"All vendors want the dead drive back to cover it under warranty. All businesses want defective product returned for warranty claim. Not at all unusual."
Usually they do. There are multiple vendors that will make an arrangement, where the customer retains custody of the failed drive; especially when required due to regulatory reasons.
"Not at all unreasonable."
With hard drives, it is a bit unreasonable. The problem is, release of even a drive that is not working correctly
contains private data, which may have a variety of unpredictable implications -- its a huge unreasonable risk.
With the drive not functioning correctly, there is no way to remove private data from the drive,
except physically destroying it.
If the hard drive manufacturer would provide a simple mechanism, where the customer can ensure that their private data is unreadable after it is released from their custody, and satisfy their requirement to return the drive, then it would be reasonable.