A key feature of the Riot Compensation Bill 2015-16 (the Bill) is the wider class of property damage and loss in respect of which claims may be made. This includes motor vehicles. We consider the implications of such an extension.
Following the riots in London and elsewhere in August 2011, this Private Member’s Bill seeks to repeal the antiquated Riot Damages Act 1886 (the Act). The Bill proposes the creation of a new compensation scheme for property damaged, destroyed or stolen in the course of riots. If passed by Parliament, the Bill could come into force by the end of 2016.
Key proposals under the Bill: motor vehicles
- A new compensation scheme for motor vehicles damaged, stolen or burnt during a riot and for motor insurers who have met (to any extent) a claim under an insurance policy.
- A ‘compensation cap’ of £1 million per valid claim. Consequential loss is specifically excluded from the amount of compensation.
- 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 particularly important 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”:
“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.”
- 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.
- Lack of compliance with the claims process without good reason could result in a claim being refused.
Implications, opportunities and challenges
- The local policing body (LPB), usually the police and crime commissioner, will deal with claims for riot damage to motor vehicles. The LPB is the very same body whose responsibility it is to avoid riot in the first place. Might this pose a potential conflict of interests, with submitted claims being over scrutinised and/or resisted?
- Insurers will have to regear first notification of loss and claims processes in order to redirect first party vehicle damage claims they have paid or are going to pay. Claims to the relevant LPB will need to comply with relevant timeframes. Might this present a resourcing issue, particularly if we were to see riots of a similar scale as experienced in 2011?
- Following a riot, some insurers may be tempted to redirect non-fault policyholders towards the LPB in the first place in order to save costs. They should be alive to the possible impact on market share this might create.
- Might there be liability issues in determining causation? Take riot damage to vehicle A that causes it to swerve into vehicle B. Might insurer A try to redirect insurer B to the LPB causing delay? How distant from the epicentre of a riot can vehicle damage get before it is no longer compensable? The LPB are likely to adopt a narrow definition of causation.
- Unlike other forms of compensable property loss under the Bill, policy excess (the element of a claim not already compensated by the insurer) will not be recoverable by policyholders following riot damage to their vehicle.
- Untaxed vehicles subject to riot damage appear unable to give rise to a claim. Conversely, claims can be presented in relation to uninsured vehicles damaged by riot. The prospect of uninsured drivers being able to obtain compensation sooner than insured (but untaxed) drivers is likely to be unattractive to insurers (and the public).
Preparing for the Bill
Motor insurers will need to keep a close eye on the Bill. The prospect of recovery from LPBs following riot will be at the forefront of underwriters’ assessment of risk, premiums and policy wording (and key facts) documents.
The Bill presents opportunities for motor insurers to recover sums paid out to insureds, in particular those with motor trade lines. However, the costs of resourcing such a process cannot be ignored. Identifying application of the proposed scheme may be lengthy and problematic.
In terms of client care, it will be necessary to modify policy documentation and care advices to policyholders. This may include informing policyholders that they cannot reclaim policy excesses from the LPB following a riot.
Looking ahead, lead motor insurers are likely to want to reach a consensus and a protocol on how best to manage riot-related claims in order to provide a cost-effective and efficient system for all concerned.