Fire risk in the UK: Are lithium-ion batteries the new chip pan?

January 8, 2024

Share on LinkedIn Share on Facebook Share on X

Despite growing awareness and changes in technology, chip pans remain the most common cause of house fires in the UK, with around 12,000 cases every year, nearly 50 deaths and 4,600 injuries.

There is, however, a ‘new kid on the block’, set to rival the chip pan in the causation stakes. And the domestic insurance market isn’t the only one that needs to pay attention. Lithium-ion battery fires are on the rise for the commercial loss adjuster and given their widespread use in the modern world, have become a source of growing concern for both domestic and commercial underwriters.

Lithium-ion batteries aren’t just used in mobile telephones or electric vehicles (EVs), including e-bikes and e-scooters — they’re now prevalent in commercial vehicles, marine vessels, plant, machinery, battery, and banks and systems. These batteries are used in industries like manufacturing, construction, aerospace, telecommunications and leisure. Only now is society learning about the risks and hazards that come with these modern-day essential devices.

Risk examples 

The London Fire Brigade saw a 60% rise in e-bike fires in 2023. In fact, in the first six months of 2023, the fire and rescue service reported 70 e-bike, 14 e-scooter and 35 other lithium-ion battery fires. While concerns aren’t quite comparable to the chip pan risks yet, numbers are increasing and heading in a worrying direction. 

Sedgwick’s experts in the UK handled nearly 1,000 losses in 2023 where lithium-ion batteries have been at the heart of the cause, a 50% uplift from the year prior. The indemnity spend on these losses is now approaching £100m and this doesn’t take into account the lithium-ion battery marine cargo losses we’re handling in UK waters.

Identifying indemnity 

How do these lithium-ion battery claims become so costly? Given their rechargeable nature, many instances occur when the device is unattended, which presents a greater opportunity for fire spread and resulting damage. These types of fires also burn at around 400 degrees Celsius and are very difficult to extinguish. With all this in mind, underwriters clearly have a lot to consider.

The causes of fires involving lithium-ion batteries

The energy storage density in batteries has increased exponentially, from lead acid, through nickel cadmium to lithium-ion. Batteries have become compact, lightweight and convenient. The increased capacity in a small footprint, combined with lower power electronics, has resulted in their widespread proliferation. As a result, nearly every household and commercial property is packed full of portable sources of energy which could fail incendively. This is particularly so in the modern era of universal charging connectors and after-market components. Batteries of all types have to be used in specific ways and this isn’t always properly understood by the end user.

Batteries fail for many reasons, the most common reasons being overcharging, misuse or defects. For example: 

  • Over-charging using an incompatible charger
  • Mechanical or thermal damage through misuse
  • Manufacturing defect, such as an internal short

Incompatibility of chargers and battery packs

At the cheaper end of the market, these devices are often inadequately matched with chargers, poorly manufactured and lack appropriate battery management systems which protect batteries from entering dangerous states. In addition, there are a number of lithium-ion battery chemistries, and the charging regime must match the chemistry. In situations where the correct charger has been used, fires have continued to occur because of the location of the device when being charged. For instance, mobile phones shouldn’t be charged on soft furnishings or tucked under a child’s pillow. 

The dangers during charging and operation can be mitigated by the inclusion of battery management systems in devices and battery packs. Battery management systems can identify batteries which are problematic and either isolate the cell or shut down the battery pack before an incendive event. Battery management systems and other protective functions are often omitted from batteries and appliances at the cheaper end of the market.

Next steps for manufacturers 

Major manufacturers of lithium-ion batteries are keenly aware of the fire risks and chemistries are being introduced where batteries reaching thermal runaway* release their energy more slowly and with an associated reduced peak energy. However, the energy density for these chemistries is lower and they are therefore less desirable for devices such as mobile phones where maximum energy density is required. The race for maximum density pushes battery tolerances to their limits and has resulted in high-profile handset recalls.

Chip pan fires were likely not a strong primary source of recoveries, but battery fires are something to become aware of. Our legal services division has seen a rise in the both the frequency and value of claims that relate to battery fires. These incidents tend to be fires that occur during the charging phase, which often happens at night and in a low traffic area leading to advanced stages of conflagration before the fire can be tackled.

