Hi, everyone. I'm Lillian Colson, and I'm thrilled to welcome you to the 41st Annual Inland Marine Seminar hosted by the Southeast Regional Advisory Committee. This is the second year in a row that the committee is holding a virtual seminar, and while the committee would have preferred to have this seminar to take place in person this year, I commend the committee on flawlessly pivoting to a virtual program, two years in a row. We have over 217 individuals registered to participate in the seminar today, and we look forward to learning together on a diverse array of topics throughout the next three hours. Before we get started, and I'm sure if you've joined us before, you already know the drill, but we have a few housekeeping items to go over. To help reduce strain on your local network, we suggest that you close all unnecessary browsers and internet-reliant programs. This session was approved for three CE credits in the state of Georgia. If you are a PNC agent or broker licensed in Georgia and you'd like CE credits, please go ahead and fill out the form. We just emailed it to you a little while ago. Fill out the form, save it, and then send it back to David Smith. His email address is on the form. The first CE code is 2021, that's 2-0-2-1, and we'll give you the second CE code at the end of the program today. Well, at that time, you'll also have an opportunity to win a couple of prizes, and so definitely stay tuned. One of the prizes will be for most engaged, and the other will be for a trivia question, and it'll be a $25 Amazon gift card. Each of you have an attendee control panel on your screen. Here you'll find your chat box and also your microphone, and so for questions, you'll just open the Q&A box and you'll type in your question today, and we ask that everyone keep their lines muted for this program today. Our moderator, Lauren Kipples, will ask your question as time permits for the first session, and then we'll save any remaining questions for the end of the session, and then for the final two sessions, we will save all questions till the end. You'll also have two breaks today, one after this session at around 10.53 a.m., and then the next one at 11.50 a.m. Eastern Time. Please be aware of the IMUA policy statement and the IMUA statement to remind all to refrain from entering into any discussions on matters affecting rates or conditions of insurance contracts. I'd also like to reference IMUA's mission statement, which is to champion the interest of the inland marine industry and foster the education and development of industry professionals. All right, it took a lot of individuals working together and devoting their time to this virtual seminar to bring it to fruition. I'd like to thank my colleagues, Ali and Eileen Monreale, for their assistance in coordinating this webinar. We're also extremely thankful to our esteemed slate of presenters, who we'll be introducing throughout the morning. They are incredible subject matter experts on a wide array of topics important to the inland marine insurance industry. Then they cover warehousing, battery energy storage systems, and cross-laminated timber, as well as modular construction. Many, many thanks to Kathy Parusi, Lauren Kippel, and the Southeast Regional Advisory Committee for hosting this seminar. This seminar has been – this committee has been incredibly impressive and successful for so many years in terms of education and networking opportunities the committee has provided to the Atlanta region, and now to the nation – to the entire membership on a nationwide basis. And with that, let's give a virtual round of applause to Kathy Parusi. Welcome. Thank you, Lillian. My name is Kathy Parusi, and I am the chairperson of the Southeast Regional IMUA Committee. Welcome to all of our attendees to our 41st Annual IMUA Southeast Regional Seminar and our second virtual seminar. I am so excited to see that over 200 attendees are attending this seminar – the largest attendance to date. The Southeast Regional Advisory Board strives to – excuse me – strives to provide educational excellence to inland marine professionals, and this year, I believe, we have exceeded those expectations. Our presenters are recognized for their experience and knowledge in the industry, and this will show in their presentations. I am very excited to announce that this year, we have seven students and one professor from Georgia State, University of Georgia, and Troy University attending this seminar. It is very important to introduce students to our industry. Hopefully, their future opportunities will lead them towards a career in inland marine. I would like to thank the Southeast Regional Advisory Committee for putting this seminar together. It is my pleasure to work with this great group of inland marine professionals. I would like to thank David Smith and Derek Bauer for being committee members for the entire 41 years. Their knowledge and contacts throughout the industry are invaluable to us. Thanks to Lauren Kipples for bringing the Hartford presenters to the seminar. Thank you to our presenters who have volunteered their time to present to you. First of all, thank you to the IMUA corporate staff, Kevin O'Brien, Lillian Colson, Eileen Monreale, and Ali Monreale, for their help organizing this virtual seminar, which I can attest to is not an easy task, and I had some technical issues this morning, and the support given to the IMUA Southeast Region. All attendees will be receiving a survey after the seminar. Please complete the survey at your convenience. This helps us with topics, interests, and ideas for future seminars. Thank you again for your interest in inland marine. I hope you enjoy the presentations. I am going to turn the moderator duties over to Lauren Kipples, vice chairperson of the IMUA Southeast Regional Advisory Board, as I am nursing a head cold. Welcome Lauren. Thanks, Kathy. So, our first topic today is warehousing and logistics, which is being presented by Sam Rizzatelli, managing director for Markel Assurance in Richmond. So since 1996, Sam is dedicated to inland and ocean marine commercial property underwriting, data capture and analysis, special risk management services, sophisticated product development, and training transportation and supply chain providers, shippers, underwriters, adjusters, and agents. Sam is graciously returning as a keynote speaker here with the IMUA, having also presented at events with the American Trucking Association, Truckload Carriers Association, International Warehouse and Logistics Association, and the Food and Drug Administration. He continues to study the history and evolution of transportation supply chain, and we are excited for him to share some of that intel today. Welcome Sam. And a brief reminder, place any questions in the chat, and I will bring them up as time allows. Hey, thank you Lauren, really appreciate that. Thanks to everyone for joining us this morning, Thursday morning, welcome. Yes, reminder, please use the chat box. Please ask questions along the way. I would love to see some good questions during the presentation, so really appreciate that for those inquisitive minds out there. Take a look first at the outline for today in Warehouseman's Liability. The format of this is something well organized by the great Gene Gardner over the years, one of our leading advocates, helping teach our industry this complex subject matter for a while, sticking with the theme of how she has organized this over the years. We're going to talk about the Uniform Commercial Code, Essential Warehouse Receipt Terms, Standard of Care, Prima Facie Case, Primary Loss Liability, Secondary Loss Liability, something we lose sight of after the Primary Loss Liability thoughts, Limitations of Liability, Acts of God, and then a couple other subjects we will get to. So here is the Uniform Commercial Code. The first thing I want to say about the Uniform Commercial Code is I want to explain it a little bit. This is a code that is not federal law per se. Every state adopts a version of the Uniform Commercial Code for their states. No state has adopted it identically throughout. Every state likes to tweak it up because every state is smarter than the other states. So it is a little bit different, but if we look at this basic Uniform Commercial Code provision, we will get a 99 percent feeling for what is out there in just about every state. And I am going to read this. I am going to commit PowerPoint presentation mutiny by reading a PowerPoint here, but this is for the millennials out there, and I am not picking on you millennials. We are Generation X. We got beat up by the baby boomers, but I am going to read it out loud. A warehouseman is liable for damages for loss of or injury to the goods caused by his failure to exercise such care in regard to them as a reasonably careful man would exercise under light circumstances, but unless otherwise agreed, he is not liable for damages which could not have been avoided by the exercise of such care. We are going to dig a little deeper into it. This is best understood as a negligent standard. Those tuned into motor carrier liability should be familiar with the Carmack Amendment, which is a federal law, by the way, different than this, that imposes a strict liability on a motor carrier. This is really a negligent standard, so you kind of have to be negligent or have done something out of the ordinary of your peer tradesmen, so other warehousemen, how they act. They should act relatively in the same prudent manner, and that's the standard that the Uniform Commercial Code imposes for liability for warehousemen. Let's see if the slide clicks over to the essential warehouse terms, which is – there we go. Essential warehouse terms. So this is also a provision of the Uniform Commercial Code, which has been adopted by the states, almost in this form, but this is something that does vary state to state. Look at all the things that a state may require, most actually do require, that you have to have in your warehouse receipt in order to enjoy the liability provisions of the code. You have to identify the location of where you're storing the goods. It has to be identified on a warehouse receipt. The date of the receipt, the number, the receipt number, so the receipt has to be different than the other receipts in that box of receipts. Whether or not it's negotiable or non-negotiable, believe it or not, some warehouse receipts may be negotiable. A negotiable instrument is something like a check. You write out a personal check that's a negotiable instrument. Some warehouse receipts do act the same way. Rates, the storage and charges, description of the goods, a signature of the warehouseman. It could just simply be a notation, a standard notation, and then they might not have to initial every single one of them. Warehouse ownership interest, if any, and then any warehouse lien that may be imposed, any right to a lien that the warehouseman may claim to have. Those are the essential terms. If a warehouseman fails to put those terms in a warehouse receipt or contract, then they do not enjoy the benefits of the liability position we just talked about, which is negligence, or the ability to limit their liability, which we will get to here shortly. Standard of care we just referenced. Think of it in two different boxes, because there's two boxes there. The standard standard of care, standard standard of care, is a reasonable care, case by case, negligent standard. It really depends on, like I was saying, the standard of the community. If you're in the polar vortex, and it's heavy snow, Michigan, and everybody has a certain kind of roof, and the way they clear off a roof, and it's a standard of care for clearing off a roof, and practices in the state of Michigan, as long as that warehouseman operates the same as everybody else in the neighborhood, and a roof collapses, there may not be any negligence. He may have no negligence related to a roof collapse, no damage, water damage to the goods inside. Think about Louisiana, New Orleans, loves to attract hurricanes every year. What is the standard practice for the, I don't know, take perishable goods, for example. Should you have a backup generator? If you have 10 warehouses in