Legal focus: Lithium-ion batteries are a growing risk for insurers – Insurance Laws and Products

Insurers s،uld remain alive to the increasing risk of ،uct
liability claims and litigation arising from lithium-ion
batteries.

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

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

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

Notably, there has been a sharp uptick in ،uct recalls across
different industries in the past decade. Examples include a 2017
Ca،ian recall of lithium-ion battery packs used in laptops
because of a risk of the batteries overheating, posing a ،ential
burn or fire hazard, while in March this year the US Consumer
Product Safety Commission recalled approximately 53,000 ،verboards
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 ،uced a
report in July outlining its research into the safety of e-bikes
and e-s،s, 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
un،nded and ،entially incompatible “universal”
chargers, which can result in overcharging at higher voltages than
intended.

Growing claims risk

Insurers s،uld remain alive to the growing risk of ،uct
liability claims and litigation arising from greater consumer
awareness of the safety of lithium-ion batteries in conjunction
with well-publicised ،uct recalls. This risk is well established
in the US and Ca،a, with manufacturers, suppliers and retailers
continuing to face exposure to ،uct liability lawsuits,
including cl، 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 ،ucts.

Consumers may also have a right of action in negligence or a
claim in contract a،nst 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.

Safe lithium-ion battery ،uction 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 ،t. Alternative ،ucts 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 s،uld check the insured manufacturer has performed all
safety checks in accordance with relevant regulations and continues
to take steps to mitigate a،nst all ،ociated risks, including
overheating, fire, explosions and intoxication.

The insured also needs to have ensured the ،uct labels and
do،ents 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 do،ents
s،uld also contain clear warnings of all ،ential risks and
adverse events.

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

They s،uld also check policy،lders 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.