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.