New Orleans, how many of those 10 warehouses have backup generators? If nine out of 10 have backup generators, guess what? You should have a backup generator. If one out of 10 has a backup generator, guess what? You really don't need a backup generator then. Imagine that. So, knowing, thinking about your perils, and knowing what community you're in, will help underwriters understand that, you know, what is the standard, the basic standard that that warehouse operation should maintain as they maintain their facility, and protect goods from harm. And then, something else to always think about are, what kind of representations may be made by the warehouse? Read that website, check out promotional material, because once a warehouseman starts to claim that they are the best, the very best, and nothing bad will ever happen to your goods, once they start making those claims, they've now increased the standard that might apply to them. This is different than assumed liability, and assumed liability is, you know, it's becoming more prevalent today. It's certainly not the standard, but it is more prevalent today than it was 40 years ago. And in assumed liability, what happens is a warehouseman agrees, usually in a master service agreement, some kind of contract, they'll agree to simply be liable if something bad happens to the goods. And now they're taking on strict liability, the same as a carrier would under Carmack Amendment principles. That is obviously higher liability than the standard liability. And one thing everyone has to keep in mind is that standard insurance policy, standard warehouse policies, generally do not cover this increased liability. It is an increased, you know, hazard, liability, and risk, and most policies really just don't cover that. Something to keep in mind as you analyze what is that standard of care, and that's part of underwriting and understanding the risk. What is the prima facie case a claimant needs to make? So if someone has goods in a warehouse, they simply have to state, I gave you my goods. You didn't give it back, or you gave it back in busted condition, and I suffered damages. That's it. That's really all they have to put in a complaint. That's all they have to say, you know, in terms of a claim. And they have presented the prima facie case. We've got a picture of a forklift busting through some of the cargo. The, for the Christmas story fans out there, that's Italian for Jilly on the freight box. And if you're not a Christmas story fan, you should be, check it out this holiday season. All right, let's talk about the primary and secondary liability scenarios. First, let's list out perils. These are the most common perils. Sure, you could have an earthquake or a volcano damage a warehouse, but we just don't see that as much. We see a lot of fire. And the thing about fire is I guess we would be surprised to know, to realize how many of our warehouses have flammable liquids in them. You know, you think of gasoline or something obvious as a flammable liquid, but how many times is a warehouse with storing machinery, but they also have the kind of lubricants and hydraulic fluids that go with that machinery. And those are also stored there and those are also highly flammable. And it's something that I think, you know, gets missed a lot in underwriting practices. So I thought I'd mention that. Water damage and water damage can occur from a variety of sources. The obvious is flood. Why flood? Because warehouses tend to get built around port cities and low lying cheap land areas because you're taking up a lot of space. So there's flooding, there's wind and hurricane that rips off roofs. There's the obvious sprinkler leakage and water main damage that can occur as well. We do see water damage claims. Those are popular. Infestation is also popular. And that's obviously with food and food being stored. Contamination's next. Spoilage, theft and inventory shortage. There's plenty of that to go around, especially with the high value of some of the cargo these days that gets stored in these warehouses. It's very attractive. It's sitting there just begging, waiting for somebody to help it find a new home quickly. Collapse of racks, collapse of roofs. That happens. Forklift hailing damage we talked about. So these are the obvious, you know, an underwriter looks at risk, sees these kind of apparels. Underwriter's looking for the controls around those. Good job, great job. But something that we failed to think about enough is the, and again, this is for non-negligent claims. Remember, you know, back to our standard of care. If you've assumed liability, well, you've assumed liability for whatever happens. But, you know, for the majority of risk out there, it's not assumed liability. It's the negligence standard. And, you know, what happens next after there's a primary risk or something that, again, we're gonna get to it, you know, but warehouses are not, you know, again, unless you've assumed liability, you're not liable for everything. You're liable for your negligence. So if you're not negligent and a loss happens, guess what? You can now become negligent. So a warehouse has a duty to protect and preserve the property after a loss. And that's what this is getting at. How sophisticated is the, you know, the warehouse? Sophisticated enough to, you know, to prevent those losses, to know what to do to mitigate loss, to notify. They have a duty to notify the owner of the goods that a loss has occurred so that they can get out and protect property, mitigate loss. And then the big question is who's responsible for those, I will call them suing labor expenses. You know, you had to move goods from one location to another location. Who's gonna pay for that? You know, another common scenario is, you know, during a loss or shortly after a loss, the need to make physical changes and alterations to the warehouse itself. I remember a famous claim in New Jersey during a massive ice storm or some rain and ice storm where they had to hire a contractor to rebuild a roof in order to protect paper from getting wet. Again, that's, you know, that's a suing labor expense. And, you know, the warehouse would have that duty to protect the property. And that, again, that's on a negligence-based standard, something for underwriters to focus a little bit more on. All right, limitation of liability. We've all heard of this. Really good warehouse men who wanna manage their risk very carefully, do a great job in limiting their liability. And what we mean by that is really limiting the value. So if, you know, a million dollars worth of equipment is in a warehouse and it's damaged, maybe you're not liable for a million dollars. It depends on your practices. The best risk-managing warehouse operations with the best bargaining power with their customers are able to limit their liability. And this is, again, a UCC provision adopted by the states, very valuable for the marine underwriters to focus on this and ride this limited liability. Damages may be limited by a term in the warehouse receipt or storage agreement limiting the amount of liability in case of loss or damage and setting forth a specific liability per article or item or value per unit of weight. So you have to have this reason. By the way, it has to be reasonable. It can't be unreasonable. You can't say, I'm just gonna pay you a nickel. And so over time, there has developed schools of thought of what is reasonable, tested by the courts, and they do like, if you limit something per article or item or value per weight, that's a very popular court-supported way to limit the liability. Provided, however, this is important because warehousemen have to operate a certain way in order to enjoy this protection. So that liability, such liability may, on written request of the bailor at the time of signing a storage agreement or within a reasonable time after receipt of the receipt, receipt of the receipt, may be increased. So the warehouseman has to give the bailor the right and opportunity to increase the liability for an extra charge, usually. If done properly, you're charging more rate to store the goods at the higher liability. Those are the better risk-managing warehouse operations, those that manage that the best. All right, we've heard of the act of God defense. There's little Christiana, and she's saying, because it's important to realize if properly executed, your act of God defense is an ultimate defense. It is not limited liability. You don't settle those claims out for limited liability. You actually enjoy no liability. So again, getting back to the point of the conversation, if a warehouseman follows the code and they issue warehouse receipts with the right terms in place, they can enjoy the act of God defense. It's not as, well, let's go through it, and then you decide how you feel about it. There's a lot of mixed feelings about this. It's usually understood to be an unforeseeable impact to a large area. So if a very, very strong breeze blows into the window of one warehouse and knocks over a box of freight, that didn't hit a large area. You're not gonna avail yourself, usually. You're not gonna avail yourself of the act of God defense, usually. There's always exceptions. You gotta study fact patterns precisely, but typically you need an unforeseen event that hits a large area. And when it does, it is a natural legal defense of liability, again, under normal standards of care. If a warehouseman has assumed liability for anything bad that happens, guess what? They may also have assumed liability for the acts of God as well. These contracts, the master service agreements are very tricky to read. Those that do read them, you gotta read every part of it. There may be a force majeure clause that does something similar to this. So there's a lot to read, a lot to understand in those contracts, but once they have the master service agreement, all bets are off on the standard that we're talking about. But it's good to understand the standard. You have to understand the standard to know where they're going with it. So sticking with this, trickiest part of the act of God defense is understanding this. You have a burden of proof. The warehouseman holds the burden to prove, by a preponderance of the evidence, actually, that it was free from negligence. And we'll get to that. We'll use an example here in a second. And that the damages were the proximate result of the act of God. Now, there isn't much litigation over proximate cause. You know, when a tornado rips through a warehouse, nobody's fighting over, did the tornado do it? A lot of hurricane damage, flooding damage. You don't get a lot of fight over what actually caused the damage. What you do fight over is whether or not the warehouseman was also negligent in some way. So that becomes a fact by fact, case by case, factual analysis. And again, you're gonna get into the standard of care in that community, in that neighborhood. What should that warehouseman have done to protect the property from that act of God, or once the act of God occurs, to mitigate the damages? Think about that. That's, you know, you're litigating something. And you're litigating a factual intensive matter. So it doesn't get thrown out. It doesn't get thrown out on, you know, any of those early motions to dismiss or motions for summary judgment. You know, this goes to trial. And so there's definitely, you know, the duty to defend in most of these policies, it applies. And so, you know, again, why are there mixed feelings around the act of God defense? It's just not so cut and dry that, you know, a warehouseman is totally free of risk simply because, you know, there's an act of God. So if you have a warehouseman in Miami, Florida, and if you think for a second that, hey, he's gonna, you know, act of God defense will protect me from that big cat fly that's barreling down, don't be so sure. There's a lot to underwrite around the question. And in order to be more certain whether or not you've got that cat risk coming in. Any questions so far? I don't think I see any questions, but. No questions in the chat as of right now, Sam. All right, well, way to go, Paul. So Sam, so we just wanna remind everyone, please, if you do have a question, type it in in