Lithium Battery Fires: Are You Covered By Auto Insurance?

It is unclear whether auto insurance covers fire damage from lithium batteries. While comprehensive insurance policies typically cover fire damage to vehicles, the increasing prevalence of lithium-ion batteries and their associated fire risks have made insurers wary. Insurers are reluctant to provide coverage for lithium-ion battery fires due to the difficulty in extinguishing such fires and the potential for complete losses. The determination of coverage may depend on the specific circumstances, such as the cause of the fire, the extent of the damage, and whether the battery was damaged during a covered incident.

Fire damage caused by lithium batteries is difficult to extinguish

Lithium-ion batteries are prone to thermal runaway, where overheating causes a chain reaction of flammable and explosive off-gases, leading to fire or explosion. The complexity of these fires lies in their composition, which includes common combustibles like plastics, as well as flammable liquids, electrolytes, and electrical components. This mix of materials requires a specialized approach to fire suppression. Traditional fire extinguishers are often ineffective against lithium-ion battery fires, and water should generally be avoided as lithium reacts with water, making the fire worse.

To effectively extinguish a lithium-ion battery fire, specific extinguishing agents are needed, such as the F-500 Encapsulator Agent, which can be used for smaller fires involving personal electronics. For larger fires, a water-driven proportioner can deliver the F-500 Encapsulator Agent concentrate to your sprinkler system's water stream. Additionally, Class D fire extinguishers are effective against lithium-metal battery fires, while standard dry chemical or ABC extinguishers can be used for lithium-ion battery fires.

While these fires can be challenging to extinguish, there are some preventative measures that can be taken. It is important to buy batteries from reputable manufacturers and follow their recommendations for use and storage. Keeping batteries away from extreme temperatures and charging them in fire-safe bags can also reduce the risk of fire. Recognizing the warning signs of a failing lithium battery is crucial, as unusual heat, noise, smoke, odor, or swelling can indicate an issue.

In the event of a lithium-ion battery fire, it is essential to act quickly. Evacuate the immediate area and alert the local fire department as these fires can be unpredictable and escalate rapidly. While it may be tempting to try and extinguish the fire yourself, it is often best to let trained firefighting professionals handle the situation, especially if you do not have the appropriate equipment.

The use of lithium batteries is extensive

Lithium-ion batteries are a type of rechargeable battery that uses the reversible intercalation of Li+ ions into electronically conducting solids to store energy. They offer higher specific energy, energy density, energy efficiency, cycle life, and calendar life compared to other commercial rechargeable batteries. This makes them ideal for applications where weight is critical, such as mobile devices, drones, radio-controlled equipment, electric vehicles, and aviation products.

The global demand for lithium-ion batteries is expected to soar, driven by the imperative to reduce climate change through the electrification of mobility and the broader energy transition. Forecasts predict that the lithium-ion battery chain could grow by over 30% annually from 2022 to 2030, reaching a value of more than $400 billion. This growth is largely attributed to regulatory shifts towards sustainability, greater customer adoption of electric vehicles, and announcements by OEMs to ban internal combustion engines.

However, it is important to note that lithium-ion batteries also come with safety risks. They contain flammable electrolytes, and if damaged or incorrectly charged, can lead to explosions and fires. Additionally, the extraction of lithium and other key strategic minerals used in batteries can have significant environmental and social impacts, including water pollution, land degradation, and human rights issues.

Despite these challenges, the lithium-ion battery industry is working towards a more sustainable, circular, and resilient future. This includes efforts to improve mineral efficiency, find alternative chemistries, and increase recycling rates. Overall, the extensive use of lithium batteries continues to shape various industries and plays a crucial role in the transition to cleaner energy sources.

