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.

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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.

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“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

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The Profession

For This Pharmaceutical Risk Director, Managing Risk Means Being Part of the Mission to Save Lives

Meet Eric Dobkin, director, insurance and risk management, for Merck & Co. Inc.
By: | September 28, 2018 • 5 min read

R&I: What was your first job?
My first job out of undergrad was as an actuarial trainee at Chubb.I was a math major in school, and I think the options for a math major coming out are either a teacher or an actuary, right? Anyway, I was really happy when the opportunity at Chubb presented itself. Fantastic company. I learned a lot there.

R&I: How did you come to work in risk management?
After I went back to get my MBA, I decided I wanted to work in corporate finance. When I was interviewing, one of the opportunities was with Merck. I really liked their mission, and things worked out. Given my background, they thought a good starting job would be in Merck’s risk management group. I started there, rotated through other areas within Merck finance but ultimately came back to the Insurance & Risk Management group. I guess I’m just one of those people who enjoy this type of work.

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R&I: What is risk management doing right?
I think the community is doing a good job of promoting education, sharing ideas and advancing knowledge. Opportunities like this help make us all better business partners. We can take these ideas and translate them into actionable solutions to help our companies.

R&I: What could the risk management community be doing a better job of?
I think we have made good advancements in articulating the value proposition of investing in risk management, but much more can be done. Sometimes there is such a focus on delivering immediate value, such as cost savings, that risk management does not get appropriate attention (until something happens). We need to develop better tools that can reinforce that risk management is value-creating and good for operational efficiency, customers and shareholders.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?
I’d actually say there hasn’t been as much change as I would have hoped. I think the industry speaks about innovation more often than it does it. To be fair, at Merck we do have key partners that are innovators, but some in the industry are less enthusiastic to consider new approaches. I think there is a real need to find new and relevant solutions for large, complex risks.

R&I: What emerging commercial risk most concerns you?
Cyber risk. While it’s not emerging anymore, it’s evolving, dynamic and deserves the attention it gets. Merck was an early adopter of risk transfer solutions for cyber risk, and we continue to see insurance as an important component of the overall cyber risk management framework. From my perspective, this risk, more than any other, demands continuous forward-thinking to ensure we evolve solutions.

R&I: What’s the biggest challenge you’ve faced in your career?
Sticking with the cyber theme, I’d say navigating through a cyber incident is right up there. In June 2017, Merck experienced a network cyber attack that led to a disruption of its worldwide operations, including manufacturing, research and sales. It was a very challenging environment. And managing the insurance claim that resulted has been extremely complex. But at the same time, I have learned a tremendous amount in terms of how to think about the risk, enterprise resiliency and how to manage through a cyber incident.

R&I: What advice might you give to students or other aspiring risk managers?
Have strong intellectual curiosity. Always be willing to listen and learn. Ask “why?” We deal with a lot of ambiguity in our business, and the more you seek to understand, the better you will be able to apply those learnings toward developing solutions that meet the evolving risk landscape and needs of the business.

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R&I: What role does technology play in your company’s approach to risk management?
We’re continuing to look for ways to apply technology. For example, being able to extract and leverage data that resides in our systems to evaluate risk, drive efficiencies and make things like property-value reporting easier. We’re also looking to utilize data visualization tools to help gain insights into our risks.

R&I: What are your goals for the next five to 10 years of your career?
I think, at this time, I would like to continue to learn and grow in the type of work I do and broaden my scope of responsibilities. There are many opportunities to deliver value. I want to continue to focus on becoming a stronger business partner and help enable growth.

R&I: What is your favorite book or movie?
I’d say right now Star Wars is top on my list. It has been magical re-watching and re-living the series I watched as a kid through the eyes of my children.

R&I: What is the riskiest activity you ever engaged in? When I was about 15, I went to a New York Rangers versus Philadelphia Flyers game at the Philadelphia Spectrum. I wore my Rangers jersey. I would not do that again.

Eric Dobkin, director, insurance & risk management, Merck & Co. Inc

R&I: What is it about this work you find most fulfilling or rewarding?
I am passionate about Merck’s mission of saving and improving lives. “Inventing for Life” is Merck’s tagline. It’s funny, but most people don’t associate “inventing” with medicine. But Merck has been inventing medicines and vaccines for many of the world’s most challenging diseases for a long time. It’s amazing to think the products we make can help people fight terrible diseases like cancer. Whatever little bit I can do to help advance that mission is very fulfilling and rewarding.

R&I: What do your friends and family think you do?
Ha! My kids think I make medicine. I guess they think that because I work for Merck. I suppose if even in a small way I can contribute to Merck’s mission of saving and improving lives, I am good with that. &




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