Battery fires are always reviewed by Sedgwick for recovery prospects against the manufacturer, importer and seller. Niche avenues against repairers and credit providers can also be pursued. Due to the need for forensic advice, detailed evidence regarding ownership and use, and strong resistance from commercial sellers who investigate any suggestion of wider issues with batches of batteries, this area can be complex. Supply chains into the UK can be hard to ascertain with the importer often being culpable for products manufactured in other jurisdictions.

Obtaining forensic evidence early on can be the key to a recovery after fire damage. Modern payment methods are often online, so proof of purchase is usually easy to establish, but sellers are often difficult to contact and have limited funds if not insured. An active adjuster linked to quick forensic advice is key in this area.

More widely, underwriters will want to think about policy response and drafting with the heightened risk of substantial damage when multiple large batteries are placed near each other — or in locations when fires cannot be easily fought or contained. The domino effect of small fires into much larger and uncontainable ones is another example of the increasingly connected world we live in.

*One of the primary risks related to lithium-ion batteries. It is a phenomenon in which the lithium-ion cell enters an uncontrollable, self-heating state. 

Learn more > Contact Scott Cameron, major and complex loss operations director, Sedgwick UK at [email protected].

Fire Prevention Week 2023: how employers can protect employees from fire risks

October 9, 2023

Share on LinkedIn Share on Facebook Share on X

Every 23 seconds, a fire department in the United States responds to a fire. In 2021 alone, U.S. firefighters responded to an estimated 1,353,500 fires. It is true the number of fires and fire deaths have decreased in prevalence since the 1970’s, but that should not encourage complacency. Fire Prevention Week (FPW) takes place October 8-14 — a reminder for employers to reevaluate their prevention plans and understand the risks.

Every year in the United States, there are 16,500 office and store fires that cause nearly $1 billion in direct property damage, according to the United States Fire Administration (USFA). In addition to potential loss of life and property damage, people can lose their jobs, and the community may lose vital services provided by impacted businesses.

Fire prevention 

The most successful recipe for fire safety — in the workplace and beyond — is implementing fire safety technologies and practices using the latest codes and standards. According to a 2021 National Fire Prevention Association (NFPA) report on fire safety in the U.S., the biggest single factor contributing to decreasing fires and fire deaths has been the use of smoke alarms — as mandated by fire and building codes — in addition to continued public education about their significance. A holistic approach to fire safety is necessary to ensure that new products and technologies do not cause unintended fire risks. 

As an employer, you have an opportunity and a responsibility to keep employees safe. Guidance from the NFPA helps dictate how.

General maintenance

Smoke alarms need replaced 10 years from the date of manufacture, which can be found on the back of the alarm. Ensuring fire sprinklers are properly installed and functional is of equal importance. Conduct regular checks regarding workspaces and equipment being kept clean, dry and well ventilated. Check the condition of fire ladders and escapes.

To address the risk of aging electrical systems and subsequent electricity exposure, check for damaged or overloaded electrical outlets, cords and cables. Additionally, keep anything that is flammable away from electrical equipment. Educate employees about the dangers of leaving portable heating devices unattended. Ensure windows can be opened and screens can be removed, and remove any obstacles from each exit. 

Code compliance

A workplace is only as safe as its adherence to code, making it critical to support effective code enforcement. This includes applying all standards that are referenced within the primary fire, life safety, building and electrical codes and standards. 

Compliance is not only necessary to keep in mind during the construction phase — it is integral throughout the lifecycle of a building, from planning all the way to demolition. Enacting and enforcing codes and standards, and ensuring on-going inspection, testing and maintenance of facilities and safety systems, is necessary to reduce deaths, injuries and losses resulting from building fires. To do so, sufficient resources must be allocated to ensure construction and maintenance meet code requirements.

Codes and standards are updated (typically on a three-to-five-year basis) to reflect our changing world. It is important to adopt the latest codes and standards developed by experts to ensure protection against potential new risks arising in the workplace.

Invest in safety, emergency preparedness

To prevent fire occurrences requires employers to invest in employee safety from the start. Life safety measures should never be disregarded for the sake of cost-cutting. Instead, focus on the potential of lives saved due to fire prevention efforts and protecting the organization’s most valuable asset: workers. 

To ensure the highest level of safety, create and document an emergency plan in the event a fire does start and communicate it regularly to employees. The plan should detail preparedness capabilities and responses for all parts of the emergency — before, during and after. Employees must be informed. Actively carry out routine practice runs of the plan.

