Actually it is a known fact that worn electrical wiring can start house fires, cans of gasoline can ignite, lighting a cigarette while putting gas in your car can cause a fire, and batteries can swell. The first device I ever had that the battery did this and damaged the device was a transistor radio in the 1960's.
It doesn't make it a known defect.
Environmental issues can affect batteries such as using it too long when it is showing signs of failing, using it regularly outside its specified operating specifications (particularly heat), or the battery just fails. That does not constitute a known defect. And a swelling battery is not necessarily a fire hazard, chargers cause more fires than batteries.
Note that this was an iPod not a phone. It occurred outside of warranty. According to you how many years should Apple replace a device for free if the battery fails and begins swelling?
Sure glad you solved the OPs question with your misinformation.