News

Lithium Battery Fires – Not so Lit?

Introduction

Lithium batteries (also known as lithium-ion batteries) have become commonplace in devices such as mobile phones, cameras, laptops, e-cigarettes, tablets and e-bikes. They are popular because, unlike alkaline batteries, they are rechargeable and can be used multiple times, making them a comparatively sustainable energy source.

This article will outline the key risks and coverage issues associated with lithium batteries for policyholders.

Why are Lithium Batteries so dangerous?

The London Fire Brigade has said that lithium battery fires are the fastest growing cause of fires in London in 2024. That is because of the phenomenon of ‘thermal runaway’, which occurs when flammable materials within lithium batteries break down. This is usually due to manufacturing defects or when the battery cells overcharge, which can lead to the release of a cloud of flammable gases which, in turn, can cause vapour cloud explosions. The vapour cloud explosions exacerbate the ignition of the battery and the speed at which a fire spreads.

Lithium battery fires can be unpredictable, and it is common for batteries to reignite days after the initial ignition. That is why they can cause such large fires, as seen at the Suez Recycling Centre in July 2024, where the most likely cause of the fire was thought to be the improper disposal of a lithium battery, which ignited in a pile of waste of around 100sqm (and it took 15 fire engines and 100 firefighters to quell the blaze). As a further example, a fire was allegedly caused at a home in Wales in September 2024, by a mobility scooter that was charging. Firefighters were present at the blaze for more than 12 hours.

The Wider Problem

The unpredictable nature of lithium battery fires may result in some building and property insurers declining and restricting cover for fires caused by them, or charging additional premium to cover this risk.

Further, it may be more difficult for companies whose businesses rely heavily on lithium batteries, such as those in the manufacture, supply and retail of products which utilise lithium batteries to obtain cover from their product liability insurers.

The legal climate around lithium batteries is changing, as we have seen with the introduction of the Lithium-ion Battery Safety Bill which aims to regulate the safe storage, use and disposal of lithium batteries in the UK. However, as we have seen with other emerging risks such as climate change, further discussion may be required between the relevant stakeholders to ensure that lithium battery risks do not become “uninsurable”.

The following section sets out some of the key coverage issues that may arise.

Coverage Issues for Policyholders 

Breach of the duty of fair presentation

Policyholders are required to make a fair presentation of the risk under the Insurance Act 2015 (“the Act”). To make a fair presentation, a policyholder must disclose all “material circumstances” to the insurer that the policyholder knows or ought to know. Failing that, an insured can satisfy the duty by giving the insurer sufficient information to put it on notice that it needs to make further enquiries for the purpose of revealing those material circumstances (section 3(4)(b) of the Act). A circumstance or representation is ‘material’ if it would influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms. The duty is not limited to answering questions asked by the insurer in a proposal form.

So, for example, say a policyholder deliberately discloses to an insurer that it has a sophisticated strategy in place for mitigating the risk of fire due to the high number of products containing lithium batteries at its premises when, in fact, the position is otherwise. In that situation, an insurer would probably be entitled to refuse to indemnify the policyholder for a claim on the basis that, had the true position been disclosed, it would have provided insurance on different terms, if at all.

A more difficult position may arise when an insurer does not ask any specific questions about the extent to which lithium batteries are used in an insured’s business, and an insured inadvertently fails to disclose the true position on inception or renewal. Is the use or storage of products which contain lithium batteries itself a material circumstance? If so, will disclosure of the type of products supplied or stored be sufficient to put the insurer on notice and discharge the duty owed under section 3(4)(b), or will an insured have to spell out that the products contain lithium batteries?

It should be borne in mind that not all lithium batteries necessarily pose a fire risk. In that regard, the Fire Protection Association has provided guidance that each fire protection and mitigation strategy should be assessed on a case-by-case basis. That will include a consideration of the battery type, the Battery Energy Storage System (“BESS”) and layout.

