The liabilities associated with lithium-ion fire risk are underestimated

A steep rise in lithium-ion battery fires should be a concern for risk managers and insurers alike, with the intensity of blazes, due to the chemicals involved, also raising the potential of high severity losses.

That was the message David Waller, director and global head of environmental adjusting at Sedgwick, offered AIRMIC Today. He predicts a wake-up call is coming. “Our infrastructure, such as motorways, multi-storey car parks and high-rise buildings, were not built with fires of this intensity in mind. The authorities, businesses and the insurance industry are largely at a wait and see stage; the matter will come into sharp focus if and when there is a major incident,” he said.

UK fire services reported a 46% increase in lithium-ion battery fires in 2023. He suggests this is due to a combination of more usage, growing misuse, product faults and under-regulated imports. “Electric bikes and scooters are becoming cheaper and therefore much more prevalent,” he noted.

He also suggests many fires are misclassified, meaning the true figure could be higher. “Where fires are caused by small devices – and even supposedly empty disposable vapes can be a frequent ignition source – it is unlikely the precise cause can be confirmed given the physical evidence will be consumed in any moderate fire. That leads to under-reporting.”

But the liability exposure of such incidents can far-reaching. He notes that almost all businesses in a supply chain (apart from certain overseas suppliers) may have potential exposure. “Higher-voltage batteries such as in EVs (electric vehicles) are driving a situation where, once a fire is started, there is much more chance of this escalating into a potentially catastrophic loss. Environmental risks can be huge; for instance, an EV fire in a container ship that destroyed a huge number of luxury cars produced the most environmentally toxic and hazardous liquid waste ever classified in the UK,” Waller said.

But such pollution liabilities linked to battery fires can be an overlooked exposure for insureds, particularly those without environmental impairment liability (EIL) cover. “There are such large financial and reputational exposures not normally insured under standard general liability wordings, that a fire of this type could put an operator out of business,” Waller warned. “The heavy metals released in smoke and extinguishment water are highly toxic to human health and to the environment and pollution remediation costs and possible class action liabilities could feasibly run to hundreds of millions of pounds.” 

He said awareness of this risk is growing and a risk management response is happening in some instances. Some ferry companies are removing charging points and asking EV drivers only to board on low charge; some high-rise blocks are banning EVs from underground car parks; car park operators are reconsidering offering charging points. 

Yet the response from insurers is slower. “I haven’t yet seen any other evidence of any improved risk management filtering down from insurers. I believe the industry should try to play a proactive part in driving this, particularly encouraging risk managers to re-assess risks, improve emergency plans, in particular building evacuation plans,” he said. 

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