the Q&A box and send it to us and we'll address your question. Thank you. No, thank you for that. And there really should be some questions. Where are the questions? All right, supply chain disruption. I wanna talk to that a little bit here. Today, we've got more supply chain disruption than ever before. I think we realized how fragile the supply chain has been. I think we also took it for granted. And that's normal. I mean, isn't that the American way? We take it for granted till it's broken and taken away from us. So that's happened in, and I think COVID really contributed to that. The economic recoil of COVID has wreaked havoc on our supply chain. Think about a couple of things. Forbes just stated almost half a million job openings in the transportation warehouse sector. Now, we can't break that out because Department of Labor doesn't split out warehousing from transportation, they're kind of lumped in. That's how the Department of Labor builds its statistics. But close enough, when you have a half a million openings, that's a problem. Underwriters should think about this in real time. Oh, by the way, the picture you're seeing, that's as of this morning, that is roughly $22 billion worth of cargo on almost 71, I think they estimate 71 cargo vessels parked, anchored, floating off the coast of California right now. They're just sitting there because they can't get into the port to deliver the goods. And that's the inbound. What do you think outbound is doing in that part of California? It's sitting there waiting to be transported or get stolen. So start thinking about additional risks. When you have half a million job openings, so you're short-staffed, all of our customers are short-staffed right now. And when they do hire, who are they hiring? Chances are they're lowering standards. Chances are it's less experienced. So this supply chain disruption should cause most diligent underwriters to pause for a moment and say, when are we gonna feel all the claims resulting from this one thing going on in the economy? Chances are we're gonna feel something. Chances are, I'm not saying it's gonna be the end of the world, but chances are everyone's gonna get some extra claims next year because you don't have staff, you're not hiring your security staff, you're not manning up 24-7 or whatever the maximum hours, but the longer a warehouse is in operation, the less chance a fire breaks out and has fun in that warehouse without somebody trying to fight it. So this has increased our risk, something I think we should consider. Is that right? We do have a few questions in the chat, if now's a good time. So one of the questions is, what would be some underwriting tools to address negligence in a CAT-exposed location? Underwriting tools for CAT in a... So you gotta read the contracts, you gotta read the bills, the warehouse receipts, these warehouse receipts, and you have to dig into, and that's what's beautiful about Inland Marine Underwriting, we can't class underwrite, you really can't class underwrite, you gotta dig into that account, and what are the practices that that account uses? So as far as tools go, your brain is the tool, and you've gotta dig into these contracts, these liabilities, and the practices, and the experience of the customer to manage its liabilities. Oversimplify that for a second. Some warehousemen manage their liabilities, some don't, and they all buy insurance, so which one do you got? You got the one that's managing their liabilities, or not? And if you're asking for contracts, and you're asking for receipts, and you're not getting them, what if the reason you're not getting them is because they don't have them? You're not gonna be able to avail yourself of the act of God defense, like we talked about. So it's a great question, love it, I mean, you're hitting the point home with the question. If you can't prove to yourself that you don't have the cat risk, guess what? You probably have the cat risk. Hope that answers the question, if not, poke back at that, please. Any other questions? Yeah, one more for now. How much of the new California cargo laws have impacted the bottleneck that we are currently seeing? Ha ha, oh, that is political bait, and I have not been drinking coffee enough this morning to bite on that. I will say, those new laws and regulations in California do contribute, just in all fairness, they do contribute to what you're seeing on the screen. That's true, and there's a lot of those laws, and too much to start listing out, but that's a great question. And so a really good underwriter does pay attention to the politics of our economies and our risks. And that's true. And so that's a great point. It's a great point made with that question. You do have greater risks when politics, you know, helps create greater risks. And that is happening in Southern California. Ironically, you know, you're going to read in the news how other states are trying to capitalize on the California missteps, economic opportunity missteps, we'll call them. Florida just announced bring that bring that cargo to Florida. You know, we'll get all that we'll get these container ships. Think about it won't take them that long. If you're if you're number 71, why wouldn't you just, you know, fuel up your engines and, and head on through the Panama Canal and bring that freight into Miami half of it's probably going far enough inland anyway. So you're going to see redirection of the freight to other states. And you're going to see that corridor, the Panama Canal corridor, open up much greater and the East Coast, you know, the Southeast matter of fact, this is hosted by the Southeast Southeast economy around freight is phenomenal. We're talking about Georgia, making a lot of great investment in their port, South Carolina, making incredible in Houston, Texas, you know, you know, you're talking, you want to bring this stuff to the East Coast and the Gulf Coast, you're gonna get that freight in, you know, into, you know, internal United States quicker, faster, friendlier. And I think I think you're going to see a migration of that risk. Great question. Phenomenal question. Any other questions so far? We do have a few more. So regarding supply chain disruption, how do we anticipate that's going to affect rates premium in the near future? I love it. So there are plenty of economists that have theories, and they're really good, and you know, you should read up on it. I think, you know, for what, for what I'm studying, what I'm seeing, I think we will have a disrupted supply chain for a long time, it'll be, it is an easy answer. I think it'll be longer than we want. I know I didn't give you a date, but it's going to be, it took a long time to become as efficient. If you think about who we were in January, think about the holiday season of 2019, which was just before COVID and 2020. Yeah, losing dates here. And that was very efficient. You know, we were, you could order something and it was delivered on your doorstep within, I don't know, two days. Did you, you could order something and two days later, it's on your doorstep. It came from, you thought it was made in China, but how did it get on your doorstep in two days? Well, it was sitting down the street, just waiting for you to order it, by the way. We had an incredibly efficient and well-oiled supply chain. It was a bit, and it broke down, you know, COVID broke it down so quickly, so fast, and it is so fragile. We can't even hire people anymore to get it back up and running. So, I think it's going to be a long time. I think, you know, some of the geopolitics and U.S. politics do play into this as well. I don't think you're going to see a supply chain like that for a little while. It's going to take a while to, and we may never get back to who we were, but we were talking about using drones to drop packages in your backyard within hours. And you could order food that would be at your door, you know, before you got too hungry. You know, and that is our future though, because COVID did teach us that we do want, and so you'll see more and more of what's called final mile or last mile delivery. That is our future, you know, transitioning into, you know, the real time. I need it now, and we'll get it now. We'll get back to that, but I think it's going to take a long time to get back to that. Good question. And one last question that I have on the chat, and if I've misinterpreted this one, Jean Fabrice, let me know, but I think the question is regarding BI for others, right? A third party loss of use effectively. Is there coverage in the marketplace for that exposure, goods and storage for a third party? We have a loss, and they have a, you know, they're out a BI exposure. Great question. You see that, and that is not a normal thing for marine insurers to insure. And the reason is it's very difficult to adjust that claim. You know, BI, if you go into any coverage firm that has BI, and you look at your conditions, the insured has a duty to give all the records to the insurance company, right? I mean, it's a first party claim. It's, you know, okay, you want me to pay your future loss of income, which is, you know, forward looking. You've got to give me all your records. You've got to give me all your data. You've got to give me all the proof of this. I've got to adjust this loss. You can't do that with a third party. How are you going to get that from a third party? They're not going to give you it. They're not going to give you all of that. They're just going to make a demand. So it really starts with what kind of liability has the warehouse been taken on? 99 out of a hundred times, maybe it's 999 out of a thousand times. Maybe it's even more than that percentage wise. A warehouseman does not accept liability for what are called special or consequential damages. They just claim that, and the natural laws do not impose that on them either. So naturally anyway. So they could become liable for that, but when they do, it's a dangerous, bad thing. That's why all coverage forms exclude loss of income, loss of use, loss of market, et cetera, as a consequential damages. It's always excluded. Well, 99% of the time, I guess it's excluded. There's not a lot of coverage out there because it's a difficult thing. First of all, warehousemen should not be taken on that liability as much as they can afford it. For those who do, it's self-insured because there's really not a lot of insurance out there for it. And I hope that answers the question. Any other questions or any questions on the questions? Any questions on the answers? Keep them coming. I like that. I think that's it for now. I'll interject if more come up. Beautiful. All right. So in the last few minutes we have, I'm going to talk about three other subjects. That's FDA regulations, food safety, pharma, and COVID vaccine. Hot new stuff. Now, truth on the FDA, and look at poor little Rosa. She dropped her ice cream. That poor little Rosa, can she eat that? Who's got the five second rule? Who's got the 10 second rule? What is the rule? What is the standard? By the way, Rosa's 17 now. And matter of fact, she was just earlier this year on ESPN's top 10 plays a day at number five for hitting a three pointer with 0.6 seconds on the clock. Text me if you want that video. But I love this picture. It captures it perfectly. And in the FDA regulations, what we have is many of us have been talking more and more about the FSMA, which applies to transportation. So Food Safety Modernization Act, which was launched a few years ago and it impacts the motor carriers. So we've been talking a lot about that. But what we don't talk about enough of, but has been around much, much longer is the FDA regulations that apply to the warehouse men. And this is true. The warehouse men have been regulated around this and they even get inspected randomly by the FDA to make sure that they don't have conditions. This is what's unique about this exposure. Conditions which may have caused adulteration or contamination. We live in a world of in fact, damages. Like, did it really get damaged? Show me the damage. But when FDA regulations apply like this to the extreme they do, the regulations are attacking the mere possibility of adulteration. And that's just a