Vape Companies Suing Kinsale After Battery Coverage ‘Quietly’ Excluded

Four companies that sell vaping devices have filed a federal lawsuit against Kinsale Insurance Co., claiming the insurer dropped coverage for batteries but failed to fully inform the policyholders before denying a claim.

If it goes to trial and appeal, the case could potentially help clarify insurers’ and insureds’ responsibilities when policy wording is changed or exclusions are added.

“Defendant owed a fiduciary duty to plaintiffs based on trust and good faith that required defendant to act in the best interest of plaintiffs, its customers,” reads the lawsuit complaint, filed last week in U.S. District Court in Nashville. “It is reasonable for the insured to assume the policies provided the requested coverage.”

Kinsale Insurance, based in Richmond, Virginia, offers casualty and specialty casualty insurance for cannabis, transportation and other industries. It has not yet filed an answer to the complaint. But industry experts said that the practice of changing coverage without fully notifying customers is not uncommon, and is rarely challenged. And Tennessee law may be less than crystal-clear on how far an insurer must go in notifying policyholders of changes and how specific notifications should be.

Battery fires from tobacco and marijuana vape devices or electronic cigarettes are relatively uncommon but have become a worldwide concern for consumers, fire departments and insurers. In October 2022, Michael and Elisha Schmidt suffered a fire, reportedly from a vape pen battery, and sued the four vape companies over the damage.

The companies, Isabella Industries, Maelynn Industries, Sancia Industries and Illumivaption Inc., all had umbrella and general liability policies with Kinsale for seven years. But when the vape sellers renewed their policies in October 2022, Kinsale excluded batteries and battery-fire claims from the policies, while raising premiums, the suit claims.

“Defendant led plaintiffs to believe that the batteries were covered after the renewal,” the complaint reads. “Defendant did not inform plaintiffs that it had removed batteries from the coverage and did not ask Plaintiffs prior to doing so.”

The plaintiffs also argue that the policy wording was ambiguous and illusory, and thus, unenforceable under Tennessee law. The companies had always paid their premiums on time and had been loyal customers to Kinsale, they noted.

When the Schmidts filed their lawsuit, the vape companies filed claims with Kinsale. But the insurer denied the claims, arguing that the policies did not cover batteries. Kinsale would not provide a legal defense for the insureds.

The vape sellers argue that Kinsale’s refusal amounted to bad faith and unfair trade practices, and has cost the companies damages and attorney fees. They are asking for compensatory damages, punitive damages, legal fees and a declaration that the insurer must provide coverage and a defense.

The rules and regulations governing insurers’ notification requirements vary, to some degree, by jurisdiction. Most states require insurers to provide 30 to 60 days notice when reducing coverage in business insurance policies, but not necessarily for liability policies, said Virginia Bates, a producer, insurance educator, advisor, and head of VMB Associates in Melrose, Massachusetts.

Even for business policies, though, carriers frequently do not abide by the rules, she noted.

“Often no one challenges it, so they get away with it,” she said.

If the apparent omissions are challenged, insurance agents also can be held liable. And if the insurer is a surplus lines or non-admitted carrier in the state, like Kinsale, the state regulations may not apply, which can put the agent further into the crosshairs of a legal action.

The Tennessee Department of Commerce and Insurance was unavailable last week to provide information on the state’s regulations on notifications. Several statutes appear to address at least parts of the question: One section notes an insurer may change conditions of a policy for portable electronics insurance if 30 days’ notice is given. But the insurer may not need to provide more than the revised policy and summary of material changes, the law notes.

In other words, a carrier must notify the insured of the changes, but not necessarily waive a red flag about specific wording revisions.

Another Tennessee statute requires insurers to give 30 days’ notice of any increase in premiums. Another section appears to require 60 days’ notice if premiums for commercial policies climb by more than 25%.

Insurance agents have pointed out that in most cases, insurers comply with state rules and regulations on notifications. It’s up to the insured to carefully read the policy, one agent said.