Breach of Condition Precedent to Liability

Insurance policies frequently contain terms known as ‘conditions precedent to liability’. Subject to certain provisions in the Act, such terms must be complied with strictly, otherwise there is no cover for the claim.

In Wheeldon Brothers Waste Limited v Millennium Insurance Company Limited [2018] EWHC 834 (TCC), the policy contained a condition precedent that combustible waste had to be stored at least 6m from any fixed plant. On the evidence, the court found there was no breach of the condition precedent, and that “storage” meant a degree of permanence and a deliberate decision to designate an area to place and keep material.

Guidance from the Fire Protection Association states that the BESS should be (a) located in non-combustible containers or enclosures, (b) placed at least 3 metres from other equipment, buildings, structures and storage, and (c) the distance should only be reduced when there is a suitable-fire barrier, where exposed surfaces and fire-resisting, or where BESS enclosures have fire-resisting walls and roofs. If insurers impose conditions relating to storage in compliance with this guidance, the decision in Wheeldon is potentially relevant as to what “storage” means.

It is open to a policyholder to rely on section 11 of the Act and show that the breach could not have increased the risk of loss which occurred in the circumstances in which it occurred.  For example, if there was a fire at a policyholder’s premises, and it had breached a condition requiring it to store lithium batteries in a particular way, to escape the consequences of breach, the policyholder would need to prove, in effect, that compliance would not have impacted the general risk of fire.

Concluding Thoughts

There is no UK specific guidance or legislation to govern lithium battery use, storage or disposal. Policyholders should therefore consult reliable guidance to ensure that fire risk strategies are sufficient on a case-by-case basis, and compliant with the terms of the policy.

If in doubt, policyholders should consult with their brokers on inception and renewal to ensure that they have complied with their disclosure obligations and are able to satisfy the applicable policy terms to maximise the chance of policy coverage in the event of a lithium battery fire.

Ayo Babatunde is an Associate at Fenchurch Law.

by Ayo Babatunde

(Not) the new LEG clauses.

Let me start by making something clear. The clauses referred to below are NOT the new LEG clauses.

Whilst I have made no secret of my view that the LEG committee does need to amend LEG3 (and, perhaps, should have done so before now), and that the decisions in SCB and Archer have provided a golden opportunity to overhaul not just the LEG clauses, but the DE clauses too, I have no involvement in the decision about whether the LEG committee will, in fact, produce new versions of the LEG clauses or, if they do decide to do so, in determining what those clauses will look like. As a result, what is set out below represents nothing more than my own suggestions about how the existing LEG clauses could be amended in order to preserve what I believe to be the general market understanding of their meaning, whilst being expressed in clear language that would be easily understood not only by those who specialise in CAR / Builder’s Risk, but also by those who have no involvement in this particularly fascinating area of insurance.

I have been asked, not unreasonably, whether it is misleading of me even to refer to my own draft clauses by reference to the official LEG clauses. However, after careful consideration I have maintained the view that I originally took instinctively, that it is appropriate for me to do so, for two reasons.

The first is that my proposed clauses are not intended to alter the meaning of the existing clauses but, rather, to express what I regard as the meaning of the existing clauses in a clear way. Whilst I am happy to be challenged about my understanding of the meaning of the existing clauses, it would make no sense for me not to explicitly link my drafts to the current clauses, because my re-drafts of each clause only make sense when considered in the context of the original. I don’t consider it to be my place, as a lawyer, to be suggesting that the intention of the existing clauses should be changed in order to provide more (or less) cover. That is for underwriters and brokers to decide.

The second reason is that, although the LEG clauses are officially maintained by the London Engineering Group (i.e. “LEG”), the existing clauses have become, in my view, public property as a result of their popularity, and by their wide usage across the world. For better or for worse, the scope of cover provided by Builder’s Risk policies in every insurance market needs to be considered in the context of the defects exclusions produced by the LEG committee, whether an official LEG clause is used, or whether a different form of defects exclusion is used (whether from the DE suite, or bespoke clauses).

