Commercial Court rules 'no riot' for insurers or business

Commercial Court rules 'no riot' for insurers or business


Author: Paul Eccles

The Commercial Court has ruled that consequential losses arising from riots cannot be recovered from the public purse.

Rioting in cities and towns across the UK in August 2011 brought into sharp focus insured and uninsured losses for businesses.

The Riot (Damages) Act 1886 provides that where premises are damaged or destroyed by rioters, anyone who suffers loss as a result, including insurers, can claim fair compensation from the statutory body responsible for overseeing the local police.

The recent decision in Mitsui Sumitomo Insurance Co and Others v The Mayor's Office for Policing and Crime and two other actions (see link below for full judgment) restricts the losses that can be claimed under the Act, with potentially undoubted financial implications for UK businesses and insurers alike.

There were two preliminary issues to be decided:

First issue

This case involved the looting and burning to the ground by a group of youths of the Sony distribution warehouse, in Enfield, amidst widespread disorder and rioting that followed the shooting by police of Mark Duggan.

The court was asked in the first instance to consider whether the necessary ingredients were present in the rioters' behaviour to establish a claim under the Act. The court reasserted that, in particular, for any compensation to be payable:

  • the behaviour of the rioters, though it need not necessarily be noisy, must not be stealthy, and should have a sufficiently public character
  • it must involve wanton damage to property, rather than damage done only for the purposes of stealing

Bearing these points in mind, the Honourable Mr Justice Flaux, at paragraph 69 of his judgment, ruled that '...the group of youths who attacked, looted and set fire to the warehouse were "persons riotously and tumultuously assembled together" within the meaning of the 1886 Act'.

So far, so good. However:

Second issue

The second preliminary issue to be determined by the court was the correct construction of the losses recoverable under the Act, once it has been established that a claim could be brought.

Here, the court concluded at paragraph 113 of the judgment that '...the answer to the second preliminary issue is ultimately a short one.The compensation payable is limited to physical damage to the relevant premises or property in it and does not extend to consequential losses such as loss of profit or loss of rent'.

Hefty price tag

Insurers and perhaps uninsured businesses may understandably be disappointed by the court's decision, at least in the short term. In some cases, significant sums are at stake.

Going forward, subject to appeal, both UK businesses and the insurance industry will need to reflect on what levels of compensation they can expect to receive from the public purse and in what circumstances, should such a situation present itself again.

However, perhaps another significant legacy of this decision will be its impact on the current push by the ABI to modernise the Act, and in particular to improve the claims process under it.

Either way, any repeat of the sort of disorder in 2011 could come with a hefty price tag for those who do not consider the effects of this decision and any possible appeal.

Full judgment: