, such as Amazon, “as the publisher or speaker of any information provided by another information content provider.” Thus, the circuit court said, to implicate the immunity of Section 230(c)(1), a claim had to be based on the interactive computer service provider’s publication of a third party’s speech. Because the underpinning of Erie’s claims was its contention that Amazon was the seller of the headlamp and therefore was liable as the seller of a defective product, and because Erie did not assert a claim based on the content of speech published by Amazon – such as a claim that Amazon had liability as the publisher of a misrepresentation of the product or of defamatory content – the circuit court reversed the district court’s ruling applying the Communications Decency Act’s immunity.

The circuit court then addressed Erie’s contention that Amazon, like a brick-and-mortar store such as Home Depot, was a seller of products and, therefore, was liable under Maryland law for defective products it sold.

The circuit court found “no indication” that the term “seller,” as used in Maryland’s products liability law, should be understood in any manner other than its ordinary meaning. It added that the ordinary meaning of “seller” was “one that offers [property] for sale,” with “sale” defined as “the transfer of ownership of and the title to property from one person to another for a price.”

The Fourth Circuit declared that Amazon was not a seller, finding no evidence disputing that when Dream Light shipped its headlamp to Amazon’s warehouse in Virginia, Dream Light was the owner of — that is, it had title to — the headlamp. Moreover, the Fourth Circuit continued, when it transferred possession of the headlamp to Amazon, without Amazon’s payment of the headlamp’s price or an agreement transferring title to it, Amazon did not, by that simple transfer, receive title.

The circuit court added that even as Amazon possessed the headlamp in its warehouse, Dream Light set the price for the sale of the product to purchasers, designed the product description for the website, paid Amazon for its fulfillment services, and ultimately received the purchase price paid by the purchaser. In these circumstances, the Fourth Circuit found, “as Amazon explicitly posted on its site, Dream Light was the seller.”

Finally, the circuit court rejected Erie’s arguments that Amazon could be deemed to be a seller under Maryland law because it was a distributor or entrustee. The circuit court concluded that because Amazon was not, in this particular transaction, a seller — one that transferred ownership of property for a price — it simply did not have liability under Maryland law for the allegedly defective product.

The case is Erie Ins. Co. v. Amazon, Inc., No. 18-1198 (4th Cir. May 22, 2019). Attorneys involved include: ARGUED: John Kerry Weston, SACKS WESTON DIAMOND, LLC, Philadelphia, Pennsylvania, for Appellant. William Brendan Murphy, PERKINS COIE LLP, Seattle, Washington, for Appellee. ON BRIEF: Jesse M. Cohen, SACKS WESTON DIAMOND, LLC, Philadelphia, Pennsylvania, for Appellant. Eric D. Miller, Laura Hill, PERKINS COIE LLP, Seattle, Washington, for Appellee.

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Steven A. Meyerowitz, Esq., (smeyerowitz@meyerowitzcommunications.com) is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. This story is reprinted with permission from FC&S Legal, the industry’s only comprehensive digital resource designed for insurance coverage law professionals.