Look for a lot more litigation against makers of smoke detectors in situations when the devices fail to sound an alarm during a fire. Boston plaintiff lawyer Edward M. Swartz, author of "Hazardous Products Litigation," calls such suits "the biggest sleeper consumer issue of the next decade."

A decision last month from the U.S. Court of Appeals in New York shows which way the legal winds are blowing. The judges there reinstated a smoke-detector suit that the trial court judge in Buffalo had thrown out. The case "fell into a gray area between tort and contract law that has never been fully resolved," explained one appellate judge, Lawrence W. Pierce. But he and his colleagues decided that in such a close call, they should come down on the side of the injured homeowner.

That homeowner, Stephen W. Butler, claimed that on Aug. 7, 1981, he was awakened by the smell of smoke. He got his family out of the house and phoned the fire department; he said only after the firefighters entered the house did the First Alert smoke alarm installed two years earlier go off. The fire damage was much more extensive than it would have been had the call for help gone out earlier, Butler claimed; he also attributed later psychological and physical problems to the shock sustained that night.

None of those charges have yet gone to trial, because the ruling of the trial court -- the U.S. District Court in Buffalo -- held that even if a jury believed the allegations, there were no grounds for awarding damages, because the smoke alarm did not itself cause the fire. The law's distinction between contract and tort actions suggests that in most cases, a person who suffers economic losses because an item does not function properly can collect only what would be due for a failure to live up to a contract. In the smoke alarm case, that probably would mean no more than getting a refund of the purchase price.

But the Aug. 2 decision in Butler v. Pittway Corp. held that a smoke alarm is not an ordinary product, but one where a defect makes it unduly dangerous. The situation is similar to that of a faulty car-door latch, the judges reasoned, where passengers are thrown out in an accident and suffer far worse injuries than they would have had the door stayed shut. "A malfunctioning smoke detector can create an unreasonable risk of harm," Pierce warned manufacturers, "in that the inhabitants of a structure who rely on such an alarm may be lulled into an unjustified sense of safety and fail to be forewarned of the existence of a fire."

The judges insisted that forcing the company that makes a malfunctioning smoke alarm to pay for damages that stem from its failure is more than good law -- it is also sound social policy. That's because making a company pay tort damages will goad management into ensuring that the product is as safe as it possibly can be. The extra costs of the extra safety can be passed on to consumers, the judges suggested.

Swartz says that a reluctance to build in extra safety -- and thus to increase the cost of smoke detectors -- is a major reason that more such failures will be the basis for consumer suits. A year ago, he won a $1.80 million judgment, plus $1 million in interest, from Sears, Roebuck & Co. in a case alleging that a smoke-alarm failure led to the death of three brothers in a house fire and the maiming of their sister. In an interview this summer with Lawyers Alert magazine, Swartz encouraged other lawyers to wage such litigation.

One big problem with most smoke detectors now on the market, Swartz says, is that they do not include a gas detector to warn of dangerous fumes from burning vinyl upholstery or rugs that may give off little or no smoke. Another is that buyers merely plug the detectors into an existing circuit, rather than having an electrician install a circuit dedicated exclusively to the alarm. In the Sears case, the three brothers, who shared an attic bedroom, had overloaded the circuit, so that the cause of the fire also knocked out the alarm.

But is it the fault of the manufacturer if a homeowner takes a shortcut in installing the device? Swartz is convinced that lawyers can show that it is. "Many ads actively discourage consumers from making the product safer," he argues. "They say 'all you have to do' is plug it in, and don't even suggest that you spend $60 or $70 to have an electrician install another circuit. They don't tell you that it would be a good idea to get a battery backup." He believes that homeowners would spend the extra money if they knew it was buying them extra protection.

By not suggesting how to use the detector in the safest possible way, manufacturers are failing to warn buyers, Swartz believes, and that is a standard basis for a tort suit. "It is not all right for advertising to suggest that you are safe from fire-related injuries, and simply neglect to mention that you are not protected from gas," he told Lawyers Alert.

The problem, of course, is that shoppers are likely to go for the brand with the lowest price tag. Similarly, fire prevention officials, in the push to get families to install smoke detectors, have tended to make all smoke detectors seem equal. The Butler decision hints that only when damage claims pile up will manufacturers drop the low end of their smoke-detector lines and force consumers to buy more expensive products with more features. That assessment may turn out to be prophetic.