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Remedies Available If Your Insurance Will Not Cover Damage Caused By Rioting

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It was the largest arson in Europe.

During the August 2011 UK riots that followed the shooting of Mark Duggan, the Sony distribution centre was looted and set on fire by around 25 youths.  Using petrol bombs, the rioters started a blaze that burned for almost ten days, completely destroying the warehouse.

Following on from the arson, the High Court ruled that insurers, and the owners of uninsured property who were the victims of damage caused by riots, were entitled to compensation from London’s Mayor (who is responsible for policing in the capital) under the Riot (Damages) Act 1886, which states that compensation for damage caused by riots must be paid for out of the police fund for the area.  On appeal, the Judges in Mitsui Sumitomo Insurance Co (Europe) Ltd, Royal and Sun Alliance Insurance plc and others v The Mayor’s Office for Policing and Crime  went further and said that the Mayor (via the police fund) was also liable for consequential losses following the arson, such as loss of profit and loss of rent.

But what happens if your factory or warehouse is burnt to the ground during a riot, and your insurer will not cover the damage?  Can you use the Riot (Damages) Act 1886 to claim compensation, in the same way, the insurance companies involved in the above case did?  How will the Riot Compensation Bill, which received its second reading in the House of Commons on 4th December 2015, assist businesses affected by riot damage?

Insurance Cover Following the 2011 Riots

Following the 2011 riots, most insurance companies fully honoured claims brought by homeowners and businesses who had suffered damage.

According to the British Insurance Brokers’ Association (Biba), the trade body for insurance brokers, most home and commercial insurance policies should cover people for fire, looting or damage caused by rioting.  Commercial insurance policies will also cover most businesses for trade lost following the aftermath of a riot (even if the premises itself was not damaged).

It is important to note that most policies demand that claims for riot damage be made within seven days of the event occurring. Otherwise, the claim may be rejected, as insurers have to make a claim on police budgets within a fortnight.

If you do not have insurance, then you will have to rely in the provisions of the Riot (Damages) Act 1886 which allows uninsured victims of riots to claim damages from local police authorities, who are liable to pay even if there were no acts of negligence on their part.

The Riot (Damages) Act 1886 is now nearly 130 years old.  When it was enacted, far fewer business and individuals had insurance, and the levels of payouts has risen exponentially.  Following the riots of August 2011, police were inundated with claims and insurers estimated clean-up costs would reach £200 million. Police have been voicing concern about the Riot (Damages) Act 1886 and its implications for many years.  With police budgets now especially tight, the Met cannot withstand any further large claims following civil unrest.

The Riot Compensation Bill and its Implications

Following the decision in Mitsui Sumitomo Insurance Co (Europe) Ltd, Royal and Sun Alliance Insurance plc and others v The Mayor’s Office for Policing and Crime , which clarified that compensation under the Riot (Damages) Act 1886 was not limited to just physical damage, the Government introduced the Riot Compensation Bill, which was published on 12th March 2015.

The Bill is designed to limit the amount of compensation that can be paid to insurers and uninsured parties out of public funds.  It does this by:

  • Covering for damage to property only, and excludes compensation for loss of business or rent          

  • Capping all claims at £1 million         

  • Providing that compensation paid out must be ‘fair and reasonable.'

There is concern that by limiting the amount of compensation to £1 million, insurers and uninsured business could be left with a large shortfall to make up, which will especially affect those organisations that are left unable to trade for weeks or months following a riot.

It is clear that there is no easy solution to the problem.  If claims are not capped, then an already stretched policing budget will have to be used to fund millions of pounds in claims.  However, if insurers are unable to recoup their losses, will they, in turn, be forced to tighten up on the amount they pay out to their clients, and restrict the type of loss clients can subsequently claim for?

We will watch the progress of this Bill with interest.

Fisher Scoggins Waters can offer you experienced specialist advice that combines detailed technical analysis with a pragmatic understanding of insurance practices. We act for both insurers and insured parties.  If you require insurance law advice, please phone us on 0207 993 6960.

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