- Consequential losses, such as loss of profits or rent, cannot be recovered under the statutory compensation scheme governed by the Riot (Damages) Act 1886.
- This move will save more than £80million of taxpayers money.
- The insurance industry will be faced with an inability to recover the costs from police authorities.
Recovering 'consequential losses' following riot damage
More than £80million of taxpayers money will be saved as the Supreme Court has held that consequential losses, such as loss of profits or rent, cannot be recovered under the statutory compensation scheme governed by the Riot (Damages) Act 1886.
Following the London riots in August 2011, a Sony warehouse in Enfield was completely destroyed. Insurers sought recovery of indemnified losses under the Riot (Damages) Act 1886.
The Court of Appeal ruled in the insurer's favor, essentially meaning the Mayor’s Office for Policing and Crime (MOPAC) would have to compensate for the damage and loss of profits. MOPAC further appealed the decision to the Supreme Court.
On 20th April 2016 the Supreme Court overturned the Court of Appeal decision, concluding that the Riot Damages Act does not "extend to cover consequential losses".
Chris Owen, head of disputes at law firm TLT which represented the Met Police, said: "With many claims for consequential loss dependent on the outcome of this case, today's Supreme Court decision will likely save the UK taxpayer upwards of £80m. "The Supreme Court ruling today has clarified that the compensation payable by the Metropolitan Police is limited to the costs of repairing the damage done to property during the 2011 London riots."
How does this decision impact on you?
The Supreme Court’s decision will be welcomed by the MOPAC and the taxpayer, however, the lack of recoverability of loss of rent and loss of trade will come as a concern to many others. Many small to medium sized business owners suffered considerably during the riots and the loss of trade will be just as, if not more considerable than any physical property damage, leaving what many may find to be a gaping hole in the compensation scheme.
Additionally, the insurance industry will be faced with an inability to recover the costs from police authorities, which in turn may give rise to a change in the underwriting of riot damage risks and the availability cover and may lead to higher premiums. Property owners may also consider reviewing their insurance arrangements in view of the compensation cap of £1m, to ensure they are not left out of pocket for losses exceeding this sum.