473 F.3d 450 (2nd Cir. 2007), 04-6282, Allstate Ins. Co. v. Hamilton Beach/Proctor Silex, Inc.

Docket Nº:04-6282-CV.
Citation:473 F.3d 450
Party Name:ALLSTATE INSURANCE COMPANY and Granite Mutual Insurance Company, Plaintiffs-Appellants, v. HAMILTON BEACH/PROCTOR SILEX, INC., Defendant-Appellee.
Case Date:January 05, 2007
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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473 F.3d 450 (2nd Cir. 2007)

ALLSTATE INSURANCE COMPANY and Granite Mutual Insurance Company, Plaintiffs-Appellants,

v.

HAMILTON BEACH/PROCTOR SILEX, INC., Defendant-Appellee.

No. 04-6282-CV.

United States Court of Appeals, Second Circuit.

January 5, 2007

Argued: October 12, 2005.

Plaintiffs, Allstate Insurance Company and Granite Mutual Insurance Company, appeal from an order of the United States District Court for the District of Vermont (Murtha, J.) adopting the Report and Recommendation of Magistrate Judge Niedermeier and granting summary judgment in favor of Defendant, Hamilton Beach/Proctor Silex, Inc.

Page 451

Daniel J. Luccaro, Cozen O'Connor, Philadelphia, PA for Plaintiffs-Appellants.

John T. Sartore, Paul, Frank & Collins, P.C., Burlington, VT for Defendant-Appellee.

Before WALKER, WESLEY, HALL, Circuit Judges.

HALL, Circuit Judge.

Allstate Insurance Company and Granite Mutual Insurance Company (collectively "Plaintiffs") brought this subrogation action against Hamilton Beach/Proctor Silex, Inc. ("Hamilton Beach" or "Defendant") seeking to recover approximately $97,000 paid to their respective insureds, Joseph Malboeuf and Michael and Gail Leggett, for covered losses sustained in a residential fire in St. Albans, Vermont. Plaintiffs alleged that a defective coffee

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maker manufactured by Hamilton Beach caused the fire and asserted claims for products liability and breach of express and implied warranties.1 Hamilton Beach moved for summary judgment arguing that Plaintiffs could not establish a defective condition in the coffee maker, an essential element of both claims.

Plaintiffs argued that they had produced sufficient circumstantial evidence to show the coffee maker was defective to preclude summary judgment as to both claims. With respect to their strict products liability claim, Plaintiffs urged the District Court to adopt the Restatement (Third) of Torts: Products Liability § 3 (1998) ("Restatement § 3"), which under certain conditions permits recovery on a strict liability claim where there is only circumstantial evidence of a defect. With respect to their breach of warranty claim, Plaintiffs argued that Vermont law allows recovery where circumstantial evidence establishes that a defect in a product is the most likely cause of injury. Plaintiffs asserted, therefore, that summary judgment on their breach of warranty claim would be inappropriate regardless of whether the District Court adopted the malfunction theory.

In his Report and Recommendation, Magistrate Judge Niedermeier determined Plaintiffs' circumstantial evidence was not sufficient to show that a defect in the coffee maker was the more probable cause of the fire when compared to all other possible causes. Magistrate Judge Niedermeier declined, therefore, to consider whether the Supreme Court of Vermont would adopt the malfunction theory and recommended granting Hamilton Beach's motion for summary judgment in its entirety. The United States District Court for the District of Vermont (Murtha, J.) adopted the Report and Recommendation without modification and dismissed the complaint. Plaintiffs appeal.

BACKGROUND

In May 2002, Malboeuf purchased from Ames Department store a coffee maker manufactured by Hamilton Beach, brought it home and placed it, still packaged, on his kitchen floor. The coffee maker remained there until the night of June 13, 2002, when Malboeuf removed it from its packaging and set it up. The following morning, Malboeuf used the coffee maker for the first time. Before leaving for work, he turned it off, but did not unplug it. Less than three hours later, a neighbor saw flames coming from Malboeuf's home and called the St. Albans fire department. Although the fire department arrived just two minutes later and promptly brought the fire under control, it had caused substantial damage to both Malboeuf's property and that of his tenants, the Leggetts.

Gary Palmer, St. Albans's fire chief, conducted an initial investigation into the cause of the fire. Based on that investigation, he determined that the fire started to the right of the stove, where Malboeuf claims the coffee maker was located prior to the fire. Palmer ruled out the possibility that the fire was the result of arson or careless smoking. He did not, however, offer any theory of how or why the coffee maker started the fire.

