I Predict (an insurance claim following) A Riot!

If you have watched the news or picked up a newspaper over the past few days you cannot fail to have seen the shocking images of rioters damaging, destroying and looting properties across various parts of the country. If you own or occupy a property that has been affected by the violence, what do you need to consider? 

Damage to the building

One of the prevalent images over the weekend has been the Shoezone store in Hull on fire and with the shopfront windows broken. There have also been reports of hotels housing immigrants being attacked and set alight. A review of the buildings insurance policy should be the first port of call.   Check:

1. What risks are covered? Riot, civil commotion, malicious damage and arson will be covered by most commercial buildings insurance policies. If the violence is deemed to be an act of terrorism this will not necessarily be covered unless an additional premium was paid. 
2. What property is covered? Whilst the building itself will be covered, plate glass, boundary features and free-standing signage are examples of items that might not be.
3. Does the policy cover pre-emptive action?  If you are aware that the area in which the property is situated is likely to come under attack it is worth checking whether your insurer will cover the cost of taking action, such as relocating stock and vehicles elsewhere, or making additional security arrangements.

If the damage or destruction suffered has been caused by an insured risk covered by the policy, what happens next? If the owner of the Property also occupies it themselves, or it is vacant, then they will need to contact the insurer to make a claim. If, however, you occupy the property as tenant then it is time to check what your lease says. It will invariably include a covenant requiring the tenant to notify the landlord as soon as practicable (or words to that effect) of any damage or destruction, to enable the Landlord to make a claim under its buildings insurance policy. The lease may also exclude the landlord from liability for insuring plate glass and so the tenant will need to rely on its own policy for this.

Damage to the contents of the building

An owner/occupier is likely to have insured both the building and its contents.  Where a property is tenanted it will be for the tenant to make its own arrangements to insure the contents and so it will be down to the tenant to make its own claim. In last weekend’s example the contents could include stock (there were reports on Croc-style shoes being traded on the pavement outside of the Shoezone store), fixtures and fittings such as displays, tills etc. In the case of a hotel the contents will include a wide range of items from IT systems, furniture such as beds, wardrobes, tables, chairs, bedding, down to cutlery, food and drink and guest’s personal effects. As with buildings insurance, check the policy wording as to what is and what is not covered.

Business interruption/loss of profit

Following damage or destruction there will inevitably be some down time during which a business may be unable to occupy the Property, or at least trade from it. This interruption may be minimal with just cover a few hours needed to clean and tidy it up prior to resuming trade. It has been heart warming to see communities coming together to clean up the streets after the violence has subsided.   

More serious damage may result in operations having to be suspended for a considerable time.  For example, if a property has been set on fire, in addition to damage caused by fire and/or smoke, there may also be water damage caused by fire-fighting which requires the property to be rewired and could take a considerable length of time. The worst-case scenario would be the total destruction of the property, where it could take years to obtain the necessary planning permission and organise contractors to rebuild it. Business interruption cover protects against loss of income or gross profit that a business might suffer in these circumstances.

Loss of Rent

Where a property is leased, the lease will most commonly provide that in addition to insuring against damage and destruction of the property, the Landlord insures against loss of rent for a set period, e.g. 3 years. This ensures that where a property is not capable of occupation and/or use, or is inaccessible as a result of an insured risk, the landlord continues to receive a sum equivalent to the rental income. This is important as the landlord may be relying on the rent payments to meet obligations under a mortgage. Those payments will still be owed notwithstanding the property the debt is secured against no longer exists or is not capable of occupation. Such cover also enables the tenant to benefit from a rent “holiday” whilst the property is being reinstated. The tenant’s business interruption cover should assist with the cost of an alternative premises during the rent suspension period.

Insurance provisions contained within a commercial lease are complex and it is important that the parties agree and understand their obligations in the event of the property suffering damage before the lease is completed. If you are unfortunate enough to be a landlord or tenant of a property that has been damaged or destroyed the last thing you want to be doing is arguing about who is responsible for what, at what is already a stressful time.

Riot Compensation Claims

All may not be lost if you are either not insured for the damage or loss suffered, or are under insured. 

Under the Riot (Damages) Act 1886, the local police authority was responsible for all losses other than motor vehicles on the public highway, goods in for repair or cleaning and consequential losses. This piece of legislation was repealed and replaced by the Riot Compensation Act 2016 (“the 2016 Act”). 

Under the 2016 Act, a victim is able to claim compensation from the local police authority if they can demonstrate that the damage or loss suffered was as a result of a riot. A riot is defined as “12 or more people present together who used or threatened unlawful violence for a common purpose; and that the conduct of them was such as to cause a present person of reasonable firmness to fear for his/her personal safety”.

A claimant must claim from its insurance company first. It is only possible to make a claim if you are not insured, under-insured or your claim has been rejected. A building owner may claim for damage to the structure. A tenant/occupier can claim for damaged/stolen contents. No claim can be made for consequential losses such as loss of rent or trade. Nor is it possible to claim for personal injury which is dealt with by the Criminal Injuries Compensation Authority.

Any claim made under the 2016 Act must be made within 42 days from the date that the riot ends or, if you have first made an insurance claim, 42 days after the date that the insurer tells you that you are not fully covered.

Gov.uk has a quick guide (Riot compensation: quick guide for claimants) and a comprehensive guidance document (Riot Compensation Claims Guidance for claimants) that also includes a claim form.

If you require advice as to obligations relating to insurance under a mortgage, or as Landlord or Tenant, then please do not hesitate to contact the Commercial Property team on 0116 289 7000.