By: Jonathan Maher and Aisha Lala

At a glance

The federal government has just issued a national safety warning notice about the risk of fire from certain LG home energy storage system batteries, which are large Lithium-ion cells.

• The latest warning notice adds to the 23 recalls between 1 January 2017 and 31 December 2022 involving Lithium-ion batteries and products containing them.
• It serves as a reminder to insurers of the unique insurance risks that these types of batteries pose.

Warning Notice

On 20 November 2023, on a recommendation from the Australian Competition and Consumer Commission (ACCC), Assistant Treasurer Stephen Jones issued a national safety warning notice pursuant to the Australian Consumer Law (ACL).

The notice can be found here.

The notice relates to the risk of house fires caused by certain LG Lithium-ion batteries (LIBs) which are the subject of a product safety recalls.

The batteries are manufactured by LG and used in residential solar systems sold by LG and other brands.

It is said that the LIBs risk overheating and spontaneously igniting. The fact that they are generally installed on the walls of homes creates an obvious and serious fire risk, particularly as we head into the warmer months. Some 8,000 effected batteries are said to be installed in homes around the country. Apparently, around 6,000 have not yet been located.

ACCC report

The notice comes shortly after issue of the ACCC’s October 2023 Report – Lithium-ion batteries and consumer product safety. The ACCC developed this report as part of its 2022-23 product safety priority on scoping safety issues and identifying potential hazard prevention strategies relating to LIBs.

The ACCC’s report is a detailed and comprehensive overview of the risks and hazards associated with this emerging technology, the available incident data, the current LIB market and regulatory landscape governing LIBs in Australia.

Risk to insurers

LIBs have made their way into a plethora of consumer and commercial applications. They are now commonly used as an energy source in a startling array of devices and applications from portable electronics, tools, medical devices, bikes, private and commercial vehicles, and everything in between. To put in context the scale, demand for LIBs is expected to sharply rise over the next decade with the number of GWh 700 in 2022 and predicted to increase to around 4.7TWh in 2030.¹ Countries committing to reaching net-zero emissions are turning to renewable energy as a critical solution.

Fire risks associated with LIBs – both as an ignition and fuel source – are acute. While there is presently a lack of fire-related data at a national level, a number of states including WA and NSW have reported a clear increase in the number of fires due to LIBs. It is likely the frequency is higher than actually reported, due to forensic limitations definitively determining the precise cause of a fire.

The concerns for insurers are far and wide-ranging:

• fires in or around buildings create an obvious first-party property risk. In the context of the above warning notice, there have already been nine reported incidents relating to the LG batteries causing property damage, including one home being completely destroyed. The intensity of LIB fires can be significant, giving rise to the possibility of wide-area damage, particularly in the extreme heat associated with Australian summer weather.
• casualty risk. One of the nine reported LG battery incidents involved a personal injury. The obvious concern relates to burns, but indirect injury is also possible – there have been instances of LIBs in e-bikes igniting while ridden, leading to crashes.
• fire spreading from products and properties gives rise to a clear liability risk. Wotton Kearney is seeing increasing numbers of claims advanced by third parties and/or subrogated recoveries relating to losses from fires caused by LIBs, many of which are consumer products that can fall within the remit of the ACL. The ACL can provide a powerful recovery remedy for ‘consumers’ and ‘affected persons’ against suppliers and/or manufacturers of products that contain safety defects or are not of ‘acceptable quality’ and cause damage. Contractual claims pursuant to sale of goods implied warranties or other supply/distribution agreements, and common law claims, are also possible, circumstance-dependent.
• marine transit is another high-risk ‘pinch point’ given the condensing of space with potential for multiple LIBs in close proximity. See our earlier article on this here.

Summary

The latest warning notice adds to one of the 23 recalls between 1 January 2017 and 31 December 2022 involving LIBs and products containing them.

We will continue to monitor and report on this emerging area of risk impacting a variety of different insurance interests in the New Year.

^[1] https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/battery-2030-resilient-sustainable-and-circular