Additionally, implement fire safety measures throughout the building, including the posting of clear fire escape plans on every level of the building. Include fire prevention in employee training, and educate employees about exit locations, escape routes and fire protection equipment. Where possible, reward employees who recommit to fire prevention, protection and education. Invest in sprinklers, smoke alarms and other critical tools that will diminish losses from fire-related hazards.

Take lithium-ion battery safety seriously

Lithium-ion batteries are ubiquitous in our businesses. These batteries supply power to everything from smart phones and laptops to e-scooters, e-bikes, smoke alarms and cars. Due to these batteries storing a large amount of energy in a small amount of space, they present fire risks if a person does not follow product instructions while using, storing or disposing of them. And, like any product, a small number of these batteries may be defective. Minor manufactural imperfections can cause significant problems. In particular, the batteries can overheat, catch fire or explode. 

Be aware of and encourage employees to practice lithium-ion battery safety:

Usage:

  • Only purchase and use devices that are listed by a qualified testing laboratory.
  • Stop using lithium-ion batteries if you notice an odor, change in color, too much heat, change in shape, leaking or odd noises. If it is safe to do so, move the device away from anything that can catch fire, and call 9-1-1.
  • Do not put lithium-ion batteries in direct sunlight or keep them in hot cars.
  • Always follow the manufacturer’s instructions.
  • Only use the battery that is designed for the device.
  • Install batteries in the device properly.
  • Only use the charging cord that came with the device.
  • Do not keep charging the device or device battery after it is fully charged. 
  • Avoid crushing, bending or dropping a device or its charger.

Disposal: 

  • Do not dispose of lithium-ion batteries in the trash. Recycle them at your local battery recycling facility.
  • Do not put discarded batteries in piles.

Storage: 

  • Store spare lithium-ion batteries away from anything that can catch fire.
  • Remove lithium-ion batteries from your checked luggage and keep them with you on the plane.
  • Store lithium-ion batteries at room temperature when possible. Do not charge them at temperatures below 32 degrees F (0 degrees C) or above 105 degrees F (40 degrees C).

Learn more > EFI Global, a leading provider of forensic engineering, fire investigation and environmental services, is your partner in every aspect of business — before, during and after a disaster event. For more information, visit efiglobal.com.

National Wildfire Awareness Month

May 10, 2023

A wildfire burning through brush.
Share on LinkedIn Share on Facebook Share on X

Fire management decision makers are on high alert during National Wildfire Awareness Month. Each year, wildfires affect thousands of people and ravage millions of acres. The rise in wildfires can be attributed to forestry activity (or lack thereof), infrastructure, climate and more. Experts anticipate that this year’s season may extend longer than it typically does.

Having a plan in place in the event of a wildfire is critical. Business leaders must review, practice and communicate safety measures with employees much like our children practice evacuation drills at school. Dry runs and tabletop exercises are a good way to sleuth out any bugs in an organization’s plan and ensures all team members are on the same page.

Climate change is another topic of concern as extreme weather, flood, wildfire and hurricane incidents continue to increase across the country. In addition to examining existing and growing risks, insurance carriers are promoting resilience strategies to mitigate those risks, including “wildfire-proofing” your home with smarter techniques. Creating defensible space by clearing the area and placing vegetation around your home, covering chimney and stove pipe openings, and installing an exterior fire protection system are a few places to start.

Preventative measures are important to maintain now and throughout the year. Ensure that your plans protect and prevent loss of life. EFI Global is closely monitoring the upcoming wildfire season and we are here to help you with any needs that arise during the months to come. For more, be sure to visit our website and get the latest updates from the CAT resource center.

Severe European winter could cause a rise in property claims

November 4, 2022

Share on LinkedIn Share on Facebook Share on X

By John Colquhoun, head of EFI Global UK and Wayne Manton, principal forensic investigator, EFI Global

Germans bracing for the cold winter are scrambling for heat alternatives.

Many older apartments in Berlin still have century-old heating methods despite other buildings having switched to central heating. Burning wood can generate creosote, a toxic, inflammable residue created when wood gases are not completely burned. This chemical residue sticks to the internal surfaces of the chimney, building up to the point where there is a credible risk of a chimney fire. With colder temperatures ahead, the risk of fires is top of mind.

