15/08/2011

Riots and your business – are you covered?

As the inquest into the causes of the disturbances which swept across many of our cities begins, it is a good time for all businesses to check that their current insurance arrangements adequately cover losses caused by riots. They should also take the opportunity to familiarise themselves with their rights to compensation and any other assistance that may be made available should the worst happen.

First Port of Call: Insurance

Most insurance policies for commercial buildings provide cover for damage caused by riots, civil commotion and fire. Therefore, physical damage caused to a business’s property through rioting should be covered although it is worth checking that the policy is not subject to an exclusion or excess which removes the benefit of this cover.

In addition to physical damage to its property, a business may face financial losses if it is forced to suspend operations or re-locate. A business interruption policy can cover loss of income and re-location costs and is typically sold as an add-on to a building insurance policy. Check to ensure that it covers riot damage!

If damage to a property occurs then the insurer must be notified within the period specified in the policy. If the damage is caused by rioting then the notification period can be as short as 7 days. Insurers may also require a crime number to process a claim.

If a business owner occupies a property as a tenant, the terms of its lease will govern what will happen if the property is damaged. In the majority of commercial leases, it is the landlord who is obliged to effect building insurance and to carry out repairs following damage. During any period when a damaged property cannot be used by the tenant, a lease will normally provide for the rent to be suspended until the property is repaired. However, a landlord’s insurance policy will not typically extend to cover a tenant’s business interruption costs or the cost of any damaged possessions or stock and a tenant will need to take out its own policy to cover these.

Is Compensation Available?

The owner of a property damaged during a riot can claim compensation from the relevant police authority. However, the definition of a “riot” is very specific and one of the qualifications is that the damage must have been caused by at least 12 persons.

A business owner can choose to claim compensation rather than claim under its insurance policy. This may seem like an attractive option but compensation cannot be claimed for business interruption and, if an unsuccessful claim is made, the claimant may have to bear the police authority’s legal costs. A business owner may also face a delay in obtaining its compensation monies if the police authority is processing multiple claims and it would not have recourse to the expertise of its insurer and broker in pursuing a claim.

Nevertheless, it is worth remembering that it is possible to seek compensation to cover any insurance policy excesses and for any uninsured items even if an insurance claim is made.

Any claim for compensation must usually be made within 14 days of the damage but this has been extended to 42 days for any claims resulting from the recent disturbances.

Any other assistance?

A series of temporary measures to assist businesses hit by the riots has been announced by the government. These include business rate relief, deferred tax payments and the relaxation of planning regulations to speed up repairs. Certain banks are also providing emergency finance to businesses hit by the riots to bridge the gap until insurance and compensation proceeds are received.

Be prepared

It is important that businesses are confident that their insurance will cover their losses following any damage caused by riots. They should also be aware of their entitlement to compensation and any other assistance that may be on offer.

If the worst does happen, it is vital that time limits for notifying insurers and making a claim for compensation are not missed. Any evidence as to how the damage occurred, for example, CCTV footage, should be preserved to support any claims.