The cases of Electric Vehicles catching up fire have set the alarm bells ringing among consumers, vehicle manufacturers and the government. There has been a lot of media coverage on the possible causes of these fires and potential ways to avoid such accidents. It would also be worthwhile to evaluate the impact of such incidents on the stakeholders and explore the available Insurance solutions to mitigate the financial loss arising out of these incidents.
The primary stakeholder in an EV Fire accident is the Owner of the vehicle. The loss of vehicle due to fire shall fall under the purview of Comprehensive Motor Insurance ( i.e a policy covering both the vehicle and the mandatory third party liability). The Comprehensive Motor Insurance does cover Fire, Explosion and Self- Ignition. Insurers have explored whether the incidents are attributable to a manufacturing defect and if they could seek recovery from the manufacturer. This would expose the manufacturers to potential subrogation claims from motor insurers. This subject is evolving and soon there should be an industry-wide consensus on handling such claims.
There have been instances of the death of the vehicle owner and family members due to asphyxiation in an EV fire. While Life Insurance covers the loss of such lives, there could also be a liability attached to the vehicle manufacturer, if negligence is proven.
Fire accidents involving EVs have the potential to cause Third Party Liability – Bodily Injury/ Death and Property Damage. The Third Party Liability section of a Motor Policy could respond to such exposures. However, it should be noted that the coverage towards Third Party Property Damage is limited to a max of INR 7,50,000. Again, liability can attach to the manufacturer if the fire accident is attributed to defects in the product.
EV Fire accidents expose the manufacturers to potential litigations towards bodily injury/ death and property damage claims, recall of defective products to repair or replace the vehicles and loss of shareholder value. Let us look at each of these exposures a little deeper.
While there is no specific legislation on the product liability of automobile manufacturers, the consumer has a remedy under Consumer Protection Act 2019. The Act provides remedies against:
1) damage to any property other than the product
2) personal injury, illness or death and
3) mental agony or emotional distress 1.
Till recently, Indian Automotive Industry was guided by the Voluntary Recall code. However, recent amendments to Consumer Protection Act and Motor Vehicles Act have strengthened legal provisions for ordering a recall. The Consumer Protection Act, 2019 has empowered the Central Consumer Protection Agency (CCPA) to order the recall of defective goods. Similarly, the Motor Vehicles (Amendments) Act, 2019 provides procedure governing the recall of motor vehicles. Section 110A of the Act allows the Central Government to direct a manufacturer to recall defective vehicles2.
EV Manufacturers can insure the Product Liability and Product Recall exposures, amplified due to recent legal amendments, by way of a well-designed Commercial General Liability policy.
EV Fire accidents and subsequent recall incidents may erode shareholder wealth due to a fall in business and enterprise valuation. The Directors and Officers of the firm can be sued for negligence in management oversight by the Shareholders. This management liability exposure is more pronounced in listed companies. A broad form Directors & Officers policy can help protect the senior management against such exposures.
As outlined, EV fire accidents have wide-ranging implications to key stakeholders, which can be insured under suitable policies to reduce financial losses.
Suresh Ramachandran, Practice Leader – Automotive Industry, Gallagher Insurance Brokers Pvt Ltd.
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