The pyrolysis process

One of the most common causes of fires involving chimneys and chimney flue systems is pyrolysis — otherwise known as the decomposition of a material into simpler compounds brought about by heat — of adjacent organic materials. All fuels have molecules that need to be broken into solid enough “pieces” to undergo combustion. The primary effect of heat on wood or other solid fuel is to decompose or pyrolyse it. Pyrolysis of wood, for example, yields burnable gases like methane, volatile liquids like methanol (in the form of vapours), combustible oils and resins, and water vapour that leaves behind a charred residue, which is primarily carbon or charcoal. Effects of slow, prolonged heating dehydrates and decomposes wood by pyrolytic action.

Building standards and codes

Building standards vary from country-to-country and state-to-state. However, the most detailed building standards relating to stove and flue installations within the United Kingdom are introduced in the UK Statutory Instruments, The Building Regulations 2010 – Approved Document J – Combustion appliances and Fuel Storage systems and The Scottish Building Standards for Domestic buildings’ (March 2017 and September 2019).

These standards state the requirements for safe installation and usage of heat producing appliances, including boilers, chimneys and flues. They advise on safe fuel storage installations, including solid fuel, liquid oil fuels, and gas-fired heating. Most notably, the documents provide information on the safe separation distance between a heat-producing appliance and the associated flue system relative to nearby combustible materials. For instance, the separation distance for a flue (essential when considering a flue fire risk scenario) is dictated by:

  • The distance according to the designation of the flue pipe.
  • The distance equivalent to at least three times the diameter of the flue pipe. However, this distance may be reduced based on whether or not there is a non-combustible shield or if the flue pipe is enclosed in non-combustible material.

Common loss scenarios

  • March 2022

A thatched-roof cottage in Hampshire suffered a fire that destroyed most of the roof. The cause of the fire is believed to have been a burning ember leaving the chimney and landing on the thatch. The regulations state the minimum height of a chimney relative to the roof, such that if a spark is emitted, it cools before landing on the thatch. Spark arrestors can also be installed on the chimney pot.

  • January 2022

A wood-burning stove in a kitchen malfunctioned, sending flames back into the house. Investigators determined that the cause was a pipe failure, which pushed the flames out of the stove and into the house.

  • December 2020

Following the replacement of a modern open fireplace with a cassette-style stove in Lanark, South Lanarkshire, the structural timbers of the chimney ignited. Fire investigators determined the fire was caused by the lack of a suitable separation between the flue pipe and the structural timbers.

  • January 2020

A wood-burning stove chimney was responsible for a structure fire. The investigation showed that the chimney likely exceeded the amount of heat it was designed to handle. As a result, the surrounding wood structure was compromised over time, becoming more susceptible to fire.

  • December 2018

Fire department investigators determined that an improperly vented pellet stove caused a house fire. Gaps and cracks in the chimney let heat escape into the attic, igniting insulation and wood framing.

  • November 2018

In Muir of Ord, Highlands, an open fireplace was removed, and a flue liner and modern stove were installed into a 200-year-old chimney. Approximately three months later, the owner lit a fire and noticed smoke coming from the chimney breast. Fire investigators determined the fire was caused by the ignition of original timbers built into the chimney breast by the increased temperature of the flue gases from the modern stove and chimney flue systems.

  • August 2018

Kippin, Stirlingshire, homeowners arrived and noticed a fire. Investigators determined the fire was caused by the separation of the unsupported flue pipe causing combustion gases to enter a void in the roof structure, which ignited combustible materials.

  • December 2017

A historic public house in Cornwall was devastated by a fire, destroying most of the roof structure. Investigators found that a historical flue fire had damaged a double-wall insulated flue associated with an open fireplace, routed up through the original chimney structure. The damaged system was not removed, instead a single skin flue liner was installed within it and a register plate installed, closing off ventilation to the chimney structure. The damaged system, soot deposits, lack of ventilation and ultimately elevated flue temperatures caused the ignition of timber roof components that were likely too close to the flue.

Stove safety guidelines

Qualified professionals should always oversee the installation of a new stove and chimney to ensure safety. Post-installation, there are also steps individuals can take to reduce the risk of a fire. This includes regularly sweeping chimneys, removing and disposing of ashes once cool, and checking stove latches, hinges, and gaskets. Vents chimneys and fireplaces need to be inspected at least once per year and receive repair, maintenance, or cleaning when necessary.

