Legal focus: Lithium-ion batteries are a growing risk for insurers

This article was originally published in Insurance Day, September 2023.

Insurers should remain alive to the increasing risk of product liability claims and litigation arising from lithium-ion batteries.

Lithium-ion batteries are a common source of energy across a wide range of consumer products, with users benefiting from their portability, long lifespan and fast charging times.

Global demand has grown in response to the rapidly increased production of compact consumer electronics such as smart phones, laptops and e-cigarettes.

Despite their benefits, however, lithium-ion batteries are known to present a potential fire hazard if they overheat, placing end users at risk of serious personal injury or death. In recent years, they have been under the spotlight following a number of product safety warnings and recalls issued by regulators and manufacturers at the turn of the new millennium.

Notably, there has been a sharp uptick in product recalls across different industries in the past decade. Examples include a 2017 Canadian recall of lithium-ion battery packs used in laptops because of a risk of the batteries overheating, posing a potential burn or fire hazard, while in March this year the US Consumer Product Safety Commission recalled approximately 53,000 hoverboards following reports some had caught fire.

It is not only businesses and regulators that are taking action. From 1 June, several UK train companies banned lithium-ion battery-powered personal vehicles from stations and trains to mitigate fire risks.

Campaigning charity Electrical Safety First also produced a report in July outlining its research into the safety of e-bikes and e-scooters, highlighting the risks of conversion kits (to convert regular bikes into e-bikes) and batteries purchased from online marketplaces, which may not meet the required safety standards; and also mis-selling and online marketplaces selling unbranded and potentially incompatible “universal” chargers, which can result in overcharging at higher voltages than intended.

Growing claims risk

Insurers should remain alive to the growing risk of product liability claims and litigation arising from greater consumer awareness of the safety of lithium-ion batteries in conjunction with well-publicised product recalls. This risk is well established in the US and Canada, with manufacturers, suppliers and retailers continuing to face exposure to product liability lawsuits, including class actions.

In the UK, manufacturers and suppliers will be strictly liable under the Consumer Protection Act 1987 for defective lithium-ion batteries that have caused injury or death to a consumer or damage to private property. Producers may also be strictly liable for defective lithium-ion batteries they have sourced and incorporated into their products.

Consumers may also have a right of action in negligence or a claim in contract against a seller under the Consumer Rights Act 2015. Businesses that may have suffered loss or damage as a result of an allegedly defective battery supplied by a third-party contractor may have a right of action under the Sale of Goods Act 1979 and/or the Supply of Goods and Services Act 1982. In some business-to-business contracts, liability for property damage may be limited or excluded by the terms and conditions.

Insurers should remain alive to the growing risk of product liability claims and litigation arising from greater consumer awareness of the safety of lithium-ion batteries in conjunction with well-publicised product recalls.

Safe lithium-ion battery production is a priority for the UK Government. Its recently published UK battery strategy emphasises the importance of improving their design to minimise the risk of cell fires that can occur under conditions of mechanical, thermal or electrical stress.

Technological advancements are expected to make lithium-ion batteries safer, such as the ability for a device to effectively shut down when the battery gets too hot. Alternative products are also being developed, such as sodium-ion batteries, which are cited as being safer and more sustainable. The war in Ukraine is also reported to have led to further research into alter­native, cleaner energy sources in a bid to rely less on Russia’s crude oil and to meet renewable energy goals.

Risk mitigation

To mitigate the risks presented by lithium-ion batteries, insurers should check the insured manufacturer has performed all safety checks in accordance with relevant regulations and continues to take steps to mitigate against all associated risks, including overheating, fire, explosions and intoxication.

The insured also needs to have ensured the product labels and documents packaged with the batteries contain clear instructions for use, highlighting the risks of misuse. This may include, for example, an incompatible charger manufactured by another company that is intended for use with another device. These documents should also contain clear warnings of all potential risks and adverse events.

Where necessary, building and property insurers should consider inserting policy exclusions for loss and injury arising from fires and other risks resulting from battery use or, alternatively, add an endorsement to expand coverage for an adjusted premium where such risks exist.

They should also check policyholders ensure the batteries are stored in optimal safety conditions in accordance with the instructions for use and appropriate warning systems are installed, such as smoke or fire alarms.

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