The UK riots – the experiences of 2011 and how companies caught up in civil disturbances fared.
As Airmic members continue to grapple with the aftermath of the 2011 UK riots, George Mortimer of DLA Piper reviews the experience of businesses seeking compensation for their losses. There is, he argues, a clear case for reform of the Riot Damages Act.
The shooting of Mark Duggan on 4 August 2011 precipitated shocking events. In a few days, peaceful protest in Tottenham developed into an orgy of looting and criminal damage, which spread across London and to other English cities. The riots resulted in significant losses for businesses (estimated by the ABI at £200m). Much of that burden fellon the insurance industry in the first instance, but it quickly became clear that a key issue was how the scheme for compensation from police authorities under the Riot (Damages) Act 1886 (the RDA) would operate faced with losses of unprecedented severity and geographical extent.
Insurers' response to the riots
Sixteenmonths on the insurance industry can be seen to have risen to the challenge.
Some Airmic members and their insurers encountered problems with policy interpretation (eg where a business was hit by riots in different locations and so how losses aggregated fell to be decided). In other cases the complexity of losses, or business interruption cover extending over 24 months, meant claims could not practically be concluded quickly. But generally insurers acted pragmatically, making interim payments and working with insureds to adjust losses. By March 2012, the Government-appointed Riots Communities and Victims Panel had reported that insurers had settled, or made payments, in the vast majority of the claims.
Statutory compensation - the RDA
The experience under the RDA has been different. More than a year after the riots, Metropolitan Police figures showed that 13% of claims remained to be processed.
It had been clear within days of the riots that there were difficult issues for those deciding what compensation should be paid, and real practical problems for claimants. Regulations issued in 1921 prescribed a dated and unwieldy claim form which had to be submitted within 14 days after sometimes very complex losses.
The government moved quickly to remove the requirement to use the 1921 form and extend the time limit to 42 days, but the processes remained unclear. Businesses were encouraged to submit claims through their insurers on forms agreed between the Home Office and the ABI. However the RDA did not give insurers legal standing to claim until they had settled losses, which few had then done. Many businesses had claims which were not covered by insurance. Even the extended 42 day time limit was a significant hurdle, particularly for businesses with complex losses in more than one location. The result was a mutiplicity of claims and forms submitted by insurers and insureds to protect against technical defences from the police.
Instead of acting pragmatically to agree losses, the police and the Home Office (which dealt with uninsured claims centrally) initially sought documentary support for all items of expenditure. Their subsequent processing of the RDA claims has been contrasted with insurers' more pragmatic approach. David Lammy, the MP for Tottenham, described the administration of RDA claims as "overly bureaucratic and unprofessional" in Parliamentin May 2012.
It also quickly became clear that the RDA would only provide cover in certain circumstances. There was no compensation for vehicles or other property outside buildings. Significantly the RDA would only apply where a loss was caused by riot as defined in Section 1 of the Public Order Act 1986, so claimants had to prove there had been at least twelve individuals using or threatening violence for a common purpose. "Riot" is notoriously difficult to prove as a criminal offence - the vast majority of the 2710 individuals brought before the courts after the riots were charged with other public order offences, burglary, or criminal damage. The police's initial reluctance to describe the riots as such, using euphemisms like "disorder", was seen as indicating they would insist on the strict legal definition being met for every claim.
In the event, for smaller losses, this has not been the case. However for the largest single-location loss a strict line has been taken by the police. The Sony Warehouse in Enfield was destroyed by fire on the night of 8 August2011, according to the police by organised criminals, not rioters. Affected property owners and insurers assert that the legal definition of riot was met and they have recently commenced legal proceedings to recover losses estimated at £80m under the RDA.
Are the police liable for business interruption?
It is hoped that this litigation will clarify an issue relevant to almost every business with RDA claims. The Sony Warehouse fire caused substantial business interruption. The police had been quick to assert that the RDA did not cover BI and other financial loss, and so far RDA claims have been paid for material damage and theft only. However there is nothing in the RDA expressly excluding financial losses. It simply refers to such compensation as appears "just".
There is no case law interpreting the RDA on this point, so businesses and insurers with RDA claims will watch the Sony Warehouse litigation closely.
Reforming the RDA?
However the courts decide, there is a clear case for reform to overhaul the processing of claims and clarify when RDA compensation is payable, and for what losses. In February 2011 the Home Office told Parliament it was undertaking a review of the RDAwhich it expected to complete before the end of the financial year. In May a Home Office Minister confirmed that the Government was committed to reviewing the Act to “ensure that the legislation is fair and reflects a modern policing world”. However little progress seems to have been made so far. The Home Office's most recent announcement (in December 2012) was that an independent reviewer will be appointed early in 2013, and that there may then be a public consultation. That review should certainly proceed if the alternative is the existing outdated legislation and procedures being put back on the shelf until significant riot losses occur again.
George Mortimer is an Associate at DLA Piper who advises clients on issues arising from the riots