That being the case, it seems to me that anyone with a serious interest in the health of the Builder’s Risk market has the right to contribute to the debate about what the market-leading suite of defects exclusions (which is what the LEG clauses are) should look like in the next generation of Builder’s Risk policies. I don’t claim to have any unique insight into that debate, or to be writing the last word on the subject, but I do hope that what I say can be a useful contribution to what should be a market-wide conversation about these important clauses.

What would be worse even than the unsatisfactory position that we are in today (where SCB and Archer have raised considerable uncertainty about the meaning of the clauses, and arguably called into question whether their meaning can reliably be ascertained at all), would be for insurers to fragment and begin to provide a multiplicity of their own defects exclusions. These clauses have layers of meaning, and there is beauty in their individual and collective complexity. But if we move away from standard defects exclusions, then beautiful complexity may give rise to unfathomable chaos in which brokers, policyholders and, if we’re honest, even the Builder’s Risk underwriters themselves, will have little chance of achieving a clear common understanding of the cover that their policies are providing. In that situation it would only be the lawyers who would be the only winners, and no-one wants that.

So, what is the problem with the existing clauses?

Firstly, they are overly long and convoluted. There are numerous phrases (most notably, but not only, the words in brackets in the 2006 version of LEG3) which I understand to have been introduced “for the avoidance of doubt”, but which have had precisely the opposite effect.  Rather than bringing clarity to the meaning of the clauses, these superfluous phrases have instead obscured that meaning.

Secondly, the word “defect” is used to describe two quite different things in different contexts. Sometimes the word defect is intended to describe the condition of the insured property. At other times it appears to be intended to refer to a mistake (whether a mistake concerning design, or workmanship, etc).

Thirdly, the clauses have encouraged some users to take the view that they treat “damage” on the one hand, and a “defect” on the other, as binary concepts, so that one should be concerned with the question of whether insured property is damaged OR defective. However, that is plainly not right. As I remember being explained to me when I began to work with Builder’s Risk policies, when you refer to “damage” you are concerned with a happening, whereas when you refer to a “defect” you are concerned with a condition.

Knowing that insured property is in a condition that the owner would preferred it not to be in, today (so that it can therefore be described as being defective, today), tells you nothing at all about whether the insured property underwent an adverse change in physical condition which impaired the value or usefulness of the property.  If it did undergo that change (i.e. it suffered damage in order to reach its defective state or, to put it another way, it become “damaged”), then that would trigger the insuring clause of a Builder’s Risk policy.  If, on the other hand, the insured property was simply built badly, it should never trigger the insuring clause of a Builder’s Risk policy.

So, what am I intending to achieve in my proposed re-drafts of the clauses? As set out above I am not intending to suggest any alteration of the cover which I believe is intended by the existing clauses. Rather, my only intention is to express, in as clear language as possible, my understanding of the meaning of the existing clauses.

With that in mind, my re-drafts have largely retained the existing language of the current LEG clauses, and primarily removed the words which in my view serve to obscure the meaning of the existing clauses. The exception to that approach is in my proposed amendment to LEG1, where in order to avoid using the word “defect” to refer to a mistake, I have instead introduced that word into the clause even though it doesn’t appear anywhere in the existing suite of exclusions. However, in my view, the natural and ordinary meaning of the word “mistake” accurately reflects the meaning of the (in my view) misleading word that it replaces in the original clause.

A final point in relation to the clauses. As I explained in my article on the SCB decision, the urgent need to amend LEG3 (and, by extension, the other LEG clauses) presents an opportunity to move away from the current unhelpful position where we have two separate suites of defects exclusions (LEG, and DE).

Each suite can be broken down in three categories: clauses that are concerned with causation (LEG1 and DE1); clauses that are concerned with improvements (LEG3 and DE5); and clauses that are concerned with the condition of the insured property before damage occurred (DE2-4, and LEG2). Of those three categories, the clauses relating to two of them are materially the same in each suite, despite differences in drafting (i.e. LEG1 and DE1 do the same thing, as do LEG3 and DE5 - there may be technical arguments that they operate slightly differently, but those technical arguments should not, in my view, be taken seriously).

