My question was basically how could a tear in the negative side of a battery, making contact with the negative chassis of the mod cause a short. So far, no one has offered an explanation, everyone has just repeated that it was dangerous.
In general, it's a good idea to replace torn wrappers; but actually, it depends on the design of the mod. For example, a metal tube mod that is activated by a bottom push button contacting the negative end of the battery, and the positive end of the battery being in constant contact with the center pin of the mod, (examples: Nemisis or Stingray) is more dangerous than a wood or plastic box mod. In these types of tube mods, where the switch is on the negative end, if the torn battery contacts the side of the tube, the mod auto fires.
On a mod where the negative end is in constant contact, (examples: Poldiac, REO, Roller, etc), and the switch is on the positive side, it's not as dangerous. But, because of the fact that many of us use various mods, but interchange the same batteries among them, keeping batteries in good condition is important.