different standard. And I think I'm making the point here because anyone insuring a food or beverage warehouse is subject to this additional exposure, whether or not it's insured by your policy or not. The customers and the customer's customers, they have certain expectations around this stuff. And I think it's getting more complicated. So I wanted to raise that awareness and make that point in this presentation. I do think it's one of those little subjects that kind of goes unnoticed a little bit or taken for granted for the warehouse men as we focus a lot on FSMA for the carriers. That being a new exposure for carriers, relatively new. Pharmaceuticals, one of the toughest, you know, commodities to insure, obviously highly sensitive product, getting even more sensitive. And, you know, I don't know of any pharma anymore that's just insured under a warehouse receipt. The pharmaceutical companies have their master, they have their master contracts and they force warehouse men to sign those master contracts. And if you're going to insure pharma, you really got to read those master contracts thoroughly. They're not easy. Obviously the perils of spoilage, contamination, temperature control, very real. You're going to want to underwrite their power supply, their backup power supply, and, you know, how they're going to manage because, you know, bring all this home. What if the temperature goes out for two hours? Would the FDA say that that's a condition which may have caused adulteration? You know, these things come together and that's our new, that's our new more complicated risk that we deal with these days. Security and, you know, chains of custody are the right words. You got to underwrite to that too. Sometimes the, you know, a, think about this setting, ready? A trucker is on the loading dock, has access to the goods stored in the warehouse. There are no cameras on it for whatever reason, or they don't have good enough footage. You know, did that trucker go do something to, you know, I don't know, do something to the, you know, to the pharmaceuticals that are sitting in there? Is that a condition in which someone may have contaminated the goods? And the pharmaceutical companies think like that. You know, they think like, in their contracts, you can't leave their goods unsupervised in any way. It may be adulterated and they don't want it in the supply chain. So again, you know, is any of that covered? Probably not. Is somebody expected to be covered? Maybe. You know, who wants to fight over, you know, $5 million claim for that? All right. COVID vaccines. I think we, marine insurers, I'll bet you for the marine insurers on this call, I'll bet you at least 10%, maybe 15% are insuring COVID vaccine right now. We don't even know it. That's how much of this is actually getting distributed to our locations and in our facilities. A couple of facts to think about. 1,900 vaccines destroyed in Boston after Cleve accidentally unplugged the storage freezer. You know, they just, you know, 600 vaccines thrown out in the Kansas hospital, refroze, you know, already thawed vaccines. 500 intentionally destroyed by Wisconsin pharmacists. So if there's any disruption to that, you know, that temperature control, just the temperature control, this stuff gets destroyed. Is there an expectation that's covered and you're going to pay for that? Maybe. Think about that. So maintaining proper temperature is probably, you know, our greatest new underwriting challenge with the, with the COVID vaccine for sure, because this stuff is being required to be stored at temperatures, not normal for anything we do. And so marine underwriters are not practiced in, you know, making sure, for example, and by the way, you would get this information from the CDC. They have on their website, you know, all these, you know, standards, their standards and guidelines that the warehouse men have to follow. And for example, Moderna for the Moderna vaccine, you know, I think it has to be stored between negative 50 degrees Celsius, which is negative 58 Fahrenheit and negative 15 Celsius, you know, five degrees Fahrenheit. So, you know, again, depending on, you know, what it's doing, you know, where it is, a negative 50 degrees Celsius or 58 Fahrenheit, you know, most equipment isn't built to do that. So this is new, you know, newly designed equipment. And when you think about newly designed equipment, does all newly designed anything actually work exactly as it was supposed to, you know, so new risk. I think COVID vaccine is new risk. And I think, you know, we're ensuring it now on a lot of our books and not realizing it because it's ending up in locations of, you know, in real time, real fast as everybody wants to, to be a good soldier and do the right thing for the rest of the country. But more risk, more risk than we realized. And I think more to underwrite around that, much more to underwrite than we're used to. So put those diligent underwriting hats on and attack that exposure if that's what you want. So any final questions? I'm coming up to the witching hour of 1053. Are there any final questions as we wrap this up? And again, really appreciate everyone's time here. Yes, Sam, we have a couple of questions. One might be a chance for you to kind of just talk about the larger relationship between a bailor and the warehouseman. But the questions about contractors stockpiling materials because it increased cost and construction. The question is what are a contractor's options to be sure that these materials are covered by the warehouseman should anything happen? So the contractor, you know, has to ensure that they've gone through either a master service agreement carefully to secure their rights in that master service agreement with the warehouseman or, you know, the bill, you know, the warehouse receipt, that warehouse bill, a warehouse receipt, you know, in either of those documents, you know, the contractor can ensure that their interests are best protected. And, you know, that's it. That's really it. That's, you know, what if that contractor accepts a warehouse receipt that's got a limitation of liability? And so the, you know, the construction material, which we all know is going up in leaps and bounds, shows up at a warehouse, they got that nice stock and supply there, but that stuff gets stolen and it's high theft and it's going to get, you know, could get stolen or could burn. It has a loss, suffers a loss of some kind. What if that contractor agreed to a limitation of liability of, you know, I don't know, like 30 cents a pound? Guess what? He just lost a ton of value and a ton of increased value. So that's the answer to the question is to focus that contractor on, you know, practicing diligent contracting with the warehouseman. And what was the first question? Because that was the second one. Or any additional questions? I think the first question had to do with the relationship between a bailer and the warehouseman. Yes. And let's see here. I'm sorry, I'm having issues getting my mouse to work. Are there any loss controls advised or set in place to handle the current interruption in the supply chain? No, no. Because risk control, loss control, you know, no one's built, no company lost. Nobody's built for this. Nobody's built to give that advice, you know, you know what? You know, the best warehouse operations, if you could bring them, you know, 150 great warehouse employees, there you go. I mean, who could do that? That's the number one, the number two, and the number three thing that warehouseman needs right now. 150 credible, experienced, decent warehouse workers. That's what they need. And how are you going to do that? So, it's almost, if you think about it, from an insurance company perspective, it's uncontrollable risk for us at this point in time. I suppose someone could build that kind of a service. Good luck with that one. Good question. Great question. We do have a few more questions, but I think we have to build in a little time for a break before our next presentation. So, I think at this point, I really appreciate a great session, Sam. And there will be a break until 11, at which point we will come back. Yeah, actually, Lauren, we're going to make that until, it was supposed to be until two minutes after. We're just going to add on on just a minute or two. We're going to make it until 11.05, okay, for the break. 11.05. 11.05. All right. Thanks, Sam. Take care. So Ken, we'll need to, I think you're self-muted, and Bill, I believe you're just self-muted. I want to test, we want to test your microphone when you have a chance. Sure, can you hear me now? Yeah, I can hear you. You sound great. And Ken, do you want to try to unmute your line? I know Ken, there was a little, some power issues, so I know Ken had to log back in. Thank you. And Lauren, I don't know if you're there, I'm going to clear out the questions just so we'll have a fresh slate for the next session. Can you folks hear me? Yes. Yes, we can hear you. Okay. I'm going to try to share my screen real quick, see if that works. Hey. Yep. Yep. Ken, you don't need to share your screen. I'm sorry. I didn't mean to share my screen. I meant the webcam. I'm sorry. Oh, okay. Yes, no problem. And you are back, and we hear both of you. Bill, can you slightly change yours just a little bit? I know you're on. That's good. That's good. Yep. You like that better? Yes. Yes. I know what he's doing. He's got his notes off to the side there. I know exactly what he's doing. Just so you all know, I am running solely on a Wi-Fi hotspot on my phone right now. Wow. This is the fourth time we've had Internet shutdown in the last month. Fourth time. Yeah. And I really appreciate it. So right after we introduce you, Ken, if you would like to conserve as much power as you can, you can turn off your webcam. That's fine. Whatever you need to do to conserve. I think I'm going to do that just to save bandwidth. Yep. Yeah. Do you want to see if you can still move the slide? Let's see. I'm sorry. If you were able to move the slide. Yeah. Let me give it a try here. Oh, yeah. Yep. Perfect. Okay. Excellent. A little slow, but okay. So real quick, are you folks going to introduce us, or how does this work? Yes. So actually, so right at the end of the break, which will be, we just extended it three more minutes. So at 11.05, Lauren is going to come on, and he will introduce you, and then turn it over to the two of you. Okay? Gotcha. Perfect. So, yeah, I might do that. I might just leave my camera up for the first couple minutes at the intro, and then I'll turn it off. Yep. And then, Bill, I don't know if you want to, whichever you feel more comfortable with, you know, Ken will have to turn his off. I'll probably follow Ken and just stay on for a little bit, and then turn it off. Okay. Because actually, I'm going to be, what you're going to see, if you look at me, that's what you're going to see. My head's going to be like that. Okay. So I think rather than looking at the camera, it's going to be better if we just turn it off. Okay. Okay. And you're going to run the slides, Ken? Yeah, I'll run the slides. If I run into a snag, I'll let, is it Allie? Who's kind of running? Yes, Allie has, yeah. Yeah, if you let her know. I'll just let her know. Maybe I'll text her or something like that, chat, if need be. Yeah. You can even just say, if you have an issue, you could say, Allie, can you move the slide, and I'm happy to take over. But if you ever do realize that you lost control, what usually helps is you just re-click on the slide, and that should give you control again. Right. Okay. And then I'll manage the polling questions, so when you get to the poll, and, you know, if you remember to just read the poll and the answer selections. And, you know, it takes me a moment to bring it up, and then we'll launch the poll, and then I'll close it out and just comment on the results before we go back to your presentation. But it's really good because you have the polls also built right into your slides, so everyone will see it there as well. Okay, perfect. So we'll just read the poll question, and we'll provide, we'll just read, you want us to read the response options there as well, and then. Yes, yeah. And you'll take