The only difference between the two suites is in the intermediate clauses which are concerned with the condition of the property before the damage occurred. In that regard LEG2 operates materially differently from DE2-4. That is due to the different origin of the two suites: the DE clauses were intended to be general Builder’s Risk clauses, whereas the LEG clauses were introduced specifically to cater for engineering risks (i.e. EAR as opposed to CAR). Unfortunately, the DE clauses have not been as successfully exported as the LEG clauses (perhaps because there are more of the DE clauses and so they are perceived as being more difficult to understand), with the result that in some important markets, including the US, the LEG clauses are used as standard for civils projects, whereas the DE clauses would be more appropriate for projects of that type.

So, rather than simply amending the LEG clauses, it seems to me to be much more sensible to introduce a single suite of clauses which are based on the existing LEG clauses, but which re-brand LEG2 in the way it was intended (i.e. as applying to EAR) and amending DE3 as a civils alternative to LEG2.

And with that rather long introduction, and with thanks for the patience of anyone who has taken the time to read this far rather than jumping straight to the draft clauses themselves, here are my suggestions for a new single suite of defects exclusions, modelled on the current LEG clauses, but with an amended version of DE3 introduced as an alternative to LEG2 (and branded LEG2 (CAR)).

I would love to hear from anyone who either agrees or disagrees with what I’ve set out above. The market would benefit from a debate on this important issue, and we have an opportunity to create a better situation than the one in which we find ourselves today. Please feel free to email me either at david.pryce@fenchurchlaw.co.uk, or at david.pryce@fenchurchlaw.com.sg.

David Pryce is a Senior Partner at Fenchurch Law.

by David Pryce

Grenfell Tower Inquiry: Phase 2 Report

Last week saw the publication of the second and final Grenfell Tower Inquiry report (“Report”) examining the circumstances that led to the tragedy which claimed 72 lives more than seven years ago.

The damning Report concluded that the “culmination of decades of failure by central government” and the “systematic dishonesty” of product manufacturers contributed to a rotten culture at the heart of the industry, setting the path to disaster.

Below is a summary of the key findings in the Report.

Summary of Report Findings

The Report named and shamed a number of parties, including, amongst others:

1. The government. From the fires that involved extensive spread through combustible external panels at Knowsley Heights in 1991, Garnock Court in 1999 and Lakanal House in 2009 respectively; to the knowledge of BRE’s large-scale test results showing ACM panels burnt violently in 2001; and awareness of the industry’s worries that combustible insulation and ACM panels were routinely used on high-rise buildings in breach of building regulations – time and time again, the government failed to act in relation to the risks posed by use of these combustible materials in buildings. The government’s deregulatory agenda also contributed to the disregard and delays in strengthening the fire safety regime.
2. The Building Research Establishment. The BRE, recognised as a leader in fire safety nationally and internationally, was regularly engaged by the government to carry out research and provide reports. The Inquiry uncovered issues with the BRE such as poor record-keeping, and a lack of scientific rigour, which exposed it to manipulation of test results by product manufacturers. Further, the BRE seemed to have been reluctant to draw the government’s attention to the dangers presented in the cladding products it tested, and the reports presenting these risks to life were drafted in less than overt terms.
3. Arconic Architectural Products, Celotex and Kingspan. These companies were manufacturers of the combustible ACM cladding and insulation materials used in the refurbishment of Grenfell Tower. Despite being fully aware the products they sold came with grave concerns for fire safety and were unsuitable for using on high-rise buildings, they all “engaged in deliberate and sustained strategies to manipulate the testing processes, misrepresent test data and mislead the market” so as to further their own commercial interests at the expense of others.
4. Rydon, Harley Façade and Studio E. The principal contractor, cladding subcontractor and architect engaged in the refurbishment project were all criticised for failing to understand and discharge their obligations under the contracts. None of them were found to have acted in accordance with the standards of a reasonably competent person in their respective positions. In particular, as the architect of the refurbishment project, Studio E was responsible for the design of the external wall and its choice of materials, and therefore bears a “very significant degree of responsibility”.