On June 17, 2002, David Eliassen, a cause and origin investigator retained by Allstate, visited the scene to undertake his own investigation. Eliassen noted that the coffee maker had been reduced to very small pieces and there was a very heavy char pattern on the splash board behind

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the coffee maker. According to Eliassen, this char pattern--shaped like a "V" with the lowest point of heavy char directly behind the coffee maker--indicated that the fire originated in that area. While Eliassen testified in his deposition that there were three other potential electrical sources of ignition in the area--the electric range, the range hood, and the electric receptacle behind the coffee maker--he did not believe that the burn patterns were consistent with a fire in either the electric range or the range hood. Nonetheless, Eliassen recommended that Allstate retain an electrical engineer to examine each of these alternate sources of ignition so that they could be definitively ruled out.

On June 28, 2002, Eliassen returned to the scene to continue his investigation. He was accompanied by Eric Chaine, the electrical engineer retained by Allstate on Eliassen's recommendation, and Charles King, a fire investigator representing Hamilton Beach. King inspected the scene and spoke with Malboeuf. According to Eliassen, when he explained to King that one of the purposes for the visit was to examine closely the electric range and range hood, King stated that he could see that those items did not cause the fire and did not stay for that examination. Based on that interaction, Eliassen concluded that Hamilton Beach had "no interest in preserving the range or the range hood." Chaine, however, went forward with the examination on site and also took the remnants of the coffee maker back to his laboratory for further study.

Eliassen and Chaine both submitted reports detailing the results of their respective investigations. Eliassen concluded that the "fire had a single point of origin at the . . . coffeemaker," but deferred to Chaine to identify a specific failure mode within the coffee maker. Eliassen based his conclusion on the lack of any evidence of arson or accidental ignition, as well as his professional opinion that "all ignition sources, except for the . . . coffeemaker ha[d] been considered and ruled out." Chaine's report also ruled out the range, the range hood, and the receptacle as potential causes of the fire. The report noted that the plastic housing of the coffee maker had been consumed completely by the fire, leaving only "the bottom base plate, the heating element assembly (including the warmer plate), some remnants of the carafe, and pieces of stranded wires." Despite this destruction, Chaine was able to identify the basic components of the coffee maker which were "still in a fair condition, with no signs of failure." Chaine also observed that the wire strands probably came from the power cord and indicated multiple points of electrical arcing. This arcing, he concluded, was likely the result of a cord failure and the most probable cause of the fire.

King died before filing a report or being deposed in connection with this action. To replace King, Hamilton Beach retained Scott Barnhill. Based on his investigation, Barnhill stated that he was "comfortable ruling out the range, the receptacle, [and] the hood ...." In an apparent reference to Plaintiffs' disposal of several component parts of these alternate sources following King's site visit, however, Barnhill suggested that his conclusion might have been different had he had an opportunity to examine additional evidence. Barnhill also eliminated the coffee maker as a potential cause of the fire. Disputing Chaine's conclusion, he asserted that any electrical arcing on the coffee maker's power cord would not have been strong enough to ignite the coffee maker's housing.

Hamilton Beach moved to preclude Chaine's testimony regarding the coffee maker's alleged mode of failure. Plaintiffs agreed to limit Chaine's testimony "to his

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examination of the range, range hood and receptacle, and his elimination of these items as potential causes of the fire." Thereafter, Hamilton Beach moved for summary judgment, arguing that Plaintiffs could not establish that the coffee maker was defective.

Plaintiffs conceded that they could not identify a specific defect in the coffee maker. Relying on expert reports and testimony eliminating the other possible causes of the fire, however, they argued they had produced sufficient circumstantial evidence that the coffee maker was defective to withstand summary judgment on both claims.

With respect to their strict liability claim, Plaintiffs' argument assumed that the District Court would apply Restatement § 3, often referred to as the "malfunction theory." The Vermont Supreme Court has not yet issued an opinion that adopts the malfunction theory, which allows a plaintiff to use circumstantial evidence to demonstrate that a product was defective where the incident that harmed the plaintiff: "(a) was of the kind that ordinarily occurs as a result of a product defect; and (b) was not, in the particular case, solely the result of causes other than product defect." Restatement § 3. The malfunction theory relieves plaintiffs of the heavier burden of establishing a specific defect in a product.

With respect to its breach...

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