EFI Global, part of Sedgwick, is a well-established brand with an excellent reputation in the Americas, Africa, Asia-Pacific and Europe as a market leader in environmental consulting, engineering failure analysis and origin-and-cause investigations. Our multidisciplinary team of first responders are selected for their technical proficiency and in-depth industry knowledge to aid clients in resolving technical problems. EFI’s fire investigators are committed to following the recognised industry standards in investigating and examining fire scenes. For more information, visit our website or contact [email protected] or [email protected]

Preventing workplace fires and keeping workers safe

October 6, 2022

Share on LinkedIn Share on Facebook Share on X

by Diane Spinner, principal consultant fire services, EFI Global

A fire is the most common type of emergency for which small businesses must plan for. If your business exposures have not yet been carefully evaluated, now is the time.

Every 30 seconds, a fire can double in size — causing everything in a room to burn in as little as three minutes. After about a minute, smoke — the largest cause of fire-related deaths — begins to fill the room, spreading as rapidly as the flames. Once you take two minutes to escape and call 911, it may take almost five minutes for the fire department to arrive. During those seven minutes, the fire will be burning outside of the room it started.

What can begin as a small accidental fire due to human activity or equipment failure can quickly grow out of control and cause unimaginable damage to life and property. During Fire Prevention Week and throughout the year, it’s important to understand the facts and acknowledge the potential risks of fire in your workplace.

10 action items employers can take to prepare for and prevent a building fire:

  1. Conduct a risk assessment and inspect the area.
  2. Confirm that smoke alarms, fire sprinklers and ladders are properly installed and working.
  3. Post clear fire escape plans on every floor.
  4. Educate employees on fire evacuation plans.
  5. Conduct regular emergency drills.
  6. Invest in disaster preparedness and business continuity plans that encompass people, technology and processes.
  7. Check for damaged or overloaded electrical outlets, cords or cables.
  8. Keep workspaces and equipment clean, dry and well ventilated.
  9. Participate in regular emergency drills.
  10. Remove any obstacles from exits and keep flammable objects away from electrical equipment.

Considering how fast fire spreads, protecting buildings against fire is essential. The question is not if but when the unexpected is going to come your way. EFI Global is your partner in every aspect of business — before, during and after a disaster event. For more information, visit efiglobal.com.

Preventing workplace fires and keeping workers safe

Share on LinkedIn Share on Facebook Share on X

by Diane Spinner, principal consultant fire services, EFI Global

A fire is the most common type of emergency for which small businesses must plan for. If your business exposures have not yet been carefully evaluated, now is the time.

Every 30 seconds, a fire can double in size — causing everything in a room to burn in as little as three minutes. After about a minute, smoke — the largest cause of fire-related deaths — begins to fill the room, spreading as rapidly as the flames. Once you take two minutes to escape and call 911, it may take almost five minutes for the fire department to arrive. During those seven minutes, the fire will be burning outside of the room it started.

What can begin as a small accidental fire due to human activity or equipment failure can quickly grow out of control and cause unimaginable damage to life and property. During Fire Prevention Week and throughout the year, it’s important to understand the facts and acknowledge the potential risks of fire in your workplace.

10 action items employers can take to prepare for and prevent a building fire:

  1. Conduct a risk assessment and inspect the area.
  2. Confirm that smoke alarms, fire sprinklers and ladders are properly installed and working.
  3. Post clear fire escape plans on every floor.
  4. Educate employees on fire evacuation plans.
  5. Conduct regular emergency drills.
  6. Invest in disaster preparedness and business continuity plans that encompass people, technology and processes.
  7. Check for damaged or overloaded electrical outlets, cords or cables.
  8. Keep workspaces and equipment clean, dry and well ventilated.
  9. Participate in regular emergency drills.
  10. Remove any obstacles from exits and keep flammable objects away from electrical equipment.

Considering how fast fire spreads, protecting buildings against fire is essential. The question is not if but when the unexpected is going to come your way. EFI Global is your partner in every aspect of business — before, during and after a disaster event. For more information, visit efiglobal.com.