over. Okay. Yep. And we'll just wait, like, 15 seconds, you know, for attendees to answer the poll. Yeah, Bill, I think if I remember correctly, I have the first poll, you have the other two, right? Yes, that's correct. I was able to check into Comcast's website. It says service will be restored between 2.30 and 5 o'clock. Oh, geez. But that's okay. The other three times, I got my credit back, like 11 bucks each time I went on Comcast and got my credit. Good for you. Is this another line strike, Ken? Is that what we have here? I got a feeling it is. I don't know. Yeah, I agree with you. Yeah. I like it. They're doing that main road construction at the entrance to our development. Yep, yep. I like, oh, what was that? Oops. Yeah, it's Florida State Highway Department, of course, all their subs, so who knows who it was. I'm going to go ahead and mute, okay, Ali and Lillian. There's Lauren. Yeah, it's fine to mute. We'll start in one minute, Ken. So back at 11.05, Lauren will start to introduce both of you. Hey, Lauren, I'm still on Wi-Fi hotspot on the phone, so I'm going to leave my camera up. Once you introduce us, I'm going to turn it off just to preserve bandwidth. Yeah, you're coming through clear for the time being, though. Okay. My phone's sitting in my window. That's the best place I get signal. You know, business continuity at its best. The things we have tried and tested throughout COVID. Well, I'm buying that Peplink device here as soon as I get this meeting. It's a cell router. All right, I think we're ready to roll. We have until 11.50 a.m., and that includes questions, so everything all inclusive by 11.50. And you'll hold questions for the end, Ken and Phil? Yeah, please. Yes. Yeah, yeah, so we'll try to wrap up by, you know, like 11.43, something like that, so we have time for questions. Okay. Thanks. And just everyone on the line, welcome back. I just want to remind you, if you have questions for our presenters today, please type your questions in the Q&A box, and we'll save, we'll reserve questions for the end, and Lauren will ask your questions to our presenter at that time. Thank you. All right, welcome back, everybody. Our next section is on Battery Energy Storage Systems, or BESS, and we are excited to have Ken Travers and Bill Larson here to present today. Ken is a technical manager of property and product at Hartford's Risk Engineering Office. Responsibilities include development of risk assessment tools for fire protection, business impact, supply chain risk, natural catastrophe risk assessment, as well as publishing technical engineering guidelines procedures for field use with heavy focus on emerging technology and threats. Prior to Hartford, Ken served as lead for global technical team business impact specialist with AIG Risk Engineering, with a focus on natural catastrophe, business impact, supply chain, fire protection, engineering applications. Ken has over 20 years of firefighting experience and tactical fire ground management with his local volunteer fire department, holding a bachelor of science in fire protection from the University of Maryland, and an MBA in finance from Goldie Beacom College in Delaware. Bill Larson is Inland Marine technical manager of the risk engineering organization Hartford, with 25 years of experience in occupational safety and consulting. He's a risk engineering subject matter expert for Inland Marine exposures, as well as the designated risk engineering construction master, providing training, coaching, and reviews of complex accounts for Hartford risk engineering staff. Prior to his employment with Hartford, Bill was a safety director for 12 years, working in heavy manufacturing, construction, and general industry, providing safety guidance for clients. Bill earned his bachelor's in occupational safety and hygiene management from Millersville University, and a master's of education and training and development from Pennsylvania State University, holds a certified safety professional certification, and holds a federal aviation administration airframe and power plant mechanic rating, and a private pilot certification, and has worked with the Department of Defense contractor with expert experience in aircraft maintenance for the U.S. Army for eight years. We'll turn our presentation over to Ken and Bill. Gentlemen, the floor is yours. Okay, thank you, Lauren. Good morning, everyone. Just to let you know, I'm going to turn my camera off here in a second. Since I'm involved in business continuity, my internet provider decided to lose service here about 10 minutes into the beginning of the presentation about an hour ago. So, I'm going to turn this off to preserve bandwidth, and then we'll get started. Okay, so anyway, good morning and welcome. Bill and I are going to talk a little bit about battery energy storage systems. I'll probably intertwine that with the term BESS, just to save time and language. And so, we'll go ahead and get started here. And I think, there we go. Oops. Okay, so we're going to start with a poll question. We thought it would be helpful just to level set to see who has some familiarity with BESS. So, the first poll question is, battery energy storage systems can be found at which of the below occupancies? And the choices here we're providing are utility plants, commercial buildings, electric power stations, residential homes, or all the above. So, if you want to take a second and just respond, we'll just take a look and see your familiarity with these systems. Yeah, I see the responses coming in. I'll just wait a couple more seconds and then I'll close it out. There we go. Hey, great. Look at this, 97 percent got it correct, all the above. Obviously, you've seen these or you've got some familiarity. We'll talk a little bit more about this and the utilization as we get into the presentation, but the one that might surprise is residential homes. If you're familiar with the Generac product, that's essentially a BESS that a lot of people are starting to put in their garages. Today's session, what we're going to do is we're going to talk about provide an introduction to BESS and also lithium-ion technology, since that's the predominant battery chemistry being used in these systems. We'll also talk about associated risks with these systems, not only just with the BESS itself, but also with the underlying battery chemistry energy storage. Bill and I will then talk about loss trends, some of the few case studies of what's happened out there in the past few years. Then we'll switch over to best practices from a risk control mitigation standpoint. Then Bill will finish up with underwriting considerations with these systems. Battery energy storage systems, it's a relatively newer technology. They've been around for probably going on a couple of decades, but they've become much more common in the last couple of years. Really, they're an electrochemical device which collects energy. The energy gets collected from either the power grid, a power plant, or renewable sources, which could be solar, photovoltaic, solar arrays, wind turbine farms, or even fuel cells. I apologize, I got a bit of latency on this slide here. Battery energy storage systems, as I mentioned, they're used by utilities, and that's predominantly where they got their genesis. They're now moving into the commercial market and industrial markets, and of course, as I mentioned, also to the residential market. How they're being used is a couple of approaches. One is backup power. It provides a storage source of power for times of no power or high cost of power. A second thing is peak shaving. Peak shaving, we'll talk a little bit more in a minute, but essentially, what they're doing with these is they're charging up the batteries at times of low electrical rates available off the grid, and then they're discharging them and utilizing that stored energy at times of peak costs, peak times, demand times, at the most expensive times of the day. Additionally, they're used for capacity farming by the utilities, enabling that renewable energy source, whether it's wind turbines and or photovoltaic solar panels, to be like a one-hour dispatchable power resource for them. So let's talk a little bit about what they are, what BESS are, if you're not that familiar with them. So there's three battery chemistries that are really utilized within these systems. Really, the heart of a battery energy storage system is the battery cells, which in fact store the actual excess energy as it is collected from whatever the source is. Most of these BESSs will incorporate hundreds, if not thousands of battery cells. Most of those cells are what we call prismatic batteries. They're not necessarily the pouch batteries, which maybe you've seen in your laptop or things like that. And they're arranged in modules. More on that in a few minutes. So there's three chemistries in the market that you'll find with BESS. The first is lithium-ion, by far the most common, representing about 80% of the market in BESS. The second is sodium-sulfur, and the third is vanadium-redox. Again, lithium-ion is the most common, again, about 80%. And it's the only commercially mass-produced battery that has an organic or flammable electrolyte. And if you look at the diagram on the page, the electrolyte is shown between the cathode, which is the positive side, and the anode, which is the negative side. And you'll see a bit of a gray little thing in the middle. That's the separator that is designed to basically separate those two, the cathode and the anode, and to try to minimize potential fire from originating within that battery setup. The electrolyte itself, which is shown here, is really a lithium-salt organic solution. That's what's flammable. And the electric current is generated when the lithium-ions migrate from the anode here on the right over to the cathode through this electrolyte during the discharge of that power. Okay, so when the batteries are in use and discharging power to be utilized, that's what happens. When we're charging the batteries, the charge comes back from the left side, or the cathode positive side, back over into the anode. The market demand for the lithium-ion batteries has really exploded in the past few years. Significant increase year on year. The Dubai Multi-Commodity Center, which is a free trade zone authority over in the Middle East, provided this information. They did a market review, and this is where they anticipate the demand for these batteries going over the next, look at that, eight, nine years, right? If you look at the, you know, certainly the largest consumption there is going to be in passenger electronic electric vehicles. But if you look at the stationary storage shown here as that purple, that magenta slice, where we're at today, it's a very thin, little, narrow slice in that bar chart. But when we go about eight or nine years out, they expect it to be, as you can see in year 2030, it's a pretty sizable increase just for the stationary storage, which is essentially the BESS. So the preference for these batteries for lithium-ion is really related to their rechargeability and the life cycle, and also their position on what we call the power continuum, which is shown in the lower left image here. Of all the battery chemistries available for this, lithium-ion has both the highest specific energy capacity with the highest specific power output, more so than lead-acid batteries, nickel-cadmium, nickel-metal hydride, and nickel-hydrogen battery chemistries, all shown by the other colored ribbons to the left of that diagram. And what that means to us is essentially the lithium-ion battery has significant energy storage density for its weight, as well as enhanced power density also for a given weight. Really, that suggests that smaller battery sizes can store more energy and deliver more power simultaneously as compared to the other chemistries. And that's really one of the biggest reasons that you see them really start to balloon and explode and use. They can be smaller to go in just about any kind of a device or component or whatever that might need power and battery power. So that plus the rechargeability really is why they're so popular and why they're gaining popularity as we go forward in time. So