Has coverage for exploding-vape suits gone up in smoke?

E-cigarettes or “vape pens,” battery-powered devices which produce an aerosol or vapor, have been on the market since 2003 but have become widely used in recent years, according to the American Heart Association.

A study released by the CDC in September 2020 concluded that sales of e-cigarettes increased by 122.2% between September 2014 and May 2020, from 7.7 million to 17.1 million units sold over a four-week interval. That same study also revealed that e-cigarettes have been the most commonly used tobacco product among U.S. youths since 2014.

The health risks associated with e-cigarettes and vape pens have been widely reported, particularly the outbreak of lung diseases linked to vaping, which peaked in September 2019. Further, a study by the Stanford University School of Medicine published in August 2020 indicated a link between vaping and increased risk of COVID-19, finding, among other things, that young people who had used e-cigarettes in the previous 30 days were almost five times as likely to experience symptoms of COVID-19.

Though such incidents appear less common, the risk of exploding e-cigarettes or vape pens can be equally serious, even deadly. According to the U.S. Fire Administration, there were 195 reported e-cigarette fire and explosion incidents reported by the U.S. media between January 2009-December 31, 2016. According to another report, from 2015-2017, an estimated 2,035 e-cigarette explosion and burn injuries were presented to U.S. hospital emergency departments, indicating that the number of incidents and injuries arising from exploding vape pens is more prevalent than has been reported in the media.

Pens can behave as ‘flaming rockets’

Typically, bodily injuries and property damage arising from vape pen malfunctions are caused by explosions or fires emanating from the lithium-ion batteries used to power the devices. According to the U.S. Fire Administration, when a lithium-ion battery in an e-cigarette or vape pen fails, the shape and construction of the devices can make them behave like “flaming rockets.”

Exploding vape pens have been responsible for burn injures, broken teeth, shattered jaws and, in at least one case, death. That incident occurred when a vape pen exploded in an individual’s mouth, sending shards of metal into his face and neck. As such, exploding vape pens present a serious liability risk to manufactures, retailers and other businesses within the stream of commerce. They also pose a potentially significant exposure for their insurers.

One potential source of insurance coverage for companies facing an exploding vape pen claim is commercial general liability (CGL) insurance.

Generally, CGL policies provide insurance coverage against liability for bodily injury and property damage caused by an “occurrence” (typically defined as an “accident”). Accordingly, at first glance, they would appear to be an obvious source of insurance coverage for injuries arising from malfunctioning vape pens.

Products-completed operations hazard exclusions apply

Moreover, the standard form CGL policy generally provides coverage for bodily injury claims that fall within the definition of the “products-completed operations hazard,” which is defined to include all “bodily injury” and “property damage” occurring away from the insured’s premises and arising out of the completed product. Essentially, the “products-completed operations hazard” provides coverage for product liability claims, among others.

However, in some instances, insurers have added endorsements to their CGL policies to exclude claims that fall within the products-completed operations hazard. A typical exclusion endorsement of this type reads simply: “This insurance does not apply to ‘bodily injury’ or ‘property damage’ included within the ‘products-completed operations hazard.’”

Numerous courts have now interpreted the products-completed operations hazard exclusion to eliminate coverage for bodily injury claims arising from exploding vape pens.

Most recently, in Scottsdale Insurance Company v. Aqueous Vapor, LLC, the insured, Aqueous Vapor, was sued by a consumer alleging that he was injured when a battery he purchased from the insured’s store exploded in his pocket. Aqueous sought coverage under its CGL policy, issued by Scottsdale, for the lawsuit. However, Scottsdale denied coverage based upon the applicability of the CGL policy’s products-completed operations hazard exclusion, among other reasons.

Coverage litigation ensued in the U.S. District Court, Western District of Missouri, and in a January 12, 2021, order, the court upheld Scottsdale’s denial of coverage, holding that the products-completed operations hazard exclusion “clearly precludes coverage.” The court reasoned that two requirements must be met for the exclusion to apply: (1) the injuries must occur away from the insured’s premises and (2) the injuries must arise out of the insured’s product or work. The court found that both requirements were met, as the consumer’s injuries occurred away from Aqueous’ premises and the exploding battery was its “product.”

In August 2020, the U.S. District Court, Eastern District of North Carolina, issued a default judgment in favor of Evanston Insurance Company, declaring that it had no duty to defend or indemnify its insured in an underlying bodily injury action arising from an exploding battery in a vaping device. In doing so, the court held that the bodily injury claims in the underlying exploding vape device action fall within the scope of the products-completed operations hazard exclusion.

Earlier decisions in various jurisdictions have reached the same result. For example, in United Specialty Insurance Co. v. E-Cig Vapor Emporium, LLC, the court held that the subject CGL policy did not afford coverage for an underlying lawsuit brought by a plaintiff who sustained injuries when an e-cigarette caught on fire in his pants pocket because coverage was barred under the products-completed operations hazard exclusion endorsement in the CGL policy.

As the weight of authority indicates that bodily injury claims arising from exploding vaping or e-cigarette devices are excluded from CGL coverage by the products-completed operations hazard exclusion, it is critical for those operating within the chain of commerce to be mindful of the exclusion and its potential impact on claims against them.

In addition, insurers looking to operate within the vaping and e-cigarette space can look to the products-completed operations hazard exclusion as a potentially effective way to limit their exposure for the now documented risks associated with the lithium-ion batteries that many vaping devices rely upon for power.

Jonathan B. Isaacson is a partner at Kaufman Dolowich & Voluck LLP, where he concentrates his practice in the areas of professional liability, general liability and insurance matters.

Andrew A. Lipkowitz is an associate at Kaufman Dolowich & Voluck and focuses his practice in insurance coverage litigation and monitoring.

Opinions expressed here are the authors’ own.

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