PRODUCT LIABILITY SPECIAL ALERT: Lease Runs Out on “Rental Market” Exception to Defense of Strict Liability Design Defect Claims

By V. Christopher Potenza, Esq. and John R. Ewell, Esq.

Product manufacturers and distributors can be relieved of strict product liability in New York from design defect claims where the manufacturer offered the product with an optional safety device and the purchaser chose not to buy it.  Scarangella v. Thomas Built Buses, 93 N.Y.2d 655 (1999).

The Court of Appeals in Scarangella established the following three-part test for determining whether a manufacturer or seller is not strictly liable for a design defect based upon a claim that optional safety equipment should have been a standard feature:

  1. the buyer is thoroughly knowledgeable regarding the product and its use and is aware that the safety feature is available;
  2. there exist normal circumstances of use in which the product is not unreasonably dangerous without the optional equipment; and
  3. the buyer is in a position, given the range of uses of the product, to balance the benefits and the risks of not having the safety device in the specifically contemplated circumstances of the buyer's intended use of the product.

When these elements are present, it is the buyer, not the manufacturer, who is in the superior position to make the risk-utility assessment, and a well-considered decision by the buyer to dispense with the optional safety equipment will excuse the manufacturer from liability.

However, in 2017, the Appellate Division, Second Department, in Fasolas v Bobcat of New York, Inc., 150 A.D.3d 147 (2d Dept 2017), created a “rental market” exception to this rule, holding that manufacturers cannot assert the Scarangella defense where the product is sold to a rental company. On May 9, 2019, the Court of Appeals, in Fasolas v. Bobcat of New York, 2019 NY Slip. Op. 03657 (2019), struck down this rental market exception and held that manufacturers are entitled to the Scarangella defense regardless of whether the product was sold directly to the end-user or came into the injured end user's hands through the rental market.

The decedent plaintiff in Fasolas rented a Bobcat “skid-steer” loader with a bucket attachment from Taylor Rental. While operating the loader with a bucket attachment, a small tree entered the open operator cab, crushing him. It was hotly contested whether Fasolas was using the loader to move dirt or misusing the product by using the bucket to run over trees or stumps. Fasolas’ estate sued Bobcat and Taylor Rental asserting defective design and failure to warn.

Bobcat's position at trial was that the loader with bucket attachment was not defective without the door kit when used for its intended purpose — to move soil. Bobcat contended that Taylor Rental had been made aware of the availability of the door kit through a variety of means, including handbooks and safety manuals accompanying the machines, and conversations between employees of Bobcat's distributors and Taylor's employees. Bobcat's theory was that plaintiff misused the product by attempting to plow over or dig up trees, which was not a proper use of the loader with bucket attachment. Different attachments for the loader are available for leveling trees and include the door kit as a standard feature to prevent airborne material from entering the cab.

Bobcat moved for a directed verdict arguing that it met the Scarangella test. The trial judge refused to instruct the jury on the Scarangella test and modified the jury instructions to reflect that plaintiff was using the loader as a rental. The jury rendered a verdict for plaintiff, awarded $1 million, and apportioned fault 50% to the Bobcat defendants and 50% to the rental company. The Appellate Division, Second Department, affirmed, ruling that the Scarangella defense is “not applicable” where the product is sold to a rental company.

The Court of Appeals disagreed and remanded the case for a new trial, ruling that the Scarangella defense is not categorically unavailable to manufacturers where the end user rented the product from an intermediary. The Court of Appeals supported its opinion by stating that the rental company can, and was, held liable for its customer’s injury, and therefore, had a financial interest in ensuring the safety of the products it rents.

Without question, the decision is a victory for manufacturers who sell or distribute products in New York.  Had the Appellate Division’s ruling stood, manufacturers would be liable for the risk-utility evaluations made by third-parties, effectively punishing manufacturers for a rental company’s neglect in purchasing or recommending safety equipment that the rental company knew was available. Manufacturers should remember that the first element of the Scarangella defense requires the manufacturer to establish that the buyer, be it a rental market intermediary, distributor or direct consumer end-user, was actually aware that the optional safety feature is available. Written safety manuals, instructions, and delivery checklists are the best practice to inform the buyer. Discussions between the manufacturer and the buyer can also be sufficient to establish knowledge, assuming they can be established with competent evidence.

Rental companies and similarly situated intermediaries are likely dismayed with this decision as it re-affirms that they can be held solely responsible for failure to warn or advise of optional safety features. If Scarangella were not to apply in rental scenarios, the manufacturer could be kept on the verdict sheet and face the likely split verdict as occurred in Fasolas. A rental company’s tort obligations, however, remain unchanged. Rental companies need to exercise due care in renting products to their clients because they are in the stream of commerce and can be held solely and strictly liable in tort for their acts or omissions in failing to advise their customers of optional safety equipment.

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