Yesterday saw the publication of the Draft Riot Compensation Bill. While the right for those who suffer damage in a riot to claim compensation from the police remains intact, the new compensation cap and the proposed exclusion of consequential loss claims in the draft Bill could leave businesses and insurers out of pocket.

Background

Whilst it was agreed, following the UK riots of 2011, that the principle of police accountability for riot damage should be retained, the Riot (Damages) Act 1886, under which claims for riot compensation can be made in England and Wales, was found to lack clarity, and to be in urgent need of updating.

An independent review commissioned by the Government in 2013 recommended a number of changes to the legislation, designed to simplify the process of making a riot compensation claim. Following on from this, the Home Office has undertaken a consultation on the reform of the Riot (Damages) Act 1886 which was completed in August 2014.

Yesterday, the Home Office published the response to that consultation, and a Draft Riot Compensation Bill. The Draft Bill is intended to be considered in the next Parliament and will, if passed, replace the Riot (Damages) Act 1886 with a modernised Act to be known as the Riot Compensation Act 2015.

Some 129 years since the 1886 Act became law, the reforms proposed in the draft  Riot Compensation Bill have significant implications for insurers and all those who may sustain loss or be affected in the future by riot damage.

The key proposals

  • Claims for consequential loss will not be covered and are expressly excluded. This will put this issue beyond doubt for claims made after the new Act is introduced, regardless of the outcome of the appeal to the Supreme Court under the 1886 Act in Mitsui Sumitomo Insurance Co (Europe) Ltd and Others v Mayor’s Office for Policing and Crime [2014] (which is scheduled for hearing in November 2015).  This appeal by the Mayor’s Office for Policing and Crime follows the decision  of the Court of Appeal that consequential losses are recoverable under the 1886 Act.
  • A compensation cap of £1m per claim is to be introduced. Currently, there is no cap under the 1886 Act and therefore claimants, including insurers, are able to claim the full amount of their loss. The independent review had recommended an annual business turnover cap of £2m. However, this was considered unworkable and overly restrictive and has not been implemented.
  • The definition of “riot” will be limited to the provisions of section 1 of the Public Order Act 1986 and will no longer include the word “tumultuously”, as is the case under the 1886 Act. This will simplify and modernise matters (as is evident from the discussion of “riotously and tumultuously assembled” by the Court of Appeal in Mitsui Sumitomo Insurance Co (Europe) Ltd and Others v Mayor’s Office for Policing and Crime [2014]).
  • There will be no cover for riot damage to various types of secure facilities where people are detained, for example prisons and immigration centres. This will close the loophole left by Yarl’s Wood Immigration Ltd v Bedfordshire Police Authority [2009].
  • Claims can now be made for damage to semi-permanent structures, caravans, market stalls and buildings in the course of construction.
  • There is limited cover for motor vehicle damage. Claims for damage to motor vehicles on a public highway will now be allowed, but only where their insurance does not provide cover for riot damage. Where there is insurance cover for riot damage, insurers can only claim for vehicles which are part of the policyholder’s stock in trade.
  • The basis on which compensation is to be paid will generally be on a new for old basis, rather than old for old, as under the 1886 Act.
  • The amount of compensation recoverable may be increased to reflect costs or expenses. The notes accompanying the Draft Bill give the example of loss adjusters’ fees, however this could possibly also extend to other costs.
  • The amount of compensation recoverable may be reduced to reflect the costs of administering the compensation scheme. The notes accompanying the Draft Bill suggest that this could amount to a deduction equivalent to an excess.
  • Although not set out in the Draft Bill itself, the accompanying report states that claimants will have 42 days to notify the compensation authority, followed by a further 90 days in which to submit supporting documentation. The police will be able to exercise their discretion in the application of the 90 day deadline.
  • There will be a mechanism to allow late claims where an insurance claim is repudiated after the 42 day deadline has expired.
  • A Riot Claims Bureau will be set up to handle claims arising from future widespread rioting, as happened in the UK in August 2011.
  • There will be no facility to declare riot zones within seven days of a riot occurring, as was originally recommended, since this could prove problematic from an evidential perspective in some cases, and may also encourage fraud.
  • Interim payments can be made before the claim is finally adjusted.
  • One area which remains unchanged in the Draft Bill is that policyholders and insurers will have separate claims for their respective losses. As is the case now under the 1886 Act, it will be necessary for both the policyholder and their insurer to each submit their respective claims.

The Draft Riot Compensation Bill is a welcome overhaul of an archaic piece of legislation. It should create a clearer framework for dealing with claims following a riot, which will be of benefit to all claimants, particularly uninsured claimants. Importantly, the underlying principle of the legislation continues, namely to protect those whose property is damaged in a riot and to preserve their right to claim compensation from those whose duty it is to maintain law and order.

However, the current proposals to (i) exclude the recovery of consequential losses and (ii) implement a compensation cap of £1m per claim, will reduce the amount that claimants, including insurers, will be able to claim from the police authorities. Insurers will therefore be in a position where they pay out for property damage and consequential losses under the insurance policy, but will be limited in the amount that they are able to recover from the police authorities (unless they amend their policy wording accordingly).

This is a summary of the key proposals in the draft Riot Compensation Bill published yesterday. Once matters are debated in Parliament, there are likely to be some further changes. In addition, there are regulations, guidance documents and claim forms to be finalised.