Malfunction Theory to the Rescue: Relying on Circumstantial Evidence to Prove a Product Liability Case

This article appears in the Spring/Summer 2016 issue of Subrogator

You have a file involving a restaurant damaged by a fire that began after the restaurant closed for the evening. Two months before the fire, the restaurant’s owners purchased a new cash register. The cash register was used in a normal manner. The fire marshal and your expert both have concluded that the fire originated at the cash register and have ruled out all other potential sources of ignition (such as other appliances near the cash register). Unfortunately, the fire destroyed the cash register, except for the metal cash drawer and the power transformer. According to your expert, the transformer indicates that an internal electrical event occurred.  Yet the expert cannot positively identify the cause of the internal electrical fault because the fire consumed all the internal evidence that started the fire. How do you prove your case against the manufacturer of the cash register? How do you get around the conundrum that the very product that caused the fire, by destroying itself, eliminated any hope of pinpointing the actual fire-causing failure? Can you be relieved of the burden to demonstrate a specific product defect?

This is when the malfunction theory (also known as the indeterminate defect theory) comes to the rescue. The malfunction theory is used when the plaintiff cannot prove a specific defect but the circumstances of the product’s failure allow the jury to draw an inference that the product was defective when it left the manufacturer’s hands. Put another way, the malfunction theory allows the plaintiff to develop a product liability claim based purely on circumstantial evidence (where the allegedly defective product has been destroyed or is otherwise unavailable).

In the cash register case discussed above, the defendant-manufacturer filed a motion for summary judgment, arguing that there was no sufficient evidence that a defect in the register caused the fire. The United States District Court for the Middle District of Pennsylvania did not agree. The court explained that:

[T]hough [plaintiffs’ expert] does not identify the precise assembly defect that caused the fire, common sense strongly suggests that electrical devices, such as cash registers, should not catch on fire. The circumstantial evidence, namely that the fire was not caused by any other source, is in our view sufficient to put this question before a jury. [1]

Therefore, the court refused to deprive the plaintiffs of the opportunity to present the circumstantial evidence to a jury.

Malfunction Theory Generally and Restatement (Third) of Torts

To recover under the strict product liability theory, a plaintiff must establish that the product was defective, that the defect was a proximate cause of the injuries, and that the defect existed at the time the product left the seller’s hands. [2] To establish both the existence of a defect and that the defect existed while the product was in the manufacturer’s control, “a plaintiff may resort to direct evidence, such as the testimony of an expert who has examined the product, or, in the absence of such evidence, to circumstantial proof.”[3] Although most product liability cases are based on direct evidence of a specific defect, there are cases in which such evidence is unavailable (a product malfunction may result in an explosion or a fire that damages much, if not all, of the product’s components). In such cases, as explained by the Connecticut Supreme Court, “[t]he absence of direct evidence of a specific product defect is not . . . fatal to a plaintiffs’ claim [sic], and a plaintiff, under certain circumstances, may establish a prima facie case using circumstantial evidence of a defect attributable to the manufacturer.”[4]

Most states have adopted some form of the malfunction theory. [5] At the same time, many courts are struggling with its application. As one commentator noted, “many courts have treated a claim of indeterminate product defect like the Supreme Court treated pornography — with an inability to define the elements while claiming to ‘know it when [they] see it.’”[6] 

In 1998, the American Law Institute issued the Restatement (Third) of Torts: Product Liability (“Restatement”),[7] which includes the following:

           § 3 Circumstantial Evidence Supporting Inference of Product Defect

It may be inferred that the harm sustained by the plaintiff was caused by a product defect existing at the time of sale or distribution, without proof of a specific defect, when the incident that harmed the plaintiff:

                      (a) was of a kind that ordinarily occurs as a result of product defect; and

(b) was not, in the particular case, solely the result of causes other than product defect existing at the time of sale or distribution.

Therefore, the malfunction theory scrutiny consists of two requirements. First, the harm must be of a kind that ordinarily occurs as a result of product defect. Second, the incident must not be solely the result of causes other than product defect existing at the time of sale. 