there's some key components of the battery energy storage system shown here in this cutout diagram. First off, individual battery cells, as I just mentioned, lithium-ion, again, being the most prevalent, and they're what store and discharge the energy as we talked about how the chemistry works. Then you have modules, and the modules really consist of individual battery cells and also contain monitoring connections to monitor the health, the recharging and state of charge of the individual battery cells themselves. Then you have trays, and really the tray is just what you think it is. It just houses the battery modules, and then enables that to be put inside of a battery rack, which does tend to resemble like a data server rack. If you think of computer servers, the blade servers, they slide into these racks like a cabinet. That's what the trays do here to build up the modules. Then we have a battery management system, otherwise referred to as a BMS, and that really controls the monitoring and battery charging of those cells. And then we go to a power conversion system, and what that does is really enables the conversion of electric energy from AC to DC and vice versa. And these systems often incorporate redundancy so that if you have a failure in one of those components, it can continue operation, and also voltage regulation itself of the battery charge. And then there's the energy management system, and that monitors and controls the energy flow within that battery energy storage system, and really coordinates the work of the other systems, the BMS and the PCS. So how does BESS function or BESS function? Essentially, it functions by accepting electrical energy from a connected source. And as I mentioned earlier, that connected source can be the power grid, can be a solar panel array, or it can be a wind turbine complex, and or even a fuel cell. And it collects that via inverters, as you can see in the left-hand diagram. And what the inverters do is to essentially change the charge. Basic, not change the charge, but change from AC to DC and back and forth. So that energy is really routed through the EMS and the PCS, and then directed to the individual battery cells where the energy is actually stored. It's very similar to a recharging battery process, like you might have a charger, like we do with cell phones. You plug that in, it operates in that kind of a manner. That BMS, the battery management system, really monitors and maintains the charging state of the batteries. And that's important in these types of systems because that's what helps to prevent overcharging of those battery cells, and also over-discharging, which is kind of the opposite. So when demanded, the energy within the battery cells and modules is called upon by the BMS, routed through the inverters, converted from DC to AC, and then transmitted via different electrical distribution panels to serve whatever dedicated loads are at the premises. That's essentially how these function. So here's another couple of diagrams to kind of help you understand it. What you'll find with these is that they are stacked up inside of some form of a container, and that container is used to house the BESS systems. They're usually 20-foot or 40-foot or even 53-foot dimension lengths, and at about 10-foot in width. You can see it looks very similar to a data server, but in fact, this is an image that Bill actually took of a client recently of a container with a battery energy storage system inside. And where higher storage demands exist, the site may use multiple containers. So it may not just be one, it may be five, it may be 10, it may be 20 sitting in a yard. And again, that depends on the storage yard. What you'll find with the energy storage capacity to these things, they range anywhere from maybe as low as a half a megawatt up to about five megawatts. There are some that go higher than that. So I want to switch gears for a second. Now we've talked a little bit about how they're constructed, how they're used, how they function. Let's talk a little bit more about, you know, associated risks, you know, with this equipment. So there's multiple sources of risk, which Bill and I will both talk about. The most predominant are related to the battery failures, which result in fire in these module arrays. And they can create a significant loss event leading to destruction of the entire BESS unit and potentially spread to other joining containers. With respect to these batteries, and again, I'm referring to the lithium ion batteries since they're the most common, there's really four primary failure modes that can occur. The first being a manufacturing defect, which can, you know, really create conditions where we can have a higher potential for a short circuit during the charging of the cell itself. Physical damage from abuse of the battery pack or package, and I don't mean intentional abuse necessarily, but just simply dropping the battery, which is a good safety point. Many of you probably have lithium ion batteries at your home, which you use for power tools or a variety of things. If you ever do drop one of those batteries on the floor, a decent fall, it's a strong recommendation would be just to replace that battery because that is one of the failure modes that can occur. Electrical short circuits, which might occur due to poor design and or substandard manufacturing, and again, physical damage. And then finally, excessive overcharging. I mentioned about, you know, this is designed to prevent overcharging of these batteries. Well, that's why, because excessive overcharging can really lead to overheating, which then can result in the ignition of that flammable electrolyte. Another hazard, it's associated with, of course, a fire event, something we call thermal runaway, and this is a phenomenon that can occur during a battery fire event within a module where other battery cells are joined together, connected or in very close proximity to the battery where the fire might have originated. So when the ignition of the battery cell occurs and does involve that electrolyte, significant heat can be released if it's not controlled by a sufficiently sized safety vent that are built into the batteries. That can enable the fire to expand to adjoining battery cells, enabling ignition of the electrolyte in those units. This process will continue to enhance heat release to spread further into the battery racks, and it becomes a cascading event involving multiple battery cells with eventual involvement of the entire array, unless it's disrupted by an automatic fire suppression system or a manual firefighting intervention. Exposure batteries within the module or adjacent modules can ignite when their temperatures exceed about 300 degrees Fahrenheit. So this is just a flowchart that kind of talks about what a thermal runaway looks like diagrammatically. You can see here to the left, you have these different types of situations that would initiate the potential event itself. You see in there a term called dendrites. Those are microscopically crystallized materials that will develop inside of the electrolyte attaching to either the cathode or the anodes, and they actually can initiate a fire event. And so you find dendrites when we have some of these other issues. So you see external heating, overcharge, overdischarge, penetrations to the battery cells are all potential leading or initiating causes which can lead to those exothermic reactions and the ultimate thermal runaway. Explosions are another associated risk. And realistically, these can occur as a result, typically they're gonna result from a fire event. Usually when we get to a significant fire and potentially thermal runaway, what's happening is the batteries, the lithium ion batteries have very high densities as I talked about earlier, and they release hydrogen at about 30% of the off gases that are given off is consistent hydrogen. Hydrogen is a flammable gas, as you may be aware. And that can result in an explosion within the battery rack and or the container itself. And even these batteries can provide their own ignition source as well. So explosions are very likely potential to a more serious battery fire event unless it's previously contained or controlled with fire suppression. The other thing that we look at here, and again, it's related is because of that high energy density of lithium ion batteries, as well as the heat release and heat content of lithium, which is used as the electrolyte, we have to worry about exposure fires. So if the, you know, we might write off the BESS, but we want to be concerned about adjoining battery energy storage containers, if they exist and or exposure to combustible structures that might be within close proximity. The chart down the bottom was produced by WPI. It was actually a study that was conducted for on behalf of PERG, the Property Insurance Research Group. And the way you read this graph is if you look at the colors they represent different spatial separations between these containers. So as we go up on the bottom index, as we go up in megawatt, you can see we go from 0.5 all the way up to three. What happens is the spatial requirements actually increase. So if you go up top and look at a five megawatt type of a container, the shortage of the bars represent the time period that's required to get to thermal threshold for igniting and then causing a, you know, a propagating fire event. So for that reason, and we'll go through this in a few minutes, we'll talk about some of the risk control concerns on siting. So I'm going to turn it over to Bill for a minute. He's going to take us through some more associated risk. Bill. Hey, thanks Ken. Good morning, everybody. In this picture I took of an actual BESS system and you can see this is sort of the system control. Also, I'd like you to point out, you can see some detectors in the ceiling of this, in the BESS. So there is something else that is kind of important to think about when you're looking at the inside of the BESS is we really want to control the temperatures that are inside of that. So this unit has multiple HVAC systems on top of the unit to maintain specific temperature ranges in there, be it 55 to 65 degrees Fahrenheit or whatever. But that gives us consistency of output and our long duration of our batteries. But I also want you to remember what I just told you about the HVAC system coming up in one of our next session or few slides, we'll talk a little bit more about it. And one of the things that is really important that we can have failures, if you have a disconnect or a faulty signal or an interruption of the battery management system, it can create conditions where the array will be overcharged and overheating. Those are two things we really want to try to avoid. And if you can't monitor it, if you can't control it remotely, it can lead to a failure of the unit and that can cause you some really unwanted negative outcomes. So think about that, that we have these units sitting out remote locations, we've got to maintain good communications with them and be able to monitor them. You want to move on to the next slide, Ken? So something else to consider is the environmental impacts with lithium ion batteries. If you may have paid attention, I think it was late summer, there was a electric vehicle car fire, I think it was in Texas. And I believe there was a report, it took between 40,000 and 50,000 gallons of waters to basically extinguish that fire. So it takes a lot of water. And if these best systems are in remote areas, that could be a significant deterrent to think about how you're going to control it. And in the previous slide, Ken talked about it's the spacing between the units. So think about that water that required to control a fire, but also what happens to that water. And that's not what we would consider clean water coming off the fire. There can be particulates in it, could be heavy metals in it and can have negative environmental impacts. And think about how that can also percolate into the soil, could affect the aquifer. And, you know, nearby surrounding land. So that's kind of an important consideration. The runoff can also contain some plastics and lithium, which is a heavy metal. So those