Battery Risks

Exploding Exposures

From fire risk to defective counterfeits, lithium-ion batteries present insurers and risk managers with a variety of property and liability challenges. 
By: | August 3, 2016 • 5 min read

From personal items such as e-cigarettes, cellphones and laptops to power tools, hoverboards, electric vehicles and alternative energy storage, rechargeable lithium-ion batteries (LIBs) come in all shapes and sizes, and are integral to modern living.

Advertisement




But despite their increasing application, the fire risks associated with LIBs have gained publicity of late, piquing the interest of insurers across a range of disciplines, from property and casualty to supply chain to product and environmental liability.

If overheated, LIBs can enter “thermal runaway,” emitting flammable material — sometimes in the form of small explosions; the bigger or more powerful the battery, the more impactful the event.

LIBs include a number of safety features to minimize the risk of thermal runaway. However, overcharging, damage to the battery, using an improper charging device or even excessive discharge can all trigger the problem.

After a UPS plane carrying a bulk LIB cargo caught fire and crashed in 2010, at least 18 airlines, including Cathay Pacific, Emirates and Qatar Airways, banned the bulk haulage of such cargo, causing supply chain headaches for companies transporting LIB products.

There have also been incidents when personal items have ignited in the carry hold on passenger flights.

A study by the Federal Aviation Administration (FAA) showed that gas venting from the batteries had the potential to “rocket” the battery away from the heat source. In a bulk storage facility, this could send batteries off into other parts of the warehouse, spreading the fire.

“If you are selling lithium batteries, it is even more important to have detailed instructions and warnings because there are so many things that can go wrong.”  — Paul Owens, products liability manager, Sadler Products Liability Insurance

Indeed, bulk storage situations pose the biggest threat due to the risk of contagious overheating when multiple batteries are in close proximity.

“When you have a lot of these batteries together, fires can grow very quickly and be very damaging,” says Lou Gritzo, vice president of research at FM Global.

However, Gritzo’s firm said it made a major research breakthrough in April that could help mitigate LIB fire risk.

Lou Gritzo, vice president of research, FM Global

Lou Gritzo, vice president of research, FM Global

In partnership with the National Fire Protection Agency and the Fire Protection Research Foundation’s Property Insurance Research Group, FM Global conducted a first-of-its-kind warehouse fire test on the type of LIBs used in electric cars and energy storage. The test, he said, identified a sprinkler configuration that provides an “adequate fire protection point.”

Gritzo hopes the test results, which he expects to be published in a few months following data quality assurance checks, can be taken on board as an industry standard.

The results do not resolve the issue of air cargo safety, though some findings may be extrapolated out to develop in-flight fire extinguishing systems and improve safety for LIB cargo transportation.

Beyond the warehouse environment, LIB-powered devices present a product liability risk for manufacturers, importers, distributors and retailers. The biggest hazard lies in importing products that have been installed with defective or even counterfeited batteries that have been repackaged and rebranded to look superior.

In February, for example, U.S. Customs and Border Protection seized 3,500 hoverboards worth $1.8 million that reportedly contained substandard counterfeit batteries that posed a safety risk.

“If you are an electronics manufacturer, it is essential you know who and where you are buying your batteries from, that you are getting high quality batteries, and that they have high thermal runaway thresholds,” said Morgan Kyte, senior vice president and technology team leader at Marsh. R8-16p50-51_9Lithium.indd

Detailed Warnings Required

The importer of defective goods is considered the manufacturer in the eyes of the law, and in the eyes of insurers in the event of a claim, said Paul Owens, products liability manager at Sadler Products Liability Insurance.

“Importers are top of the pyramid in the U.S. as no one is going overseas to recover,” he said. Most importers are buying from companies whose product liability policies won’t respond in the United States.

“Warning and instruction defect is a common entry into a product liability lawsuit,” Owens added.

“If you are selling lithium batteries, it is even more important to have detailed instructions and warnings because there are so many things that can go wrong.”

“When you have a lot of these batteries together, fires can grow very quickly and be very damaging.” — Lou Gritzo, vice president of research, FM Global

Retailers and wholesalers who purchase from U.S. manufacturers at least know they have a route of recourse in the event of a claim, though it is likely they would be dragged into litigation.

When e-cigarette user Jennifer Reis was set on fire in 2015 when the battery in her device exploded, the e-cigarette’s distributor, wholesaler and even the Tobacco Expo store where she bought it were all named in the lawsuit. Reis was awarded $1.9 million in damages.

“Retailers and distributors should ask their suppliers to name them as additional insureds on their policies,” said Owens.

Advertisement




“If you are named as an additional insured, the importer’s policy is primary and yours is secondary, which is an important step for retailers and wholesalers.”

However, Owen noted, not all insurance carriers are comfortable writing coverage for LIB-powered products.

“You have to be very careful with the policies you buy as some can be very narrowly written — some have full health-hazard exclusions, and for items like e-cigarettes this leaves very little coverage.”

