How Lithium-Ion Battery Hazards Are Changing Yacht Insurance

Editor's Note: This article originally appeared in SuperYacht Times. Reprinted with permission.

Lithium-ion batteries’ role in yachting is growing. They offer superyachts a lightweight, efficient solution for powering everything from personal watercraft and tenders to e-bikes, phones, tablets, tools, toys, and appliances onboard. However, the surge in adoption comes at a potentially steep cost: a rise in catastrophic fires on luxury vessels, with substantial insurance implications, according to Scott Stamper, Managing Director National Marine Practice, for US- based insurance brokerage Risk Strategies.

Recent incidents, like the total loss of a 47-metre yacht in the Bay of Olbia due to a lithium-ion battery fire, highlight the devastating consequences of thermal runaway. These incidents also showcase the dangers posed by seemingly innocuous equipment and unsafe charging practices — a bicycle battery fire aboard the 46.7-metre Heesen superyacht Atina and another on the Delta Yacht in the Bahamas led to total losses.

The yachting industry is at a crossroads, Stamper says. “Action must be taken to protect mega yachts and their passengers from the dangers of lithium-ion batteries and mounting losses,” he warns. Underwriters, he said, are scrutinising lithium-ion battery use, crew training, and safety protocols with increased intensity. Some insurance policies are evolving to incorporate loss control surveys and coverage subjectivities, Stamper noted.

The message is clear: yacht owners, captains, and crew must become intimately familiar with the evolving landscape of lithium-ion batteries, associated risks, and the insurance industry’s developing requirements. 

Insurance implications of rising lithium-ion battery risks

The escalating threat of lithium-ion battery fires has prompted insurers to reevaluate their underwriting practices. Superyacht owners — and anyone in the yachting industry — should keep an eye on shifting policies and be aware of the following:

Underwriter challenges:

Lithium-ion batteries increase the risk exposure for insurance companies underwriting yachts. Unlike other fires, fires caused by lithium-ion batteries can be uncontrollable and near-impossible to extinguish. This increases the potential for large-scale liability claims and property total losses in the multi-millions.

Insurers are grappling with the best way to underwrite vessels with lithium-ion batteries on board. How can they balance risk management with clients’ needs? There is still not a clear answer, but insurers are making some policy and process changes.

Increase in subjectivities:

Increasingly, Stamper explained, insurers are writing subjectivities into yacht policies that state yacht owners and crew must adhere to specific safety protocols for the insurance coverage to remain valid. By requiring compliance with these conditions, insurers aim to protect themselves from large claims while simultaneously promoting safer operating practices within the yachting industry.

Subjectivities differ from traditional exclusions in that they don't automatically void coverage upon breach. However, Stamper says failure to comply with these conditions can lead to a claim being denied. Subjectivities are more likely to affect policies for older boats, he added.

Loss control surveys:

More and more, insurers are also mandating loss control surveys for yacht owners. These comprehensive audits involve in-person inspections and interviews by technical experts who evaluate the yacht's equipment, safety protocols, crew knowledge, and overall preparedness.

If safety standards and protocols are deficient, a detailed report is sent to the yacht owner’s insurance broker. The yacht owner will need to make adjustments before coverage will be issued. The results of these surveys can influence the terms of coverage, including potential subjectivities. Underwriters may also use the survey findings to determine the appropriate level of coverage to offer, reflecting the assessed risk profile of the yacht.

Photo: @royalthainavy_rtn / Instagram

Future policy evolution: 

Right now, there is no standard approach to the policy language specific to lithium-ion battery risks. Stamper said that, as time goes on, and more related claims come through, this will shift. Language and protocols, he said, will become standard across policies regardless of insurer, and we will see even more subjectivities or outright exclusions for certain circumstances of lithium-ion battery claims.

