Couple of problems.

That there, reads the whole thing. It is pretty rare to have a problem reading from a filehandle. You probably want while (my $line = <FH>){ munge(); } to read one line, process that, then read line two, and process that, so when you get an error you've only read N lines rather than all of them.

You're setting failure to 1 instead of testing to see if it is 1? ($failure == 1) is what you want, or simply ($failure) if you only care if it is true or false.