Insurers’ noses have been put out of joint after the Supreme Court ruled that the office of the London Mayor will not be shouldering compensation for a warehouse destroyed in the 2011 riots. Instead, the burden will fall mostly to the building’s insurers.
The decision follows a high-profile court battle between the office of Mayor Boris Johnson and several insurance companies over compensation for profit and rent lost due to the destruction of a Sony warehouse in Enfield, north London. Late last week, five Supreme Court justices ruled in favour of the Mayor’s office, overturning an earlier Court of Appeals decision that sided with the insurers. The ruling is believed to save around £80m in taxpayers’ money, which will instead come from insurers’ coffers.
Paul Isaac, partner at MDD Forensic Accountants said the ruling was bad news for all concerned, including brokers who may have been at least partly responsible for any underinsurance. “While [the decision] may offer relief in some quarters in drawing a line under the debate, the reality is that both insurers and their customers will be worse off: insurers by their inability to recover the insured consequential loss they have paid to their insureds; and the insured by their inability to recover the uninsured portion of consequential loss,” he said.
The news was met with disappointment by the insurance industry, and when approached for comment by Insurance Business UK
and Tokio Marine
Kiln, two insurers involved in the case, deferred to a statement from James Dalton, director for general insurance policy at the Association of British Insurers.
“The August 2011 riots caused widespread damage, disruption and misery for many businesses, with insurers paying £170m in claims to help customers recover, including around £30m to firms with business interruption cover for the trading disruption they suffered,” Dalton said. “No insurance claims were held up by this case – the industry wanted clarity as to the whether the scope of the Riot Damages Act covered business interruption losses. This judgement means those businesses without appropriate business interruption cover will not be compensated by the police for their loss of trade.”
Insurers had argued using the Victorian-era 1886 Riot Damages Act, which says that damages from riots should be paid out from Metropolitan Police funds. However, the Supreme Court ruled that it does not include compensation for consequential losses.