are some really important things that can think about when you see these placed in rural locations or any locations, what happens to them and how it can impact. Ken, next slide. Ah, poll question. So Lillian, can we run the poll here? And the question is that we have for the group is the most serious threat to best physical damage, operations and loss of storage capacity is design defect, failure of the BMS, thermal runaway, failure of the solar inverter, none of the above. Hey, I see the responses coming in. And I'll just wait a few more seconds for them to slow down. All right, I'm gonna close it out now and share the results. Okay, interesting results. This is kind of a tricky question in some ways. And what, you know, if you've listened to some of the things that Ken and I have talked about, and we talked a lot about the failure of the battery management system, that's a concern and a lot of people saw that, but the bigger concern really is the thermal runaway. You can have a failure of the BMS. And if you can be corrected or addressed, there are some alternatives that exist. You can eliminate that thermal runaway. But once that thermal runaway starts, the BMS may not be able to manage it. So good responses here. And, you know, the correct answer that we're looking for is thermal runaway. Let's go on to the next slide, Ken. One more, if you could. There we go. Some lost track. Sorry. That's fine, that's fine. As we were developing our presentation, we did some research and we found some data collected by Electrical Power Research Institute over about the last decade. And they're reporting about 43 failure events for stationary BESS installations, like I said, over the last 10 years. And these losses range from small five megawatt to very large 300 megawatt BESS system. So think about, when you think about a megawatt, you know, you have to think about that's a lot of battery energy. That's a lot of power that's sitting there. And if it's not controlled correctly, can give you some really negative outcomes. So in this, you know, they did some research and five of these events occurred at power plants, at substations with nine identified at commercial or industrial sites. Just to give you a little idea of where the population where these occurring. The majority events, like I said, occurred at generation facilities and only a handful were in commercial and educational facilities. Now, one thing that we do, we will talk about a little bit. The emphasis of this session is that our BESS systems are external. You know, if we want to use the word shipping container or containerized, there are also BESS systems that are internal to buildings too, kind of outside the scope of this discussion. But I just want to make sure that you have that awareness level that you can see these inside of facilities. Okay, next slide. One of the things that we wanted to point out here is it's been kind of interesting, but about 20 storage system fires occurred in South Korea over the last few years. And it really had a negative impact including on energy storage systems, including the suspension of installations resulting in over $124 million. That's kind of a, that's a big hit against it. So, you know, to have that many fires and to have that impact, you need to be aware of that. We'll talk a little bit about that when we're summing up some of the factors, some of the things we might look at from underwriting considerations. You know, they said in 18 was a year of BESS fires occurred and reported in the country of South Korea, saw a ramp up of this technology and utility industry sector. So there's a growing demand of it. There's new technologies coming online, new types, new and improved. There's always an improvement in the types of battery storage that's being used, not only in the cell manufacturing, but the systems monitoring. Next slide, please. And I think we're going to go back to Ken for our first loss loss trans case one. Yeah, thanks Bill. Can you hear me? Yep, you got it. Okay, perfect. Okay, great. Yeah, so we're going to go through and show you just real quickly here, just three events that have happened in the past few years, just to kind of underscore some of the problems with these things. And the first case review here, we took a look at a major BESS fire that occurred. This kind of woke the industry up. I think this one here, this occurred at a facility that was operated by the Arizona Public Service, APS. It was in Surprise, Arizona. It occurred in 2019. So it's only two years ago, but this fire originated in a battery array containing lithium ion battery racks. This was a two megawatt container. The event caused two other plants that they operated to be shut down and put offline until they did the investigation to determine what was the cause factors in this loss. This was actually the second BESS fire that they incurred utilizing lithium ion battery technology. They had suffered, they being APS, had suffered a major fire destroying another BESS pilot project back in 2012. Shortly after this event, there was already a move afoot to develop an NFPA standard specifically for BESS. That standard has now been put into place, NFPA 855, which addresses some of the shortfalls that have been identified in some of the losses that Bill was just talking about. So as they investigated this event, they identified the cause was really a faulty pouch battery cell. This is not typical of what you'll find in new BESS systems. Most of them are prismatic cells, which mean they're kind of like a hard, kind of a box looking type of a cell. But this particular BESS used the battery pouch cells. These were lithium ion. They developed the dendrites I mentioned that were before. And those dendrites grew from one electrode to the other. That's what helped originate the fire. There were no physical barriers or separators between the cells, as you can see in the bottom image there, which is now something that we look for in when battery chemistries for lithium ion are being utilized. The battery rack arrays were configured from the floor to the ceiling inside that container. The fire developed in one of the battery modules. It increased in intensity and intensity. And it did initiate a thermal runaway event. And further investigation did determine some shortcomings with respect to risk control and protection for these facilities. They were not provided with gas sensors or remote, what we call remote viewing or sensing technology or capabilities that would have provided visibility into the container by the fire department operating personnel. The fire suppression system was designed for smaller events, much more typical of what would be arranged for data server enclosures using a gas-use agent system. These are not as effective in suppressing lithium ion battery fires. Bill was talking about the car fire involving lithium ion battery. They require significant cooling. You can't achieve that very easily through a gas-use agent system. And water is really the preferred approach for a risk control of these events. The automatic exhaust ventilation system designed to quickly remove combustible gases such as hydrogen was inadequately sized. So it couldn't handle the off-gassing that was being developed in this event. And these gases exploded when the firefighters opened the door to the BESS container that enabled a rush in of oxygen and created the back traffic condition. Bill, I'm gonna turn it back to you. I think you have two more cases to take us through. Sure, thanks Ken. So, hey, I guess you can call this hot testing. And it's exactly what was going on. So we'll get into this a little bit. This is good. This is recent too. It's the end of July of 21. It's in Australia. And look at all those containers. There's a lot of power sitting in this facility that's being tested. So I'll give you a little bit of the insights. They actually were commissioning or what we would call in our lingo, hot testing the systems. And in this case, it was in a test environment to evaluate the unit's ability to charge and discharge within design parameters. During the testing cycle, each unit are monitored for normal operation. And you gotta consider that there's a lot of monitoring going on, a lot of flow of electrons in these batteries as this goes on. So one of the things that we look at in an after action report came out of it, cooperation with all the battery manufacturer, which happens to be Tesla in this case, the site owner and the engineering firm. They did an investigation that they determined most likely root cause was a leak within the cooling system in a mega pack. So here you, we've talked earlier that we had to have HVAC systems. We wanna maintain these inside of these containers within certain temperatures. And here we had a cooling system had a leak caused a failure. That's the highest speculation I likely right now. And what the leak did is it caused a short circuit and then a thermal runaway within the lithium ion batteries inciting to the fire. Unfortunately, it got so bad that it actually split into a second unit and significant amount of damage. But the interesting thing that the experts who did the after action report, they said despite the two mega pack units being lost to the fire, they said they had failed safely. And I think kind of what that amounts to is, you know, if you look at the design parameters, and if we have a failure, this is the expected methods, this is the expected outcome. That's, I believe, what they mean by failed safely versus something to the point where you might have an uncontrolled leaf, a substantial amount of energy or an explosion. All right, let's go on to our next slide, Ken. Into the States now, into the West Coast. This is, at the current time, this is the world's biggest battery energy storage system here. You might look at this and scratch your head a little bit. So this was an existing gas turbine power generation facility. And if you think about some of the conditions that we're looking at with the emissions and the energy usage, they left the existing facility in place and they simply retrofitted it to battery energy storage systems. So they were, again, doing some testing. This was on September 4th of this year in phase one. And they had a little bit of an over-temperature on one of the units. So we're going to talk a little bit about some of the auxiliary systems that are important. But we detected an over-temperature. It exceeded the operational standards. And they said, oh, wait a minute. So they had targeted, in this case, they have targeted six sprinkler systems. And the sprinkler systems came on and controlled it. And what that really amounted to is we didn't have, it didn't result in a significant thermal runaway. It didn't result in a fire, emissions issues, contaminated water. So in this case where they had a very complicated system, good monitoring, they were able to contain this and not lead to a runaway that amounted to fire and having to have whole modules replaced. Next slide, Ken. Okay. So let's, we only have a few minutes left. We'll take you through some best practices from a risk control perspective. As I mentioned, there's a relatively new NFPA standard out now which addresses BESS, which we're all trying to utilize and apply where appropriate. But essentially the first thing we need to worry about when it comes to, from a risk control standpoint, is really the lighting or the location of those containers with respect to either other containers or nearby combustible buildings, as I was talking about a bit earlier. So in NFPA 855, they've established some spacing requirements based on the testing that was conducted by PERG looking at container-to-container type propagation. You know, the one case, the second case Bill talked about in Australia, that actually migrated to a second container unit. So we're trying to avoid that, especially on these larger BESS farms. So what we look for now, and again, this can be somewhat managed based on the megawatt output, but we like to see a 10-foot minimum clear space separation between these containers, kind of irregardless of the megawatt rating on these things. We don't want to see it go below 10 foot. And then when we have a critical