Subrogation in the Internet Age: Claims Against Online Providers

Cozen O'Connor - Mark T. Mullen and Christopher H. Boyle

Recently, a subrogation action was filed on behalf of an insurer alleging that a product sold on eBay and Amazon caused a fire for which the insurer is seeking recovery. The action was filed in state court and thereafter removed to federal court. This lawsuit again reminds us in the subrogation world of the difficulty the law is facing in applying 20th Century tort concepts to the internet age.

The law of strict liability for products was created in California in the early 1960s and developed through the end of the 20th Century. Most states have some form of strict product liability either by way of statute or common law. At its core, this development in tort law attempted to shift the burden for harms created by products manufactured in the modern age to manufacturers and sellers rather than consumers. 

In the most simplistic setting, you would have a single manufacturer who sold the product to a distributor who sold it to the public. Component part manufacturers and multi-level distribution chains will, of course, add nuances and complexity. Legislatures and courts address those issues in product liability statutes or decisions applying the law to specific facts.

With the advent of the internet and companies like eBay and Amazon, the picture became even more complex. Internet providers sometimes act as matchmakers pairing sellers with buyers or allow individual to buy items, mark them up, and re-sell them. The first issue this internet driven fact pattern creates is determining exactly who is a seller or distributor in a given transaction and whether a particular state statute or common law doctrine applies to the individuals or companies in the chain after the product leaves possession of the manufacturer.

Another issue that must be addressed is the Communications Decency Act (“CDA”), 47 U.S.C. §230. The CDA was Title V of the Telecommunications Act of 1996. The original intent of the Act appears to have been an attempt to regulate pornography and obscenity in cyber space. Nevertheless, at least two courts have held that the broad immunity provisions established by Congress in the CDA barred all claims filed against internet-service providers for the sale of products that allegedly caused harm.

In Hinton v. Amazon.com.dedc, LLC, 72 F. Supp.3d 685 (E.D. Miss. 2014), Judge Starrett dismissed a claim against Amazon and eBay alleging negligence, intentional conduct, gross negligence, breach of the implied warranty of merchantability, failure to warn, breach of the duty of good faith and fair dealing, violation of the Mississippi Consumer Protection Act, and violation of federal law. The judge noted that eBay had been held immune under the CDA in federal and state litigation concerning the sale of defective or illegal items, and concluded that all of the purchaser’s claims against eBay arose from the publication of information created by third parties and, therefore, that CDA immunity would attach in the absence of a statutory exception.

In Inman v. Technicolor USA, Inc., 2011 WL 5829024 (W.D. Pa. Nov. 18, 2011), Chief Judge Lancaster dismissed a product liability claim under Pennsylvania law against eBay based on the CDA’s immunity provision. The “sale” was “facilitated by communications for which eBay may not be held liable under the CDA.”

We can expect further cases on this topic as more are more products continue to be sold via the online marketplace. As this area develops, we will continue to provide updates.

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