Foam fire suppression in aircraft hangars – the risks outweigh the benefits

September 8, 2022

Share on LinkedIn Share on Facebook Share on X

To say that the past two years have been challenging for the aviation industry is an understatement. Passenger traffic plummeted by two- thirds in 2020 compared to 2019 and recovery has been slower than expected. In fact, the International Air Transport Association (IATA) forecasts that 2022 traffic will be just 60% of pre-pandemic levels. As it relates to growth, France’s Airbus – through its global market forecast – and the United States based Boeing – through its commercial market outlook, publish annual traffic projections. Airbus’s most recent forecast covers the 2021-2040 period and reports that passenger traffic could return to 2019 levels between 2023 and 2025. Airbus’s forecast also projects that global traffic will grow an average of 3.9% per year between 2019 and 2040. Boeing’s outlook offers a similar growth projection of 4.0% per annum over the same 22-year period. Additionally, as of March 31, 2022, Boeing has a backlog of 4,176 planes. As of May 2022, Airbus has orders for 21,072 planes. Based on these projections, maintenance in aircraft hangars will likely dramatically increase alongside the number of hangers around the world.

To read EFI Global’s latest commentary paper, click here.

UK heat concerns weigh heavily on farmers

August 5, 2022

Share on LinkedIn Share on Facebook Share on X

By Graham Plaister, agriculture director, UK and John Colquhoun, head of EFI Global, UK

This summer, the UK has already witnessed the devastating effects exceedingly hot temperatures can have.

The July heat wave proved the extent to which we are often ill-equipped to deal with these types of weather extremes, and many farmers struggled to adapt buildings that have been designed to retain heat rather than repel it. Measures to acclimatize became insignificant as the spike in temperatures was simply too much for a number of setups.

Squeezing margins

High feed costs and energy bills have already rendered the UK farming industry challenging, and the added impact of heat stress is far reaching. Intensive livestock units can be over 50 year old with sheds maintained through simple reconditioning once a decade. They weren’t built to withstand unprecedented heat levels. The time and costs spent modifying buildings hinders production; especially for structures that need to be rebuilt altogether. Not to mention the additional spend associated with managing and improving animal health after the heat subsides. Increased water usage also goes hand-in-hand with rising temperatures — the hotter it gets, the more consumption of water that crops, farm animals and humans require. The supply of water has never been a problem in the UK, but could become a significant issue in the future.

Reactions and responses

Due to the dry conditions, crop losses are ongoing and if the heat wasn’t enough of a challenge, in certain areas there’s potential for droughts. The many parts of England and Wales, for instance, haven’t had substantial rainfall in months.

Humans have played a role in the increase of wildfires due to the amount of people camping in rural areas and enjoying the countryside. In Scotland, for instance, everyone has statutory access rights to most land and inland water — as long as they’re respecting privacy, safety, livestock and livelihood. While often accidental, it’s imperative to educate communities on safe camping practices because wildfires can and do happen.

It’s safe to say that preparation for the summer heat has looked quite different than in years past. Hundreds of years ago, few of us could have predicted just how far-reaching the impact of climate change would have on our lives. Now with environmental considerations and legislative changes at play, adapting to these conditions is non-negotiable. Alarmingly, some experts say that what the UK experienced over a two-day period this year will eventually be expected over a two-to-three-week period on a regular basis.

Preparing early and often

When we factor in extreme temperatures for the rest of the summer and years ahead, it’s imperative to put in place short-, medium- and long-term plans and get preparation efforts underway. This includes reviewing policies, moving livestock, installing fans, and planning necessary re-construction. But it doesn’t stop there. Recently, our team worked on a claim involving a rural hotel built in a hillside known to be high risk for wildfires due to the terrain. To mitigate damage in the event of a wildfire, they recommended the replacement of the surrounding pine area with fruit bushes. This ‘fire break’ of less flammable vegetation allowed the area to withstand subsequent fires, causing minimal damage.

To ensure you are in the best position to respond to high temperatures, farmers need to have strategic and creative plans in place with partners experienced in agricultural and environmental claims. It may take some time for UK farmers to adapt and move beyond the struggles brought about by the summer heat. But we’re committed to helping our clients and communities every step of the way.

For more information, visit www.efiglobal.com and www.sedgwick.com.

Wildfire resilience

June 28, 2022

Share on LinkedIn Share on Facebook Share on X

By Kendall Biggs, senior fire investigator, EFI Global

The rate and devastating impact of wildfires continue to increase across the U.S. and around the world.

What can organizations do to prepare and protect their employees, assets and infrastructure? In this podcast, we are joined by Kendall Biggs, senior fire investigator with EFI Global, who weighs in on the steps to take before, during and after a wildfire disaster. To listen, click here.

