Following the riots that took place in London in August 2011, the Riot (Damages) Act 1886 has come under increasing scrutiny, both by the judiciary and the government, and proposals for reform have now been announced.
The Act, which provides a legal basis on which businesses and individuals who have suffered damage following a riot are entitled to apply for compensation from the relevant police fund, was considered by the English Court (both at first instance and on appeal) in the two decisions arising out of the Mitsui Sumitomo Insurance Co (Europe) Ltd & Anor v The Mayor’s Office for Policing and Crime matter, handed down in 2013 and 2014. Click here to read our articles on these decisions.
In particular, this litigation focused on what will amount to a ‘riot’ for the purposes of the Act, which refers to “persons riotously and tumultuously assembled together”, and whether compensation awarded should include consequential losses, such as loss of profit or loss of rent. Both Courts concluded that there had in fact been a riot within the meaning of the Act. More controversially, the Court of Appeal reversed the original decision of the lower Court that consequential losses were not recoverable. Permission has been granted to the Mayor’s Office to appeal this aspect of the judgment and a decision is likely to be handed down by the Supreme Court in early 2016.
Following an independent review of the Act in 2013, which recommended its reform, the Home Office conducted a public consultation on the form that reform should take. The results of that consultation, which received 53 formal responses, were published, together with a draft ‘Riot Compensation Bill’, in March this year.
In the context of the Mitsui litigation, it is most relevant that, notwithstanding the judgment of the Court of Appeal, the government has taken the view that the Act is not designed to respond to consequential losses. To include such losses would, it says, be a step too far in a state-funded compensation scheme, in circumstances where the Act is a “safety net” not intended to provide cover equivalent to insurance policies.
The government also proposes that to lend greater clarity to what will and what will not amount to a ‘riot’, the definition in the Act be linked to that in the Public Order Act 1986.
The draft Bill is not without controversy. In particular, concerns have been raised that retaining the PCC as the decision-making body gives rise to a fundamental conflict of interest, as it is the police fund that will be liable to compensate if events are classified as a riot. The government’s view is that the PCC has a duty to represent the best interests of the community, even where that may give rise to a financial liability, but others point to the delay in claims arising out of August 2011 being resolved (following indecision as to whether the police or insurers should be responsible) as evidence to the contrary.
Also receiving attention is the proposal that each claim under the new Act be capped at £1 million, which represents the amount insurers can claim where the annual turnover of the insured company exceeds £2 million. This change in approach has been welcomed, with the ABI estimating that 99% of commercial property claims from the August 2011 riots would be fully covered by the £1 million limit, compared with 33% using the £2 million turnover threshold. However, there can be no doubt that the £1 million cap, together with the exclusion of consequential losses (which in the Mitsui litigation amounted to £14.3 million), are likely to leave many claimants, including both insurers but also uninsured individuals and businesses, exposed.
Progress of the Bill was delayed pending the recent election of a new Parliament and it will be interesting to see how the new Government proposes to proceed.