Harm Must Be of a Kind That Ordinarily Occurs As a Result of Product Defect 

The first malfunction theory requirement is rather straightforward. John buys a new computer, turns it on for the first time, and the computer catches fire. Common sense dictates that computers, in normal use, do not self-ignite, absent a product defect. However, if the computer ignited after John spilled a cup of coffee on it, then the first requirement of the malfunction theory cannot be established. 

Incident Must Not Be Solely the Result of Causes Other Than Product Defect Existing at the Time of Sale 

Comment (d) to the Restatement § 3 explains that such factors as the age of the product, possible alteration by repairers or others, and misuse by the plaintiff or third parties may have introduced the defect that causes harm. 

This aspect of the malfunction theory scrutiny can be illustrated by the Connecticut Supreme Court’s analysis in Metropolitan Property and Cas. Ins. Co. v. Deere and Co.[8]  

The case involved a product liability action by a subrogated insurer against Deere. The plaintiff claimed that a Deere lawn tractor had a defect in its electrical system that caused a fire in the house of Mr. and Mrs. Insured. On the date of loss, in July of 2003, Mrs. Insured attempted to mow the lawn with her John Deere lawn tractor, but the tractor’s engine was running roughly. Mrs. Insured stopped mowing and returned the tractor to its storage location in the garage. Subsequently, she noticed a strange smell in the garage. A few hours later, a fire destroyed the house.  

A cause-and-origin investigator hired by the insurer concluded that the specific point of origin was at the tractor. The insurer then retained an automotive engineer who examined the tractor with a Deere representative. Due to the extensive fire damage, many of the tractor’s components were destroyed. Based on what remained, the automotive engineer ruled out all possible causes of fire within the tractor except for the tractor’s electrical system. He concluded that the electrical system could not be ruled in, or out, as the cause of the fire. He determined that, of the approximately 30 percent of the electrical system that remained, his examination of the remains revealed no indication of any defects. He acknowledged that he would have to speculate as to the exact cause of the fire.

The homeowners purchased the tractor new in April of 1998. Initially, they had no problems with the tractor. However, according to Mr. Insured, the tractor had been running roughly and backfiring for several months prior to the fire. In addition, before the fire, the tractor dealer and Mr. Insured himself performed some maintenance. 

The court acknowledged that one can use the malfunction theory to permit a jury to infer (on the basis of circumstantial evidence alone) the existence of a product defect at the time of sale. However, the court agreed with Deere that the evidence the plaintiff presented was insufficient to satisfy the requirements of the malfunction theory. The court concluded that although the plaintiff’s evidence was sufficient to permit the jury to infer that the fire most likely started as a result of a failure in the tractor’s electrical system, the plaintiff’s evidence “did not support an inference that any defect existed in the electrical system when the tractor left the defendant’s manufacturing facilities or at the time it was sold[.]”[9] The court explained:

[T]he plaintiff failed to present sufficient evidence to eliminate other reasonably possible secondary causes of the defect and to establish that the fire in the tractor most likely resulted from a defect attributable to the defendant. . . [T]he plaintiff's own evidence pointed to the possibility of other causes of an electrical failure not attributable to the defendant, namely, the possibility of improper maintenance and improper use. . . Although the plaintiff presented the testimony of the dealer’s technician, who testified that he did not alter or modify the electrical system, no evidence was presented that the work performed on the tractor could not have damaged or caused problems with the tractor’s electrical system, resulting in . . . the failure of the electrical system. Furthermore, although the evidence established that the homeowners continued to operate the tractor while the tractor was having problems, no evidence was presented that this was a proper use of the tractor or that this could not have resulted in damage or excessive wear and tear to the tractor’s components, including the electrical system.[10]

This case perfectly demonstrates how one’s inability to rule out other reasonable causes can quickly defeat the application of the malfunction theory. At the same time, a plaintiff “need not conclusively eliminate all possible causes of a product defect but must only negate reasonably possible secondary causes.”[11]