When the cladding crisis meets an insurance policy

February 10, 2022

Share on LinkedIn Share on Facebook Share on X

By David Gear, director, head of major and complex loss (Scotland and Northern Ireland)

Nearly five years after the Grenfell Tower fire in London, hundreds of thousands of homeowners and leaseholders are still living in potentially dangerous buildings.

Billions have been invested in building safety, including government assistance and privately funded schemes to replace unsafe cladding that increases the risk of fire spread. These initiatives have principally been aimed at buildings over 18m high with ‘non-ACM cladding’, an unsafe cladding system that is not aluminum composite material.

Of course, to access funds from government assistance programs there is an eligibility criterion. Not to mention, the various private funds are hopelessly oversubscribed. Whilst waiting on funding approval and works to begin, affected owners can find themselves in desperate situations where they face significant private repair bills, huge rises in building insurance premiums, enforced interim fire safety measures (including the cost of 24-hour fire watch patrols or monitored fire alarms) and worst of all, unmortgage-able flats.

Moving forward

For buildings under 18m high, the situation is fluid and ever-changing. Though requirements are now less onerous, some mortgage lenders are still insisting on sight of External Wall System (EWS) Certification despite the government stating this is no longer always necessary. However, there are still circumstances where buildings less than 18m require an EWS form. As recently as January 2022, the Housing Secretary Michael Gove set out measures aimed at forcing developers to pay for cladding removal from lower-height buildings. The pledge made was that no leaseholder in a building above 11m would ever face any costs for fixing dangerous cladding. Whilst on paper a well-intended initiative, progress will inevitably be slow and there are no guarantees in terms of funding and timescales.

Types of insurance for property owners

Historically within the insurance marketplace, there have been numerous providers of latent defect/building guarantee style insurance policies. These typically provide cover for new properties with inherent defects that could not be identified before completion. For a claim to succeed, the owner would generally need to demonstrate — within a specified period — non-compliance with building regulations that applied at the time of the build or an issue which causes a present or imminent danger.

The volume and nature of claims involving cladding significantly increased post-Grenfell. Qualifying claim criteria was challenging with disputes around how/if a policy would respond to cladding that was initially certified as compliant with regulations at the time of construction, then post-Grenfell, was deemed to fail fire safety rules. There were numerous, continuously high value and high profile legal actions against insurers in this sector, a number of which have gone against them. This has culminated in some insurers leaving the market, selling off their book of business and entering administration.

Factors to consider

What happens if a traditionally insured property event occurs at a block of flats which has non-ACM cladding and the owners are already aware of this and are required to undertake a cladding removal and renewal scheme? Let’s use an extreme storm incident as an example. A current day hurricane incident blows off huge sections of cladding from various blocks all insured under a property owners building policy for the entire development. Numerous flats are rendered uninhabitable in the short and long term. The property insurer and loss adjuster are immediately made aware of the cladding type and the pre-incident repairs required. How will the property policy respond to the cladding element of the claim, debris removal, temporary repair and ultimate renewals together with any required alternative accommodation and potential prolongation of this?

Addressing difficult and complex claim situations

Pre-incident, we know the flats were habitable and the cladding provided a purpose though given its type, it needed to be renewed. For this set of circumstances, coverage under the property policy is clear if contentious. It would not meet the cost of the cladding renewal and any increased alternative accommodation costs directly linked to the cladding renewal period and all associated approvals. The principle of indemnity is the key factor here together with supplementing policy wording pertaining to insured loss or damage and restrictions in cover as per policy conditions such as “buildings awaiting refurbishment, redevelopment or renovation”. Difficult and complex claim situations are inevitable.

To expand on this scenario, let’s say we have the same incident and damage at a development where the cladding was compliant and not the subject of any pre-incident renewal requirement. Whilst the policy will react, sourcing the required building specialists who are equipped with the required professional indemnity insurance to specify the required type of cladding is proving challenging and expensive. Delays are also inevitable. The replacement cladding must be compliant with ever-changing requirements (over 18M high is a recent example). For our scenario there is only a partial repair to consider, however the risk to be mindful of is enforced renewal of undamaged cladding on the same ‘building’. Firstly, what is the subject ‘building’ and how would the policy react? Policies of this type will typically include standard extensions of cover. As always, the policy wording should be fully reviewed and considered.

What is certain is that insurance claims involving cladding will inevitably be complex, potentially contentious, high value and protracted.