The Implications of Changing the UK’s Riot Act

Three years ago the riots that affected areas across England left police forces with a large bill. Today there is still debate about how the law on compensation for riot damage should be changed. It is common ground that the Riot (Damages) Act 1886 is difficult to understand, difficult to apply and in need of reform. The big question is: what should take its place?
Claims against the police after the 2011 riots 
The broad effect of the Act is to give owners of property damaged by rioters’ right to claim the cost of repair from the police. The Act gives the same right to insurers of such property. Whether business interruption losses can also be claimed is currently before the courts (in the Sony warehouse case the High Court has decided they cannot, but that decision is the subject of an appeal).
As at September 2013, payments by insurers following the 2011 riots totalled £135m for property damage and £30m for business interruption. Uninsured losses increase these figures. The vast majority of claims under the Act (apart from some of the most complex ones and, of course, not business interruption claims) have now reportedly been settled. These were funded by the government, which decided on this occasion to bail out the police authorities in view of the scale of the rioting. 
However, the machinery that ideally would have already been in place to make it easy for claims to be made and dealt with quickly did not exist- for example, the prescribed claim form dated back to 1926 when life was rather simpler and it required completion in pounds, shillings and pence. 
The Review
Clearly, without the 2011 riots, the Act would have been left unchanged. It had only infrequently been pressed into service since 1886 and with only limited financial consequence for the government. However, the 2011 riots were of such an unprecedented scale that no one was prepared for the avalanche of claims under the Act that followed. 
This country is unique in the world in imposing strict liability on the police for riot damage. Despite this anomaly, its retention has been recommended. This is good news for insurers. There have been a number of recommendations to Improve the claims process, including:
  • The development of a Riot Claims Bureau between the Home Office and the insurance industry, staffed by experts in claims handling and loss adjusting drawn from several companies, ready to start work immediately after a riot and with delegated power to decide claims. This sounds laudable, but how such experts would exercise their quasi-judicial function would need to be carefully worked through. 
  • The preparation of a manual to provide guidance on the type of claims that are likely to follow a riot, dealing with claimants unused to making claims and other issues. A lot of ad hoc guidance was prepared immediately after the 2011 riots but its effectiveness could not be guaranteed given the different interpretations of the Act current at the time. An official manual would be a welcome development. 
  • Local authorities should include within their emergency plans planning for a riot recovery service. They provided much support in the aftermath of the 2011 riots, which went beyond the call of duty. They are well placed to provide immediate assistance to individuals and businesses with their area. 
  • The language of the Act should be modernised. 
These changes would benefit claimants (including insurers) and the police/government. Further recommendations, which would be particularly good for insurers (and more costly for the police/government), are that:
  • Cars and other vehicles should be included within the scope of compensation. This would be a major change, given the amount of damage sustained by vehicles in 2011 in the open street, which were not within the Act’s scope – vehicles were only in its scope if they were on the premises of the claimant. 
  • Compensation to be paid in future should be replacement value of the property damaged, not indemnity (except in the case of vehicles). This would be another improvement for insurers given that most insurance is on a new for old basis – payment from the police rather than discounted. 
Not all good news
However, as one might expect, it is not all good news for insurers. The single most adverse change is that compensation should be capped by reference to the turnover of the business that has suffered damage, so that compensation is payable only in respect of payments made to small businesses, or to owner occupiers, leaseholders or tenants of residential housing. 
A turnover limit of £2m has been suggested. The philosophy is larger companies, and those who insure them, can look after themselves. Smaller companies - micro enterprises – and consumers, on the other hand, have less to spend on insurance, so providing insurers with the right of recourse should (in theory) assist in keeping riot insurance available at a reasonable cost. The Association of British Insurers is worried this would be a disincentive for some larger firms to locate in certain areas, since riot cover could become either more expensive or unavailable.
‘Consequential loss should not be claimable’
The other significant adverse change relates to business interruption losses and that consequential loss should not be claimable. Voluntary schemes that sprang into action immediately after the 2011 riots to help individuals and small companies – such as the government-supported High Street Support Scheme and the charitable High Street Fund, which made payments to assist businesses to get up and running again – in effect, business interruption – type losses. It is anticipated that, if the riots happened again, these schemes would again spring into action.
Against that background it is considered that businesses can either look after themselves as regards to business interruption losses or, if they cannot, they may be eligible for help from the High Street Support Scheme or the High Street Fund. 
A final recommendation is that responsibility for decisions on whether a riot has taken place should be explicitly given to representatives of the police, the relevant local authority and a representative of the local community, with such decisions to be taken within seven days of the disturbance. 
The review does not say how those who would make the decision would be selected, or how they should reach their decision and it is not easy to see how this would work 
What happens next?
The review is but one stage on the road towards reform. The government is not bound to implement its recommendations. The next stage is a public consultation, which the government was due to launch by the end of 2013 but is now expected in 2014. A draft Bill would follow and then parliament would have to find the time to enact it. 
The government could decide that the recommendations would be too expensive for the public purse, for example, with the result that even more of the risk of riot damage would fall on property owners and their insurers. It is to be hoped insurers will play a full part in the consultation process and get their views across to the government. 
What to do next? 
If you would like more information on this subject, or to discuss any other risk or insurance need including your own insurance programme, please give us a call. 
Call 01789 761660

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