This paper presents a root cause analysis case study of defective Hall-effect sensor devices. The study identified a complex failure mode caused by chip-package interaction, which has a similar signature to discharging defects such as ESDFOS. However, the study revealed that the defect was induced by local mechanical force applied to IC structures due to the presence of large irregular-shaped filler particles within the mold compound. Extensive failure analysis work was conducted to identify the failure mode, including the development of a new backside analysis strategy to preserve the mold compound during IC defect localization and screening. A combination of different failure analysis techniques was used, including CMP delayering, PFIB trenching, SEM PVC imaging, and large area FIB cross-sectioning. The study found that the mold compound of the package caused thermos-mechanical strain onto the silica filler particle due to epoxy shrinkage during the molding process. Additionally, extra-large, irregularly shaped filler particles (called twin particles), located on top of the chip surface, can cause locally high compression stresses onto the IC layers, initiating cracks in the isolation layers under certain conditions forming a leakage path over the time. Thermo-mechanical finite element analysis was applied to verify the mechanical load condition for these large irregular-shaped filler particles. As a result, an additional polyimide layer was introduced onto the IC to mitigate the mechanical stress of mold compound particles to avoid this failure mode.