A Private Member’s Bill, the Riot Compensation Bill 2015-16 (the Bill) seeks to repeal the Riot Damages Act 1886 (the Act) and proposes the creation of a new compensation scheme for property damaged, destroyed or stolen in the course of riots.
Following the riots in London in August 2011, the Metropolitan Police were inundated with claims. According to insurers, the estimated clean-up cost across London amounted to around £200 million. The 2011 riots also confirmed that the Act is no longer fit for purpose.
The Bill creates a new compensation scheme, which allows compensation to be:
- Claimed in respect of property that was not insured, or was not adequately insured, against relevant loss or damage; or
- Reclaimed by an insurance company that has (to any extent) met a claim under an insurance policy.
A change in appetite
Running in parallel to the Bill is the impending decision of the Supreme Court in the ‘Sony warehouse case’ - The Mayor’s Office for Policing and Crime v Mitsui Sumitomo Insurance Co (Europe) Ltd and others . The issue under consideration is whether claimants are entitled under the Act to obtain compensation for not only the damage done to property during a riot but also for any economic loss that may consequently have flowed from that damage. The Court’s decision is expected by April 2016.
Kennedys acts for one of the Respondents.
The previous coalition Government showed little appetite to progress the policy review of riot compensation payments. The Supreme Court ruling might mean that reforms to the Act, or legislation replacing it, could move up the Government’s agenda.
Key proposals under the Bill
- A ‘compensation cap’ of £1 million per valid claim. Consequential loss is specifically excluded from the amount of compensation.
- A wider class of property damage and loss in respect of which claims may be made, including permanent and semi-permanent structures (such as caravans, houseboats and buildings under construction) and motor vehicles. Provision to supply a wider definition included. A new exemption for the local policing body (compensation body) from liability to pay compensation where a riot has occurred in various types of secure facilities, including prisons and immigration centres.
- Clearer claims handling guidance, including on when it might be acceptable to submit evidence outside prescribed periods. Claims are consolidated where appropriate, for example, where a company has incurred losses in separate buildings on the same site.
- Claims to be directed to the compensation body responsible for the police area in which the property was situated at the time of the riot. This is an important principle, particularly in relation to motor vehicle claims where riot damage may occur away from the place where a vehicle is normally kept.
- A simplified definition of “riot” by using section 1(1) of the Public Order Act 1986:
“Where 12 or more persons who are present together use or threaten unlawful violence for a common purpose and the conduct of them (taken together) is such as would cause a person of reasonable firmness present at the scene to fear for his personal safety, each of the persons using unlawful violence for the common purpose is guilty of riot”.
- Transference of claims handling and decision-making functions, enabling greater flexibility for local compensation bodies to outsource to loss adjuster companies. Power for the Secretary of State to implement a ‘riot claims bureau’ to transfer claims from local policing bodies in certain circumstances, for example where damage is caused to neighbouring towns covered by a different force area.
- Revised regulations around determining claims, to include a new entitlement enabling property to be largely replaced on a new-for-old basis. Exceptions to apply where indemnity value will be paid.
- Other factors when determining claims include the types of conduct that can be taken into account and suspected fraud. The functions of the decision-maker may provide for increased compensation to reflect costs incurred by the claimant, as well as the ability to award interim payments, payments by instalment or use of approved repairers instead of providing financial settlements.
- Lack of compliance with the claims process without good reason could result in a claim being refused.
A new age
Overall, insurers and insureds should welcome the prospect of a clearer claims handling process. The language of the draft legislation is consistent with insurance industry practice and it should provide greater certainty around entitlements to compensation.
However, there remains uncertainty on some issues, most notably the number of claims that could be made by a property owner (or his insurer) to overcome the £1 million cap “per claim” when buildings in common ownership on the same piece of land are destroyed. How many claims can be made? One or multiple? The Bill says that regulations will be made which “affect the amount of compensation to be paid”. It therefore remains to be seen whether the regulations follow through on the examples given in the explanatory notes to the Bill, which suggest an expansive approach. An example given is that of a freeholder of a block of flats being able to make multiple claims corresponding to the number of flats.
Other examples exist which prompt the need for clarity. The previous coalition government supported a two-tier claims deadline process of 42 days (as has existed since the 2011 riots) with a further 90 days to submit supporting documentation (extendable at the discretion of the compensation body). This amendment was agreed in principle at Report stage. Similarly, provision was made to accept claims verbally. The detail is currently absent from the Bill.
The final form of draft legislation (and any new regulations that accompany it) will need therefore to pick up such issues to ensure a transparent and workable claims process. As always, the devil will be in the detail.
The House of Lords will now consider the Bill. If it were to be passed by Parliament, it could come into force by the end of 2016.