Introduction
On the night of February 8 2016, shortly after the start of the Lunar New Year, clashes broke out between the Hong Kong police and protestors in Mong Kok, a major shopping area in Hong Kong. Tensions over the government's crackdown on unlicensed holiday hawkers selling street food erupted when the police tried to remove venders and customers from the area. The conflict escalated as police tried to contain the situation. Rubbish bins were ignited and bricks and bottles were thrown towards the police, which used pepper spray and batons to counter the onslaught. Even warning shots were fired, an incredibly uncommon occurrence in Hong Kong.
Facts
Within 48 hours, the police had described the event as a riot and the protestors as a mob. Protesters were arrested for offences including resisting arrest, assaulting police officers and obstructing police officers. The police also relied on the Public Order Ordinance (Cap 245) and used the following provisions to arrest and charge protestors:
- Section 18 relating to unlawful assembly;
- Section 19 relating to riot; and
- Section 21 relating to rioters damaging buildings and machinery.
In the aftermath, it transpired that taxi windscreens had been smashed and the windows of several shops had been broken. It was reported in the South China Morning Post that the "owners of shops and vehicles damaged during Monday's violence in Mong Kok were unlikely to be able to make insurance claims as authorities declared the incident a 'riot', said an insurer".(1)
The events on February 8 2016 raise questions for insurance policyholders claiming property damage and consequential loss resulting from a riot or similar circumstances. This update examines the situation in Hong Kong for businesses affected by the 2016 Mong Kok riots, as compared to the 2011 London riots.
London riots
In August 2011 thousands of people rioted in London following a fatal police shooting. Widespread violence, looting and arson took place. In particular, Sony's distribution warehouse was destroyed by "the largest arson in Europe". Sony and the warehouse owner were able to make successful claims under their property insurance policies. Sony's insurers subsequently brought claims under the Riot (Damages) Act 1886.
The act (in the process of being repealed by the Riot Compensation Bill) provides that compensation for damages caused by riots must be paid for by the local police authority.(2) Sony's insurers claimed compensation for:
- damage to the building;
- damage to contents;
- business interruption including loss of profit; and
- loss of rent.
The High Court awarded compensation on the first two heads, but considered the other two to be outside the scope of the act.
The Court of Appeal reversed the High Court's ruling on the excluded heads of claim.(3) Therefore, compensation was recoverable under the act for consequential losses as well as property damage (including contents). In January 2016 the Mayor's Office for Policing and Crime appealed to the Supreme Court. The decision is pending.
The High Court and Court of Appeal decisions considered the definition of a 'riot'. It was confirmed that a 'riot' is 12 or more persons "unlawful, riotously and tumultuously assembled", as defined by the over 300-year old Riot Act 1714 (from where the phrase "reading the riot act" originates).
2016 Mong Kok riot
It appears that Sony and the owner of the warehouse had adequate insurance in place to recover the losses caused by the London riots (subject to the loss adjustment). As to the businesses and commercial property landlords seeking compensation for property damage caused by the Mong Kok riot, it was reported in the South China Morning Post article that "while some property [insurance] policies cover riots and civil disorder, most owners do not take such coverage."
If businesses or commercial property landlords affected by the Mong Kok riot had opted out of cover for damage caused by riots or civil unrest, those policyholders would seemingly have no recourse to recover any losses under their policies (they would be unlikely to pursue civil claims against the individuals taking part in the riot).
In light of the 2016 Mong Kok riot, businesses and commercial property landlords may want to re-evaluate their insurance cover and consider the following.
Property all-risks insurance policy
A property all-risks insurance policy can be tailored to the specific insurance requirements of a business by excluding or including certain types of property-related loss. In light of the 2014 'Occupy Central' protest and the recent riot in Mong Kok, insureds in Hong Kong may want to consider including the common extension which covers physical damage to property insured caused by 'strike, riot or civil commotion'.
Business interruption insurance
Business interruption insurance is usually not acquired as a stand-alone policy and is typically bolted on to a property insurance policy. Traditionally, business interruption insurance covers a loss of income due to physical damage to insured property. However, in recent years, underwriters have offered extensions that do not require damage to the insured property. However, there must still be an insured peril (the trigger). A form of business interruption cover possibly relevant to businesses in the Mong Kok area would be a non-damage loss of attraction extension, whereby people are reluctant to visit a certain area due to an undesired event taking place, such as the outbreak of severe acute respiratory syndrome (SARS).
The leading authority in Hong Kong on business interruption insurance is the Court of Appeal decision in New World Harbour view Hotel Company Limited v Ace Insurance Limited,(4) where owners and operators of hotels, convention centres and car parks under the same composite mercantile polices successfully claimed for actual losses sustained as a result of the 2003 SARS outbreak. The crucial issue in dispute was not so much the validity of the business interruption cover but rather when the loss began to run; specifically, when SARS became a 'notifiable' disease as defined under the policies.
Denial of access
A denial of access or non-damage denial of access provision is a business interruption extension that can be included in property insurance policies. The extension covers losses sustained during the period of time when, as a direct result of damage to property or damage in the vicinity of the property access to the insured's property is denied. A denial of access clause had questionable applicability in the 2014 Occupy Central protests. Although prevention of access and barricading of roads in the vicinity of businesses did occur, such actions would unlikely be construed as physical damage in the vicinity required to trigger the denial of access clause. In such a scenario, cover may exist under a non-damage denial of access where there is no pre-requisite for damage.
Riot Damages Act 1886
A key factor in the Sony warehouse case was the effect of the Riot Damages Act 1886. Subject to the pending ruling from the Supreme Court of England and Wales, the Riot Damages Act 1886 essentially permitted insurers to seek full compensation from the police authority for the physical and consequential damages caused by the riots.
Hong Kong has no equivalent or similar legislation. Unlike the Riot Damages Act 1886, the Public Order Ordinance does not address compensation for damages arising from offences proscribed under its provisions.
Comment
Lunar New Year is normally a joyous and auspicious occasion for the people of Hong Kong. For the businesses in Mong Kok on February 8 2016 it was hardly such an occasion and may have been made worse if adequate and appropriate insurance had not been acquired for the physical damage incurred and consequential loss suffered as a result of the violence.
Although Hong Kong continues to remain an open, safe and free economy, businesses on all ends of the spectrum, from international conglomerates based in Central to local enterprises in Kowloon, should review their property insurance policies in light of recent disruptions like the 2014 Occupy Central protests and the 2016 Mong Kok riot.
For further information on this topic please contact Kevin Bowers or Adrian Sargent at Howse Williams Bowers by telephone (+852 2803 3648) or email ([email protected] or[email protected]). The Howse Williams Bowers website can be accessed at www.hwbhk.com.
Endnotes
(1) Sun, Nikki, Allen Au-yeung and Eddie Lee. "Classifying Hong Kong violence a 'riot' means shop and car owners are unlikely to have insurance cover", South China Morning Post, February 11 2016.
(2) Mitsui Sumitomo Insurance Co (Europe) Ltd v The Mayor's Office for Policing and Crime [2013] EWHC 2734 (Comm).
(3) Mitsui Sumitomo Insurance Co (Europe) Ltd v The Mayor's Office for Policing and Crime [2014] EWCA Civ 682.
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