This week's dreadful scenes of rioting and looting will leave a lasting headache with cash-strapped police authorities already facing the costs of police overtime in dealing with the disturbances.

The Riot (Damages) Act 1886 provides a right to claim against the police authority for losses where:

"a house, shop, or building in [a police area] has been injured or destroyed, or the property therein has been injured, stolen, or destroyed, by any persons riotously and tumultuously assembled together".

This is no-fault compensation and no amount of evidence that the police did their best will defeat a claim. In fixing the amount of compensation, account is taken of the conduct of the claimant:

"whether as respects the precautions taken by him or as respects his being a party or accessory to such riotous or tumultuous assembly, or as regards any provocation offered to the persons assembled or otherwise".

Compensation is reduced by the amount of insurance pay-outs, but insurers are then entitled to claim as if they had suffered the loss. Businesses will look first to their insurers, but the Act is very much in point for irrecoverable excesses and uninsured damage and theft.

The Act is by no means a piece of ancient history, as the litigation over the riot at the Yarl's Wood Detention centre in 2002 showed. This is a contracted-out immigration detention centre on the outskirts of Clapham in Bedfordshire which saw major disturbances on the night of 14 February 2002.

Following the disturbances, the contractors and their insurers successfully argued before the Court of Appeal that the Act applied, notwithstanding that the detention centre was provided as part of an exercise of public sector functions. The police authority was also successful before the Court of Appeal in argiung that its liability fell within its public liability policy. Losses in issue were estimated at £32 million.

Insurers may not be so exposed this time.

There are detailed regulations about making claims. Critically, claims must normally be delivered within 14 clear days after the event, but the Home Secretary announced yesterday that she will approve an extension to 42 days. Costs of making the claim are not recoverable.

Local authorities may also want to assist the small-business sector in making claims by appointing accountants, loss adjusters and other advisers to assist, especially given the timescale for lodging claims. Government has now made available a £10 million recovery fund and £20 million High Street Support Scheme to help local authorities with clean up costs, helping businesses get trading again and meeting short-term costs such as financing repairs and providing rate relief.