E-scooters: Trials and tribulations
Exploding E-Bike and E-Scooter batteries and subrogated recovery
Market Insight 27 June 2022 27 June 2022
Insurance & Reinsurance
Figures released by London Fire Brigade indicate that fires caused by e-scooters and e-bikes have increased by 164% from 2020. With the recently announced Transport Bill* expected to regulate e-scooter use, and e-biking continuing to prove a popular means of transport, related claims appear set to become part of the property and liability claims landscape.
We consider below some of the challenges they may pose to the subrogating insurer.
Why are e-scooters and e-bikes catching fire?
In the UK and Europe, e-bikes will generally use Lithium-ion (Li-Ion) batteries, favoured for their ability to produce a large amount of power, relative to their size and weight. Lithium-ion batteries are, however, inherently flammable and vulnerable to heat, being made up of cells filled with flammable electrolyte.
Whilst lithium-ion batteries generally incorporate safety features (such as the use of a separator which serves as a fuse if the battery overheats) fire may occur as a result of:
- Manufacturing defects: if lithium-ion batteries are not manufactured in a controlled cleanroom environment, their cells may become contaminated by impurities, which can result in fires.
- Design defects: designers may face pressure to produce compact batteries, with a view to reducing the weight of the e-scooter or e-bike or improving the aesthetics of the frame. This may result in a design which gives insufficient protection to the lithium-ion battery’s cells, resulting in damage and potential fire.
- User error: if the user fails to operate the lithium-ion battery in line with the manufacturer’s guidance, fire may result. Users may:
- Keep the battery too close to a heat source or fire
- Accidentally puncture the battery pack
- Carry out sub-standard DIY repairs
- Poor quality chargers and components:
- Poor quality chargers: badly insulated chargers can result in the lithium-ion battery being exposed to excess heat. Additionally, high voltage charging can damage a lithium-ion battery. Users may face elevated risk of charger issues in circumstances where they purchase non-branded and/or counterfeit chargers.
- Poor quality components: pressure to compete with competitors on cost may lead manufacturers to use poor quality components, which may present an elevated risk of fire.
Avenues for subrogated recovery
If an insured purchases an e-bike or e-scooter whose lithium-ion battery catches fire due to poor quality components, design defects or manufacturing defects, a number of claims may be open to insurers:
- Breach of contract claims against the seller: the insured may have a claim on the basis that the product is not of satisfactory quality and/or unfit for purpose, contrary to the terms implied by Sections 9 and 10 of the Consumer Rights Act 2015 (“CRA”).
- Negligence claims against the seller and/or manufacturer: the insured may also have claims in negligence on the basis that the seller and/or manufacturer have failed to discharge their common law duty to take reasonable care to avoid damage to his property.
- Claims under Sections 1(2) and 2(2) of the Consumer Protection Act 1987 (“CPA”): the CPA imposes strict liability where a defective product causes damage to property. As per section 3 CPA, a product will be defective where its safety is “not such as persons generally are entitled to expect; and for those purposes “safety”, in relation to a product, shall include safety with respect to products comprised in that product and safety in the context of risks of damage to property, as well as in the context of risks of death or personal injury”.
Those listed below bear primary liability:
- The producer of the product (e.g. the manufacturer)
- Any “own-brander” (an entity who holds itself out as the producer by placing its name or trademark on the product)
- Any importer into the UK for sale, hire or leasing or any form of distribution in the course of business.
These claims can, however, present a number of challenges for the subrogating insurer, including proving causation, and pursuing recovery when a claim against the seller is unviable.
Challenges for the subrogating insurer: proving causation
To succeed with any of the claims outlined above, the insured must be able to prove its claim on the balance of probabilities (i.e. that the alleged case is more likely than not). However, due to the destructive nature of fire, the physical evidence in lithium-ion battery fire cases is often heavily damaged. Sprinkler systems and efforts to extinguish the fire may cause further damage. In such cases, discharging the evidential burden can prove challenging and expert evidence will be crucial.
Several factors are noteworthy:
- Whilst courts are generally reluctant to determine cases by reference to the burden of proof, in circumstances where the claimant and defendant present rival theories of causation, the court is not bound to choose the “better” of the two and reach a decision accordingly – it is open to the court to conclude that the evidence is unsatisfactory and the claimant has not met the burden of proof. It is not, therefore, sufficient to simply disprove the defendant’s theory.
By way of a recent example, see Ayannuga v One Shot Products Ltd (2022) in which the court was called on to consider rival theories of causation in the context of an allegedly defective drain cleaner. The judge stated: “I must approach the issue of causation, applying common sense and looking at the whole evidential picture. The expert evidence forms part of that evidential picture, but it is just a part and I must have regard to all the evidence in the case. I should also bear in mind any gaps in what is known, and the reasons for those gaps. I note that, at first sight, both sides’ explanations appear improbable. It is always possible that there is an unknown explanation, but the experts have given anxious consideration to what else might have caused the gas and can suggest nothing. I should consider each side’s theory and test it against the evidence. In doing so, I will bear in mind that I am not bound to find one way or another, although the reality in this case may be that analysis of the competing explanations will lead to the answer. Ultimately, having analysed the evidence, I must (as the Court of Appeal in Graves suggest) stand back and ask myself whether I am satisfied that the claimants’ explanation is more likely than not to be right.”