It is not always easy to determine whether a thermal runaway event has been caused by a defective LIB, a defective electronic device or human error, Kyte said.

“Often there is not much material left after one of these, though there are certain tests that can be done and sometimes it is possible to extrapolate a sequence of events to determine the cause.”

Quality Verification

The best way to avoid expensive product liability claims is to only buy and sell LIBs and chargers of the highest quality.

“This will cost you and your customer a little more, but it’s nothing compared to the increase in premiums after a product liability claim,” said Owens.

Lithium manganese (lMR) and hybrid (NiMH) batteries are considered chemically safer than most LIBs and do not require protection circuits, he said.

“Importers need to be good engineers. They should make sure they buy from reputable sources and it is advisable to batch test products that contain LIBs,” he added. &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

As a professor of business, Jack Hampton knows firsthand the positive impact education has on risk managers as they tackle growing risks.
By: | April 9, 2018 • 4 min read

R&I: Who is your mentor and why?

Ellen Thrower, president (retired), The College of Insurance, introduced me to the importance of insurance as a component of risk management. Further, she encouraged me to explore strategic and operational risk as foundation topics shaping the role of the modern risk manager.

Chris Mandel, former president of RIMS and Risk Manager of the Year, introduced me to the emerging area of enterprise risk management. He helped me recognize the need to align hazard, strategic, operational and financial risk into a single framework. He gave me the perspective of ERM in a high-tech environment, using USAA as a model program that later won an excellence award for innovation.

Bob Morrell, founder and former CEO of Riskonnect, showed me how technology could be applied to solving serious risk management and governance problems. He created a platform that made some of my ideas practical and extended them into a highly-successful enterprise that served risk and governance management needs of major corporations.

R&I: How did you come to work in this industry?

Advertisement




From a background in corporate finance and commercial banking, I accepted the position of provost of The College of Insurance. Recognizing my limited prior knowledge in the field, I became a student of insurance and risk management leading to authorship of books on hazard and financial risk. This led to industry consulting, as well as to the development of graduate-level courses and concentrations in MBA programs.

R&I: What was your first job?

The provost position was the first job I had in the industry, after serving as dean of the Seton Hall University School of Business and founding The Princeton Consulting Group. Earlier positions were in business development with Marine Transport Lines, consulting in commercial banking and college professorships.

R&I: What have you accomplished that you are proudest of?

Creating a risk management concentration in the MBA program at Saint Peter’s, co-founding the Russian Risk Management Society (RUSRISK), and writing “Fundamentals of Enterprise Risk Management” and the “AMA Handbook of Financial Risk Management.”

A few years ago, I expanded into risk management in higher education. From 2017 into 2018, Rowman and Littlefield published my four books that address risks facing colleges and universities, professors, students and parents.

Jack Hampton, Professor of Business, St. Peter’s University

R&I: What is your favorite book or movie?

The Godfather. I see it as a story of managing risk, even as the behavior of its leading characters create risk for others.

R&I: What is your favorite drink?

Jameson’s Irish whiskey. Mixed with a little ice, it is a serious rival for Johnny Walker Gold scotch and Jack Daniel’s Tennessee whiskey.

R&I: What is the most unusual/interesting place you have ever visited?

Mount Etna, Taormina, and Agrigento, Sicily. I actually supervised an MBA program in Siracusa and learned about risk from a new perspective.

R&I: What is the riskiest activity you ever engaged in?

Advertisement




Army Airborne training and jumping out of an airplane. Fortunately, I never had to do it in combat even though I served in Vietnam.

R&I: If the world has a modern hero, who is it and why?

George C. Marshall, one of the most decorated military leaders in American history, architect of the economic recovery program for Europe after World War II, and recipient of the 1953 Nobel Peace Prize. For Marshall, it was not just about winning the war. It was also about winning the peace.

R&I: What about this work do you find the most fulfilling or rewarding?

Sharing lessons with colleagues and students by writing, publishing and teaching. A professor with a knowledge of risk management does not only share lessons. The professor is also a student when MBA candidates talk about the risks they manage every day.

R&I: What is the risk management community doing right?

Sensitizing for-profit, nonprofit and governmental agencies to the exposures and complexities facing their organizations. Sometimes we focus too much on strategies that sound good but do not withstand closer examination. Risk managers help organizations make better decisions.

R&I: What could the risk management community be doing a better job of?

Advertisement




Developing executive training programs to help risk managers assume C-suite positions in organizations. Insurance may be a good place to start but so is an MBA degree. The Risk and Insurance Management Society recognizes the importance of a wide range of risk knowledge. Colleges and universities need to catch up with RIMS.

R&I: What emerging commercial risk most concerns you?

Cyber risk and its impact on hazard, operational and financial strategies. A terrorist can take down a building. A cyber-criminal can take down much more.

R&I: What does your family think you do?

My family members think I’m a professor. They do not seem to be too interested in my views on risk management.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]