Insurance giant AXA has begun legal proceedings against 78 law firms in an attempt to recover losses associated with after-the-event (ATE) insurance policies taken out on claims it believes were not properly vetted, the Gazette has learned.

According to sources close to the parties involved, AXA has sent a letter before action to 78 firms in England and Wales seeking to recoup what is rumoured to be around £60m in ATE losses. A further 100 practices could potentially be drawn into any subsequent litigation.

The dispute centres on ATE policies taken out on personal injury, housing disrepair and industrial disease claims by panel law firms between 2001-2004 with Composite Legal Expenses (CLE) in its role as ATE cover-holder for underwriter NIG. At the time, NIG was indirectly owned by Winterthur which was subsequently acquired by AXA.

The group action mirrors The Accident Group (TAG) litigation that involved more than 600 law firms and was finally settled earlier this year. One element of the TAG action alleged panel firms were negligent in failing to vet and monitor personal injury claims properly – a charge denied by the firms involved.

Lawyers must risk assess cases and only proceed with those that have a good prospect of succeeding – usually pegged at a 51% chance of winning. Sources say the failure rate of cases where AXA is seeking to recover ATE losses was in excess of 70%.

Ed Anderson, insurance and professional negligence partner at the London office of national firm Beale & Co, warned firms should check if they might be subject to a claim and consider whether to notify their professional indemnity insurer.

He said: ‘The arrival of another large group claim on top of the widespread anxiety about the massive potential for claims by mortgage lenders means that rates will surely have to harden this year.’

AXA declined to comment.