Emerging insurance issues when clients install EV charging stations at home

Canadians bought more electric vehicles in 2024 than ever before, Statistics Canada data show, and with that comes an increasing interest in charging those EVs at home.

But consumers’ adoption of residential Battery Energy Storage Systems (BESS) is introducing complex challenges for homeowners, insurers and claims professionals.

Adjusters handling these claims have a number of important factors to consider when navigating the complexities of residential BESS, including:

• A careful policy review of insurance requirements
• Associated risks such as thermal runaway and environmental hazards
• Challenges in claims handling, including failure analysis and valuation
• Legal issues and emerging trends such as liability determination, the potential for subrogation and evolving regulations.

Let’s take a closer look at each factor.

Insurance requirements

Coverage for residential BESS typically falls under homeowners insurance, but standard policies require careful review. Insurers, adjusters and homeowners should note:  

• Policy review is crucial. Standard homeowners policies generally cover fire damage, but specific exclusions or limitations related to electrical equipment or energy storage systems might exist. The scope of coverage for BESS-related incidents must be verified.

• Endorsements may be needed. Depending on the insurer and policy terms, specific endorsements might be required for adequate BESS coverage, potentially addressing equipment breakdown or adding specific liability protection.

• Importance of disclosure. Homeowners should inform their insurance provider about a BESS installation to ensure coverage validity.

• Underwriting factors. The BESS size, type, battery chemistry and its installation location (indoor versus outdoor) can influence insurance eligibility, premiums and safety prerequisites. Indoor installations often present higher perceived risks to the dwelling.  

• Safety certifications. Compliance with recognized safety standards such as UL 9540 provides greater assurance to underwriters, even if not always mandated explicitly in policies.  

Residential BESS risks

Residential BESS, especially those using lithium-ion batteries, present inherent risks requiring careful management and assessment by insurers:

• Thermal runaway and fire. The primary safety concern remains thermal runaway, an uncontrolled reaction within battery cells leading to rapid heating, flammable gas release, and potential fire or explosion. Lithium-ion battery fires are known for their intensity and how difficult it is to extinguish them, posing a significant risk to the property.

• Explosion hazard. In certain conditions, the rapid gas release during thermal runaway can result in explosions, causing structural damage.  

• Environmental hazard: smoke and toxic gas exposure. In addition to causing fires, BESS failures present a significant environmental hazard within the property. The release of toxic and corrosive gases during these incidents can cause extensive contamination damage to the structure, systems (like HVAC), and contents that far exceed the initial fire footprint. This poses not only a risk to the property but also serious health hazards to occupants, adding complexity to liability and claims. Understanding this specific hazard is crucial for accurate risk assessment and claims handling.  

• Operational failures. System malfunctions can arise from various issues including component failure, software glitches, or improper maintenance, leading to downtime or potential damage.  

BESS claims challenges

Handling insurance claims for residential BESS incidents poses distinct challenges for adjusters and insurers:  

• Complex Failure Analysis. Determining the precise cause of a BESS failure, particularly after a fire or explosion, is technically demanding. Critical evidence is often compromised or destroyed, requiring meticulous investigation of remaining components and data logs. Understanding the failure mechanism is crucial for coverage determination and potential subrogation.  

• Limited historical data. The relative novelty of widespread residential BESS deployment means less historical data is available. That complicates risk-modelling, since it’s still unclear how BESS long-term performance and failure rates compared to more established technologies.  

• Rapid technological evolution. There is constant innovation in the BESS industry. Claims professionals and underwriters must stay informed about advancements to understand evolving risks.  

• Valuation issues. Assessing the value of damaged BESS components and determining appropriate repair or replacement costs can be challenging due to the specialized technology and potential obsolescence.  

• Installation and maintenance verification. Investigating claims often involves assessing installation quality and adherence to maintenance recommendations, since these can potentially contribute to failures.  

Legal issues and emerging trends

Major litigation often stems from larger commercial incidents, but residential BESS failures can also lead to legal complexities and insurance disputes. Key aspects include:  

• Liability determination. Assigning liability often requires careful technical evaluation to distinguish between potential product defects, installation errors, or issues related to homeowner use or maintenance. The findings of the technical investigation are central to resolving liability questions.  

• Subrogation potential. Insurers may pursue recovery from potentially liable third parties such as manufacturers or installers. Success depends heavily on evidence gathered during the failure analysis.

• Evolving regulatory standards. Safety standards like UL 9540, NFPA 855, and local codes for residential BESS installations are becoming increasingly defined and enforced, affecting installation practices and potentially influencing liability assessments.  

Residential BESS represent a significant technological shift, offering benefits but also presenting distinct risks and complexities for the insurance industry. Effective management requires a clear understanding of the technology, potential failure modes, appropriate insurance coverage structures, and the inherent challenges in claims investigation.

Accurate risk assessment, informed underwriting, adherence to evolving safety standards, and a detailed approach to claims investigation are crucial for navigating the landscape of residential battery energy storage.