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A Prime Time For A Buyer To Beware (NY)

December 23, 2019

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<p style="text-align: justify;">In a recent lawsuit filed in the Eastern District of New York, Inc.’s summary judgment motion was granted by the federal court, rejecting subrogation claims by an insurer.  In<em> <a href="">Philadelphia Indemnity Ins Co v. Inc.</a></em><em>,</em> Amazon was sued for losses to a sushi restaurant from a fire allegedly ignited by a defective commercial blender, which was sold and delivered through Amazon’s fulfillment program. The online seller never took title to the blender, even though it had warehoused and delivered the product, so it could not be held strictly liable for its defects, U.S. District Judge Dennis R. Hurley of the Eastern District of New York wrote in the opinion granting Amazon’s summary judgment motion.</p>
<p style="text-align: justify;">According to the opinion, Guangzhou Glantop E-Business Co. Ltd., a Chinese seller of kitchen products, entered an Amazon Services Business Solutions Agreement, through which Amazon agreed to offer the products and process payments in exchange for referrals and service fees. The contract also provided for fulfillment services, whereby Amazon would warehouse, pick up, deliver, and provide customer service for Glantop’s products.</p>
<p style="text-align: justify;">A&amp;K Sushi Corp., a restaurant in Wantaugh, New York, which was located in a strip mall owned by Niat Realty Group, purchased a blender from Glantop through Amazon in April of 2016. The blender was warehoused by Amazon.</p>
<p style="text-align: justify;">In May of 2016, the blender allegedly caused a fire at A&amp;K that caused substantial property damage. Philadelphia Indemnity, Niat Realty’s insurer, sued Amazon for product liability, breach of warranty and negligence in a subrogation action, seeking to recover the $200,000 it paid Niat for the fire damage. Amazon moved for summary judgment to dismiss the claims.</p>
<p style="text-align: justify;">Amazon argued it could not be held liable because Philadelphia Indemnity could not establish that the company manufactured, distributed, or sold the blender. The insurer countered that Amazon was at the top of the blender’s distribution chain and that it was in the best position to further the public policy considerations underlying the doctrine of strict product liability.</p>
<p style="text-align: justify;">Whether Amazon can be held strictly liable for defects in products sold by third-party vendors is a “developing area of law,” Judge Hurley noted in the opinion. He cited <em>Eberhart v. Inc.</em>, 326 F.Supp. 3d 393 (S.D.N.Y. 2018), which held that strict liability applies only to those entities that are within the distribution chain. New York's highest court has not yet addressed whether an online marketplace is subject to strict product liability, so <em>Eberhart</em> predicted how the New York Court of Appeals would decide, Judge Hurley stated.</p>
<p style="text-align: justify;">Under the terms of the business-solutions agreement, Amazon never took title to the blender, so it could not be considered a "distributor" within the distribution chain. Judge Hurley also stated Amazon did not know who manufactured the blender, so it was not in a position to influence the manufacturer. Philadelphia Indemnity's negligence and breach-of-warranty claims likewise failed because Amazon did not manufacture, sell or distribute the blender, Judge Hurley ruled.</p>
<p style="text-align: justify;">Thus, this case illustrates that, while this area of the law is still developing, recent decisions may make it more difficult to prevail in certain subrogation matters.</p>
<p style="text-align: justify;">Thanks to Joseph Anzalone for his contribution to this post.  Please email <a href="">Colleen E. Hayes</a> with any questions</p>

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