Law and Disorder: Examining the Riot Compensation Act 2016
Posted on: 06 November 2017
It’s been six years since the UK experienced four days of widespread looting, assault, arson and mugging as part of the London riots in August 2011. What originally began as a peaceful protest culminated in five deaths, 4,000 arrests and insurance pay-outs of £200 million.
A 128-year-old law
The riots and their repercussions flagged the inadequacy of the existing legislation, the Riot (Damages) Act 1886, which excluded cover for commodities such as vehicles, computers and work equipment – items either in their infancy or not invented at the time of the Act’s inception. Also lacking was clarity around cover for consequential loss, and the interruption to businesses incurred as a direct result of the damage. It was apparent that the law needed bringing into the 21st century.
Case Study: Mitsui Sumitomo v. Mayor’s Office for Policing and Crime
The lack of guidance and wording regarding claims for consequential loss was highlighted in a 2014 legal case known as, 'Mitsui Sumitomo Insurance Co (Europe) Ltd, Royal and Sun Alliance Insurance plc and others v The Mayor’s Office for Policing and Crime (MOPC)'. It related to the break-in and subsequent destruction by arson of a Sony distribution warehouse during the London riots. The insurers sought compensation, not only for physical damage but also for consequential loss under section 2 of the Riot Act, including loss of profits and rent. This claim was rejected by the High Court on the basis that this clause was not outlined in the original 1886 Act. Subsequently, the Court of Appeal reversed the High Court’s decision, asserting that ‘loss’ covered both physical and resulting intangible loss from the damage incurred.
The case was taken to the Supreme Court which deemed the original wording from the 1886 Act to be ambiguous and therefore reviewed the terms of the Riot Act 1714 and subsequent case law, which described compensation as being limited to physical damage to property. The appeal made by the MOPC was therefore allowed, but ultimately led to the addition of explicit terms around consequential loss in the new legislation introduced in April 2017.
The new Act
When the Riot Compensation Act 2016 was granted Royal Assent on 23 March 2016 and came into force on 6 April 2017, it sought to clarify and modernise the legislation related to riot-related compensation. Updating the definition of what constitutes a riot seemed a logical place to start and the wording was changed to reflect the Public Order Act 1986, referencing "12 or more persons, who… use or threaten unlawful violence"1. It also repealed the incumbent Riot (Damages) Act 1886 and introduced a number of features.
New Riot Compensation Act at a glance:
- 42 days for victims of a riot to give notice of a claim.
- Cover extended to vehicles.
- Compensation cap of £1m per claim.
- Consequential loss not covered.
- Insurers can claim compensation for claims met from relevant policing authority.
What this means for claimants
Perhaps the most welcome addition for victims is the extension of cover to vehicle damage, for those not covered under their car insurance policy for riot damage. Additionally, damaged goods would now be replaced on a ‘new-for-old’ basis, or to the sum of the item’s current market value.
Under the new Act, claimants now have up to 42 days to give notice of a claim, compared to 14 days under the previous ruling, with a further 90 days to provide any supporting evidence. Insurers often require claims for Riot to be submitted in a slightly shorter timescale as insurers themselves are restricted to the 42 days to make a claim from police authorities, and therefore require some time to administrate the claim prior to giving notice.
What it means for insurers
Insurance companies, under the new Act, are able to recover claims payments they had met pertaining to riots from the relevant local police authority. A compensation cap of £1m for the amount to be paid out in a single claim has been introduced and claimants are unable to make more than one claim relating to property at the same address. Finally, any claim made by an individual known to have participated in the riots is likely to be refused.
What it means for businesses
Arguably the most anticipated decision was the one taken on whether the new Act would extend cover to consequential loss, such as business interruption and loss of trade. The decision taken by the Supreme Court was unanimous – there would be no such concession. For businesses this means an ongoing requirement for specific business interruption insurance, plus a need for emergency response teams and disaster recovery processes.
Putting it into practice
Inevitably, the effectiveness of the Riot Compensation Act will only be tested in the event of any future riots. Whilst an unwelcome thought, insurers and individuals should take comfort in the fact that, should an event occur, they’ll no longer need to rely on outdated regulations from the 19th century.
Speak to your local Allianz representative for further information.