Insurance companies are unsure about coverage for lithium battery fires

The Australian Competition and Consumer Commission (ACCC) has recognised the dangers of lithium-ion batteries, declaring them a product safety priority for 2023. The ACCC's discussion paper highlighted that certain types of lithium-ion batteries, particularly those using Lithium Cobalt Oxide and Lithium Aluminium Oxide, have the lowest thermal stability and the highest risk of thermal runaway. This is when the battery rapidly releases its energy, often resulting in a fire or explosion.

The Insurance Council of Australia has expressed support for measures to reduce fire danger from lithium-ion batteries, but it did not submit to the ACCC's discussion due to the limited scope of the paper and its belief that its members were best equipped to manage the risks. Major insurers are generally unwilling to comment beyond what is in their current product disclosure statements (PDS). However, a broker suggested that loopholes in PDS usually favour insurance companies, and that lithium-ion batteries are a known high-risk.

The key issue is the need for insurance companies to develop a comprehensive risk profile for lithium-ion devices to calculate premiums, coverage, and exclusions accurately. In the meantime, consumers are advised to disclose any larger lithium-ion devices and their charging locations to their insurance company and take fire mitigation precautions.

The cause of the fire and damage done are important factors

The cause of the fire and the damage done are important factors in determining whether auto insurance will cover fire damage from lithium batteries. While it is challenging to obtain a straightforward answer, it is generally understood that auto insurance coverage depends on the specifics of the incident.

If your vehicle caught fire due to a collision with another vehicle or object, your insurance claim will likely be handled by your auto collision insurance. On the other hand, if the fire was caused by something other than a collision, such as a mechanical or wiring defect, theft, or vandalism, it would typically fall under the coverage of your comprehensive insurance policy or a supplemental fire insurance policy.

It is worth noting that insurance companies will investigate the cause of the fire to determine if it is covered by your policy. For example, if the fire was caused by negligence, such as leaving a full gas can in the car on a hot day, your claim may be voided. Additionally, if the fire was caused by an external event, such as someone pouring gasoline on the engine, it would not be covered by auto insurance.

In the case of lithium-ion batteries, the situation becomes more complex. Lithium-ion batteries have been identified as a product safety priority due to their low thermal stability and high risk of thermal runaway. This means that insurance companies may be reluctant to provide coverage for fires caused by these batteries. There may be loopholes in product disclosure statements (PDS) that allow insurance companies to deny claims related to lithium-ion battery fires. For example, using a third-party charger or charging inside your home, especially near flammable materials, could void your insurance.

To ensure coverage, it is advisable to fully disclose any lithium-ion devices, their storage locations, and any fire mitigation precautions you have in place. Additionally, seeking advice from a broker who understands the nuances of insurance policies can help provide clarity on your specific coverage.

Comprehensive insurance covers non-collision losses

While comprehensive insurance can provide financial protection in the event of fire damage, it is important to understand the limitations and exclusions. For instance, if your vehicle catches fire due to a collision with another vehicle or object, the claim will likely be handled by your auto collision insurance. Additionally, comprehensive insurance may not cover fire damage caused by certain high-risk factors, such as lithium-ion batteries.

Lithium-ion batteries have been identified as a product safety priority due to their low thermal stability and high thermal runaway risk. Insurers are reluctant to provide clear answers regarding coverage for fire damage caused by lithium-ion batteries, often citing it as a case-by-case decision. The lack of statistical data makes it challenging for insurers to develop risk profiles and set premiums for such incidents.

To ensure adequate coverage, it is advisable to disclose any larger lithium-ion devices and their charging locations to your insurance provider. Additionally, consider implementing fire mitigation measures, as most policies require you to take reasonable steps to minimize the risk of fire. Supplemental fire insurance can also be purchased to fill any gaps in your coverage and provide additional protection against fire-related losses.

In summary, comprehensive insurance provides coverage for non-collision losses, including fire damage to your vehicle. However, it is important to carefully review your policy, understand its limitations, and consider supplemental insurance to ensure adequate protection against fire-related incidents, especially those involving high-risk factors like lithium-ion batteries.

Frequently asked questions