From a former Crane Cams Engineer & nitrous user (NO bottle heater) :

 

You are very lucky to be alive and I encourage your crusade. There are too many companies that knowingly design and sell defective or marginal products. Only the fear or reality of an expensive lawsuit will change their attitude. Many of the nitrous kits on the market lack basic safety features, such as automatic shutoffs in case of fuel pressure loss. God only knows how many kids have slapped a poorly designed nitrous system on a car and  destroyed an engine.

Could you please clarify one aspect of what happened. What was controlling the bottle heater? Did it have a thermal switch or pressure switch? Did this switch fail causing the bottle to overheat. Why would having the valve open or shut make a difference?
 
The comments on your web site seem to imply that the system used a pressure switch on the other side of the valve and that with the valve closed, the pressure switch was inactive. If this is the case, the system appears to have been designed in a grossly negligent manner - almost assuring a disaster.
 
Most electrical heater systems (from a lab oven to a cheap hairdryer) have a thermal shutoff that should open the circuit and provide a failsafe means of protection in the event of an over temperature condition.
 
Part of the problem is that many of the aftermarket companies lack competent engineering staff. Your attorney might ask who designed the bottle heater. Were they a graduate engineer in an appropriate discipline (i.e. a mechanical engineer designing the mechanical hardware and an electrical engineer designing the control system and wiring). Did they have access to and follow any applicable standards (SAE or UL)? Was a FMEA (failure modes and effects analysis) ever done? Was any destructive testing (i.e. deliberate overheating) ever done? Where appropriate warning labels attached?

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