The Report also addresses two matters outstanding from the Inquiry Phase 1:

1. On the contribution to the fire by ACM panels and the insulation boards, it confirms that the principal factor in the rapid growth of fire was the unmodified polyethylene in the ACM panels, though the insulation (due to its heat retaining ability) was also key.
2. As to how the fire escaped into the external wall of the building from the kitchen of the flat where the fire first started, it confirmed the findings in Phase 1, i.e. due to the proximity of combustible cladding to the fire, where the fire likely escaped via the route of a collapsed uPVC window jamb into the column cavity in the external wall.

The Report contains various recommendations targeting the deficiencies identified, with the aim of preventing another cladding fire disaster. To enhance accountability and ensure the government will seriously consider the recommendations affecting fire safety going forward, the Inquiry recommends that the government be legally required to maintain a publicly accessible record of recommendations made by select committees and public inquiries, and document the steps taken in response.

Key Takeaways

The Grenfell Tower fire is a disaster that could have been avoided.

At present, there remain some 2,000 residential buildings in the UK at 11 metres or over identified has having unsafe cladding, in respect of which remedial works have yet to commence. The recent fire that engulfed a block of flats in Dagenham with “non-compliant” cladding highlights the urgency for remediation: there can be no excuses for  history repeating itself.

Developers, landlords and construction professionals with cladding exposures should proactively step up to collaborate on completion of investigations and remedial works, to make homes safe. The Report provides some guidance on the apportionment of liability among the various industry stakeholders, which could potentially be helpful for parties pursuing recoveries / seeking contributions, for projects with unresolved cladding and fire safety claims.

Queenie Wong is an Associate at Fenchurch Law

by Queenie Wong

Affected by the Riots? Insurance and Other Remedies

Insurance

If your property has been damaged due to the recent nationwide spate of riots, your first port of call for remedy should be your insurers.

Affected individuals should notify their insurers of any damage as a result of the riots, as soon as possible.

Most property policies will include standard cover for physical damage to property. However, some policies may contain an exclusion for losses caused by, or in consequences of riot.

The definition of a riot (unless otherwise defined) in an insurance policy is its technical legal meaning as per The Public Order Act 1986 s.1, which requires a minimum of 12 people for the offence of riot.

The Riot Compensation Act 2016

In the event that a claim is declined, for example, due to a riot exclusion or a vehicle only being insured for third-party losses, the Riot Compensation Act 2016 (“RCA”) may provide an alternative route for compensation.

The RCA was introduced to help communities recover more quickly from the impact of rioting where the affected individuals are either inadequately insured or have had their claim declined by their insurer.

If your property is insured, the RCA requires an affected person first to claim via their insurers.  However, If the claim is declined in full or part, the affected person can seek further remedy under the RCA.

What the RCA will cover:

• Owners of a building may claim for damage to the buildings structure;
• Tenants/Occupiers may claim for damaged/stolen contents;
• Damaged or stolen business items stored in a vehicle;
• Damaged or stolen stock-in-trade vehicles; and
• Damaged or stolen underinsured vehicles.

What the RCA will not cover:

• personal items held outside of a building;
• consequential loss e.g. loss of trade or rent; and
• personal injury - this is dealt with by the Criminal Injuries Compensation Authority (CICA).

Deadlines:

• An affected individual will have 42 days from the date of the riot ending to claim under the RCA, unless;
• The affected individual has first made their claim under their insurance, in which case they will have 42 days from the date the insurer declines/partially declines the claim.

How to claim via the RCA:

• Claimants should complete and send the GOV.UK dedicated claim form via post or email to the claims authority for the police force in the area where the riot took place.
• The details of where to send the claim form will be found on the police force’s website.

Helpful Links:

• Riot Compensation Claim Form: pages 22-27
• Riot Compensation Guide
• Riot Compensation Quick Guide

Chloe Franklin is an Associate at Fenchurch Law

by Chloe Franklin