structure in particular where we have combustibility and potential for spread to that building, we're going to be looking for a 25-foot spatial separation. And when we use that term spatial separation, we don't want any combustibles in that space, whether it's the storage of ignitable liquids, you know, like flammable combustible liquids, vegetation, or just combustible yard storage. We also are looking to make sure that we don't have any window openings in the shade area of that BESS container. Bill alluded to interior-type installations. You're going to start to see more and more of these as we move into the commercial arena. The city of New York, last time I checked last year, had over 300 applications for commercial BESS, and they're putting those inside those structures. So we're going to be looking for, you know, fire-rated enclosures, like a room, if you will, preferably with no interior windows or doors, preferably, only to the exterior and some other requirements as well. So siting is probably the most important first step. But then we're looking for, you know, some other requirements as well on the protection side. So, you know, we start off looking at exhaust ventilation. Bill's referred to it. I've referred to it. You know, essentially a mechanical ventilation system that will pull the off-gasses and heat out of that structure should we have lithium-ion battery fire to hopefully either prevent, you know, a thermal runaway, or at least to manage the fire event until firefighting personnel can arrive. And we want to see detection of critical off-gasses through smoke and fire detection as well. You can see in that chart there, here's some of the critical off-gasses that we'd like to see detected to actuate, you know, the exhaust control system. So methane, benzene, you go down the list, you see hydrogen. That's one of the key ones because that, of course, can lead to explosion. We're also going to be looking for fire control and suppression. And ideally, automatic fire suppression protection is really the best option here. We're moving the industry starting to move away from the gaseous agent in many respects. A lot of that has to do with what happened in the Surprise Arizona fire and a couple of the other events. And we have some specific requirements for automatic fire suppression protection as far as minimum densities being at 0.30 over a 2,500-square-foot area. Typically, the containers are going to be smaller than that, so it's going to be over the entire area as well. And then the other secondary concern is water supply, how long, you know, we want to see at least a two-hour water supply capability provided for that. Battery energy storage systems that might be configured within small rooms or enclosures where we have flammable gases that can exceed 25% of their lower flammable limit, we want to make sure that we have explosion suppression and or prevention or even deflagration venting outside of that container to minimize the potential for that gas explosion itself. NFPA 69 deals with standard on explosion prevention systems. So you're starting to see these technologies be applied. And then finally, another risk control concern is what do you do or what do the clients do with the storage and disposal lithium-ion battery packs? Just because they're used, you just can't stick them anywhere. We recommend putting it in some sort of a metal container that's, again, spaced away from combustibles at least until they can be removed from premises. Because typically these are going to be more prone to potential short circuits due to physical damage, due to age, due to overcharging, and those sorts of things. Bill, I'm going to turn it back to Bill. He's going to take us through some underwriting considerations as well. Yeah, thanks, Ken. A couple things we want to highlight in the next couple of slides about these systems is and we're kind of going to focus on external containerized systems. What I would say is something to think about is we've talked a little bit about from fire suppression. If you're in a rural location, you're not going to probably have adequate fire suppression. It's going to have to be brought in by vehicle. That may or may not be an issue for you depending on where it is. If you only have three units on site, I don't know how critical that's going to be. You might have to look at them as eventually ending up with total loss. Something to be aware of. You might want to think about that. We've talked about globally speaking, we're talking about the discharge of if we are using water to cool them, where is that going? What's going to happen to that? Not sure that that's 100% an underwriting concern, but it's something to be aware of. I would say other things that we have to look about, where are these containers going to be mounted or placed? Not only in separation between them, clear space, but also how are they secured? Are we in areas that are flood-prone? Are we in areas that we could have high winds, although these ship containers do come across the pond on deck, so they're secured and should take that, but that's something to be thoughtful of. Are they in earthquake areas? That is something that could present a challenge here, the connectivity of it. You lose that connectivity of it, you lose your monitoring capability. Could give you a significant negative outcome. There's something we have to be aware about too, and maybe in our Western locations, wildfire and mudslides, the impact and location of them. I'd say something else that is a concern, what type of security is planned for this location? Is it going to be fully fenced, gated, good illumination on it? Most of these sites that you may find across, they'll have remote monitoring and access, and you have to have your badge or your code to get into it. Those are key important considerations. Looking at the technology that's inside the unit, what is the history of the unit? Is this the first off the manufacturing line? Think about maybe some of the stories you've heard about automobiles, if you can find one to buy. You don't want a car that was built first thing Monday morning. Same thing might apply to a container like this, or a best system where if it's the first of its kind, has it been tested out? What's the history of it? If it's an upgraded version of existing technology, that's probably a little bit more favorable. But if it's a complete new startup operation, complete new, maybe it's a complete new cell manufacturer, that could present some reliability and lead to negative outcomes. The other thing I would say is when you can, especially for the battery type cells, whatever they might be, they make manufacturing data sheets for these, or you may know them as safety data sheets. Good thing to look at, have those handy. Not only do they address firefighting, but they give you some good safety precautions, maybe some environmental temperature controls that you have to maintain. Something else to think about is what is the history of the unit as far as manufacturer recalls, technical service bulletins? Is that being trended and monitored? Ken, can we go to the next slide? Thank you very much. One of the things to think about we had in our previous, the first session this morning was logistics these days. Where are the component parts coming from? If you need to get them, can you get them in a reliable amount of time? Are there staging areas across the country, or do you have an adequate supply on hand? It's really, really challenging these days. The other thing that we want to think about for these units, they are going to be serviced by a provider on a regular basis, especially the HVAC part of it. Filters may need to be cleaned. They're going to make sure that they're operating within their normal conditions, so that's kind of important. And of these providers, are they factory trained for this type of unit? What is their response time if they can be there? Is it two days to get there or two hours? Spare parts, as we talked about our one loss event where we had a fire from a cooling system, things to be considered about is the availability and the capability of the service. Hey, Ken, can we go to the next slide? And just in the interest of time, we'll skip the polling questions so we can get through the rest. Yep, and then ask one question. Yep, that's up to you, Ken. Finish it up. No problem. Okay, thanks. Yeah, I know, I was watching the clock. So just to kind of close up, battery energy storage systems are really becoming quite popular. You're going to see them in not only industrial settings, but also commercial and also residential type settings, as well as battery backup and things of that nature. The use of lithium-ion battery chemistry is also increasing. You know, some authorities expect a tenfold increase within the next eight or nine years. We have unique hazards. We talked about them, fire, thermal runaway, explosion, loss of power, environmental impact, just to name a few. So you need to focus on this. Best practices should include segregation or at least siting of the BESSs, exhaust ventilation, off-gas detection, fire suppression and control, adequacy of water supply, explosion control, and safe storage and disposal of battery cells. And, of course, Bill alluded to this, but how you apply these requirements are going to be somewhat dependent on how critical that BESS is to operations for that client, not just the value of the BESS itself. And finally, Bill went through some underrated considerations that should be focused on when you're looking at accounts that have or are adding or installing this type of equipment on-premises to look at manufacturing quality and reliability, remote monitoring, cyber, lighting, and surge protection. So essentially, that's our presentation. Lillian, I'll turn it back so we can open it up if we have a couple of questions. Yes. So now we'll turn it over to Lauren. Lauren, if you can just take one of the questions from the queue. And then in the handout, we did have Bill and Ken's email address for attendees can reach out. Sure, and Bill and Ken, maybe you could, if you select in that question box, you select yourselves as the answerer. You can type in an answer on any questions we don't get to if you have the opportunity. But what is the value of a typical container like the one shown, and what's the lifespan of a BESS system, including kind of what's the expected inspection, maintenance, or replacement schedule? So for the BESS units I've looked at, and it was a pretty long container, it was about $2 million per container. Ken had a picture of it at the very beginning, and that includes all the support systems. So what you bring in on that trailer and sit on that place is about $2 million in value. I would say that, according to the manufacturer, in the initial stages, they're monitoring that on site every 30 days. They're sending a person out, and what they're expected, they're looking to go to 90-day service intervals on it. Basically, that container that we looked at in the presentation sits in the northeast, so we have seasonal changes roughly every 90 days, and they want to have someone out there. Mostly, they're focused on the environmental control systems, HVAC. They're doing some op checks, and while they're looking at the HVAC unit, they also have some on-site spare modules. If they have a BESS, just a segment that's faulty, they can pull it and place it. But that's kind of what we're looking at for that particular one that we saw early in the presentation. Hope that helps. All right, really appreciate it, Bill and Ken. Great, engaging presentation, and for right now, we'll take a brief break. Lillian, what time should we be back? Yeah, so we'll come back in five minutes. It's going to be a very short break, but if you can come back at just two minutes after the top of the hour, we'll start the final session.

41st Annual IMUA Southeast Regional Seminar

virtual event

inland marine insurance industry

warehousing

battery energy storage systems

cross-laminated timber

modular construction

risk management

supply chain disruptions

COVID vaccine handling

FDA regulations

pharmaceutical storage challenges

temperature control

security

risk assessment