Age of Product

As observed by the Connecticut Supreme Court, the Restatement § 3 “does not take a definite position as to the weight to be given to the age of the product . . . it simply lists [in Comment (d)] the age of the product as one factor among others to be weighed in considering whether other causes are responsible for the defect in a product that causes an accident.”[12]

The age of the Deere tractor played a very important role in the court’s decision. In fact, the court commented that, “because . . . the tractor was not new or nearly new when it malfunctioned, the plaintiff was required to present additional evidence to explain how the tractor could have had a defect in the electrical system when it left the defendant’s manufacturing facilities yet function without problems for several years before failing in July, 2003.”[13]

The Texas Supreme Court went a little further and held that even if the Restatement § 3 were adopted in Texas, “it would generally apply only to new or almost new products. . . [because such] products typically have not been modified or repaired, therefore making a product defect the likely cause of an accident.”[14]

Conclusion

The malfunction theory, if properly utilized, can save the day. Unfortunately, many subrogation professionals mistakenly feel that the malfunction theory virtually excuses the use of experts and proof of defect. The entire notion that a jury is allowed to “infer things” can be very deceiving.

As a matter of fact, an extra careful analysis is required when evaluating a malfunction theory case. Many malfunction theory cases may require additional experts, which would not be required in a case involving an identifiable malfunction.

The author of this article litigated a case involving a house destroyed by a fire. Before escaping from the house, the insured saw smoke in the garage, in front of his brand new SUV. The SUV had only a few thousand miles, had never been repaired, and had no reason to undergo any service. The fire destroyed the SUV, making it impossible to determine the cause of the ignition. To pursue a malfunction theory case against the manufacturer, a team of three experts had to be assembled. First, a cause-and-origin investigator had to establish that the fire originated at the vehicle. Second, an electrical engineer was retained to rule out the house’s electrical wiring inside the wall in front of the SUV because the wiring would have been the only other potential source of ignition. Third, an automotive engineer was brought in to testify which SUV components remained energized after the ignition was turned off and could have potentially caused the vehicle to self-ignite.

The above example underscores the need for a subrogation professional to carefully examine and recognize any potential malfunction theory case in order to assemble a team of experts who can develop a malfunction theory case by putting together all the necessary pieces.

Finally, one must always remember that evidence of a malfunction is not a substitute for the need to establish that the product was defective. It eliminates only the need to identify a specific failure. Therefore, even when a case is tried under the malfunction theory, recovery rests on a finding that a defect did exist.

[1] Liberty Mut. Fire Ins. Co. v. Sharp Electronics Corp., 2011 WL 2632880 (M.D. Pa. 2011).

[2] See Davis v. Berwind Corp., 690 A.2d 186 (Pa. 1997), citing Restatement (Second) of Torts § 402A.

[3] Myrlak v. Port Authority of New York and New Jersey, 723 A.2d 45 (N.J. 1999).

[4] Metropolitan Property and Cas. Ins. Co. v. Deere and Co., 25 A.3d 571, 580 (Conn. 2011).

[5] Id. citing 51 L. Frumer & M. Friedman, Products Liability (2010); D. Owen, “Manufacturing Defects,” 53 S.C. L.Rev. 851 (2002).

[6] J. Hoffman, “Res Ipsa Loquitur and Indeterminate Product Defects: If They Speak for Themselves, What Are They Saying?,” 36 S. Tex. L. Rev. 353 (1995).

[7] Not all courts have adopted the Restatement (Third). See, inter alia, Ford Motor Co. v. Ridgway, 135 S.W.3d 598 (Tex. 2004); Godoy ex rel. Gramling v. E.I. du Pont de Nemours and Co., 768 N.W.2d 674 (Wis. 2009).

[8] 25 A.3d 571 (Conn. 2011). The case involved certain other issues and analyses, which are omitted for brevity.

[9] Id. at 589.

[10] Id. at 592.

[11] Id. at 586.

[12] Id. at 588, fn. 15.

[13] Id. at 593.

[14] Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004).