- The res ipsa rule, which creates a rebuttable presumption of negligence, applies in limited circumstances. As per Drake v Harbour (2008), the rule only applies where:
- The defendant has been proven to have been negligent.
- The claimant has suffered a type of loss which would usually be expected to flow from the Defendant’s negligence.
- The claimant cannot establish which, of a number of possible factors, caused his loss.
In such circumstances, the burden is on the defendant to establish that a factor other than his negligence was at least as likely to have caused the claimant’s loss as was his negligence.
Challenges for the subrogating insurer: claim against the seller is unviable
For a number of reasons, claims against a seller are, generally, preferable to claims against a manufacturer or importer:
- The seller is, generally, readily identifiable because the claimant has purchased the product from it.
- The seller can be pursued in contract, meaning that the claimant can recover for both for physical damage and economic loss. In negligence, the claimant cannot, barring special circumstances recover for “pure” economic losses, which would include the loss of the e-bike or e-scooter itself. In circumstances where e-bikes and e-scooters can retail for thousands of pounds, this is likely to be significant to insurers.
- The claimant does not have to identify whose negligence has resulted in the failure of the product and plead a case accordingly, which, in circumstances involving designers, manufacturers, engineers, consultants etc, can prove complex and expensive.
There are, however, a number of scenarios where there may not be a viable contract claim against the seller, including circumstances where the seller is insolvent and/or uninsured. In such circumstances, successful recovery depends on identifying an alternative recovery target, such as a manufacturer or importer.
There are a number of factors to bear in mind:
- When a contract claim against the seller is not viable, claims under the CPA are generally preferable to negligence claims because they are strict liability i.e. the claimant does not have to prove that the defendant was at fault, merely that he manufactured or imported a product that was defective and caused damage. The following should be considered when making a claim under the CPA:
- Under section 4 CPA, a defendant will have a defence in a number of circumstances, including where the product that they produced was incorporated into another product and a defect occurs which “was wholly attributable” to the design of that other product or to instructions for use given by the producer of that other product. In circumstances where a lithium-ion battery is not manufactured by the manufacturer of the e-bike or e-scooter, and a defect occurs because of the interaction between the two, the producer of the battery may be able to rely on this defence, provided he has not had any input into the design of the e-bike or e-scooter. This may be the case if, for example, the frame of the e-bike is too small to house the lithium-ion battery, resulting in compression and damage to its cells.
- The CPA does not protect damage to business property. If damage to business property has been sustained, the claimant will need to consider a claim in negligence.
- Pre-Brexit, importers were liable when importing products from outside the EU. The new post-Brexit rules impose liability on any importer who imports products from outside the UK.
- Identifying an “importer” may not be straightforward in circumstances where a claimant has purchased a product from an online platform, on which products manufactured by many different companies are sold. Whether or not the platform is an importer is likely to depend on the contractual arrangements between the platform and the sellers as regards the responsibility for getting the product into the UK. This may vary from platform to platform with some serving as a mere introducer between the buyer and the seller, and others playing a fuller role.
- In a negligence claim, identifying what caused the battery to fail and who was responsible for it are critical as the claimant must establish that it was the claimant’s negligence (as opposed to that of a third party) which caused the battery to fail. In circumstances where many different parties were involved in the design and/or manufacture of the lithium-ion battery, this may be complicated, and care should be taken to avoid the claimant facing a situation in which he sues the wrong defendant and is forced to discontinue and pay the defendant’s costs.
The following factors are important to note:
- A manufacturer owes a duty to take reasonable care to ensure that component parts made by a subcontractor can be properly and safely used in the product into which they are incorporated. However, this duty may, in some circumstances, be discharged by ensuring that the subcontractor is appropriately qualified to undertake the work contracted to him and by implementing some sort of quality control process. What may or may not be appropriate will be heavily fact dependent and is likely to depend on factors such as industry practice, guidance issued by standards or safety bodies and the risk associated with inadequate components reaching the consumer. Expert assistance will be critical in this regard, as will thorough pre-action correspondence and investigation.
- A defendant manufacturer will, generally, be vicariously liable for the actions of its own workforce, even if work is carried out in disregard of instructions pertaining to safety or quality – see Rose v Plenty (1976) in which an employer was not able to evade liability for the actions of a milkman who, in breach of an express instruction, employed a child to assist with his milk round, who became injured as a result of falling off the milk float.
As e-bike and e-scooter technology develops, manufacturers may discover means of alleviating the fire risks associated with lithium-ion battery use. In the meantime, insurers may wish to review their wordings to ensure that cover matches risk appetite.
A full discussion of the possible impact of the Transport Bill on the regulatory structure for e-scooters is available here.