Potential Weakness in Amazon’s Armor

Erie v. Amazon

Since the turn of the century, Amazon has become the most obvious thorn in the side of subrogated insurers. In the past twenty years, the online retailer has exploded in both popularity and revenue with a significant percentage of its revenue coming from the Amazon Seller Marketplace.

Subrogation against Amazon

In the Marketplace, Amazon acts as an online mediary between consumers and third-party sellers, taking a percentage of the sale from the third-party for facilitating the transaction. The thorn, however, is when a product sold in the marketplace is defective. When a product sold by a third-party is defective, there is largely no recourse against the manufacturer of the product because they are a foreign entity and either cannot be served within the United States or can evade collection. This results in the subrogated carrier going directly against Amazon, with those attempts always yielding unfavorable results. Courts have consistently determined that Amazon is not the seller of the product and therefore is insulated from liability for what oftentimes are catastrophic injuries. Unfortunately, a recent case came to the same conclusion when discussing Amazon’s liability as a seller, but a concurrence of the opinion does shed some light on how to potentially dent Amazon’s seemingly invincible armor.

Erie Insurance Company versus Amazon, Inc.

Erie Ins. Co. v. Amazon.com, Inc. deals with a headlight purchased from Amazon Seller Marketplace and “sold” by Dream Light. As you can probably guess, the headlight malfunctioned and caused significant damage to a home, resulting in Erie bringing suit as the subrogated insurance carrier. The 4th Circuit Court of Appeals determined that Amazon was not a seller under Maryland law, but instead more akin to a broker or bailee. The distinction turned upon who retained title of the item. Unlike in a traditional supply chain, where title passes to each person in the supply, Amazon instead was only authorized by Dream Light to sell the item on Dream Light’s behalf, thereby transferring the title only to the purchaser. To this effect, to further insulate itself, the agreement between Amazon and Dream Light, or any third-party seller who wishes to use the Marketplace, states that Amazon does not take title of the product.

For now the law does not define Amazon as a seller

The interesting part of the opinion comes from Judge Diana Gribbon Motz, who agrees with the opinion but challenges states to amend their laws to hold Amazon accountable for selling defective products. Judge Motz highlights that to date Amazon has not been liable for any product defect cases in which it acts as a broker or bailee. This lack of accountability is due to the outdated, traditional supply-chain laws as it cuts out the middlemen between manufacturers and consumers and opens the door for potentially defective products on the market. Amazon escapes liability because the statutes or common-law were for situations that did not contemplate the existence of something like Amazon Seller Marketplace. The reason these cases keep failing is that the law does not define Amazon as a seller. Judge Motz continues, noting there is nothing preventing Maryland, or any other state from amending or creating new statutes to hold Amazon accountable for selling defective products. Contact one of our subrogation lawyers to learn more.