Emerging protocols, classifications, and best practices

As the industry seeks to address the growing challenges posed by lithium-ion batteries, new protocols, classifications, and best practices are emerging. The following advancements can help yacht owners and operators make informed decisions that ensure the safety of their vessels:

• Lloyd’s Joint Hull Committee (JHC) protocols
  Lloyd’s of London, one of the largest underwriters for the yachting industry, issued new guidelines in April 2024 from Lloyd's Joint Hull Committee Circular. The protocols focus on safe usage, storage, and charging of lithium-ion batteries on yachts. This represents a step forward for the industry, foreshadowing an eventual move towards standardised safety protocols to mitigate risks.
  
  
• Crew training
  Training yacht crew in lithium-ion battery safety is one of the most important risk mitigation measures anyone can take. In the near future, Stamper said, mandatory training requirements will likely be integrated into insurance policy terms. Virsec offers the most widely recognised and adopted training course on lithium-ion battery safety on superyachts and is well worth the investment.
  
  
• Classifications societies
  Classification societies play a crucial role in lithium-ion battery safety in mega yachts. These organisations, such as Lloyd's Register, Bureau Veritas, and RINA, establish and enforce standards for vessel construction, manning, and safety. Compliance with these standards is essential for maintaining a vessel's flag or class status. While battery safety protocols are not yet formally incorporated into all classification society standards, Stamper warned they are likely to become a mandatory requirement in the coming years.
  
  
• Innovations and best practices
  To mitigate the risks associated with lithium-ion batteries, consider implementing the following:
  • Fireproof charging boxes: These specialised enclosures are designed to contain removable batteries and are equipped with sensors to detect gas emissions, preventing fires before they can start.
  • Designated safe spaces: Designating specific areas on the vessel for battery charging can help minimise the risk of fires spreading to other parts of the yacht.
  • Proper usage, storage, and charging: Adhering to manufacturer guidelines is essential for ensuring battery safety and longevity. This includes avoiding overcharging, extreme temperatures, and physical damage.
  • Close monitoring of guest devices: Guest-owned devices, such as laptops and phones, should be closely monitored when charging in guest staterooms to prevent potential hazards.

Protocols and best practices can help mitigate lithium-ion battery risks. Comprehensive insurance coverage should be carefully arranged with a knowledgeable yacht insurance broker to respond to financial losses should an incident occur.

Photo: Semar

Additional coverage considerations for lithium-ion battery risks on superyachts

Beyond standard marine insurance, Stamper advised that yacht owners may need to explore specialised coverage options to address the unique risks and liabilities posed by lithium-ion batteries. Key considerations include:

Environmental liability, toxic wreck removal: 

If their yacht goes down, yacht owners are liable for wreck removal and disposal including the  potential environmental damage and pollution. Make sure your policy will cover the costs.

• Domestic vs. International policies: There are important differences between U.S. domestic and international yacht policies. U.S. underwriters often include property damage and liability in one policy. Such policies most often cover yachts used domestically.  For international yachts, it is common that coverage will be afforded via a separate hull and liability underwriter. Protection and Indemnity Clubs (P&I) often provide liability coverages for higher valued vessels.
  
  
• Personal umbrella: Personal excess liability or umbrella policies may only provide a limited scope of coverage. Employment Liability insurance for paid crew and Pollution & Environmental Damage Liability are often excluded. To protect the vessel and her owners, it is best practice to secure the appropriate limit of liability through a true marine liability form of coverage.
   
• Setting limits: Given the increasing risks and catastrophes related to lithium-ion batteries, CAT events, and increasing marine liability exposures, exploring higher limits with an experienced marine insurance expert is smart risk management.

Spirit of Zen yacht fire Dubai Marina

Charting a safer course

The rise of lithium-ion batteries in mega yachts has introduced new challenges and risks for the marine and yachting industry. The growing number of catastrophic fires and associated insurance claims will continue to impact the insurance market for years to come. 

The yachting and insurance industries must adapt to mitigate these risks. This includes developing stricter safety protocols, standardised language in insurance policies, and comprehensive educational programs for yacht owners and crew.

Stay informed as requirements evolve, consult with experts, and invest in training. Together, we can navigate the challenges of lithium-ion technology and enjoy its benefits without compromising safety on the seas.