Business interruption losses recoverable under the Riot (Damages) Act 1886
In a landmark ruling, the Court of Appeal has overturned an earlier decision on the scope of the Riot (Damages) Act 1886, ruling that consequential losses are now recoverable under the Act.
The case of Mitsui Sumitomo Insurance Co (Europe) Ltd, Royal and Sun Alliance Insurance Plc and others v The Mayor’s Office for Policing and Crime (MOPAC) arose out of claims against MOPAC in respect of damage to a Sony distribution warehouse in Enfield during the August 2011 London riots. An action was commenced to recover almost £60m of indemnified losses by insurers with an interest in the warehouse, as well as £4m of uninsured losses suffered by the owners of the stock inside.
In the first instance decision, Mr Justice Flaux ruled that the incident fell within the scope of compensation under the Act. However, this was limited to loss resulting from physical damage, and did not include compensation for consequential losses. The first issue was appealed by MOPAC, and the second issue was cross-appealed by insurers.
The Court of Appeal dismissed the MOPAC’s appeal against the recovery in respect of physical damages.
In respect of the cross-appeal by insurers on the availability of compensation for consequential losses, the Court reviewed the Act, its legislative history and the 1886 Regulations made under the Act. The Court of Appeal ruled that consequential losses to the interruption of business were recoverable under the Act. The Court reasoned that in principle, the Act covers all heads of loss compensable under English law for damage and there was no specific exclusion for consequential losses. However, when fixing the level of compensation, a compensating authority should give consideration as to what is “just” and can also take into account conduct of the person whose property has been damaged, stolen or destroyed.
This ruling will be welcome news to the insurance industry, as insurers will be able to recover damages for consequential losses which were indemnified as a result of the London riots in 2011.
Concerns have been voiced that the ruling will inevitably lead to spiralling costs to the Police Authorities who provide compensation under the Act. This may in turn lead to more disputed claims against the Police Authorities (whether by insurers or uninsured victims), who may choose to take a stringent view of what a claimant is entitled to, by arguing over whether compensation is “just”.
The Court of Appeal commented that whilst the broad application of the Act may seem unfair against the Police Authorities, it is for Parliament and not the courts to amend it or remove it altogether. Interested parties will be watching closely to see if this decision prompts Parliament to make legislative changes which may limit the types of loss recoverable under the Act. Were any limitations to be introduced, this would in turn have an effect on the availability and pricing of riot insurance.
The MOPAC is apparently considering the merits of an appeal to the Supreme Court.
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