Policyholders seek costs

INDEPENDENT INSURANCE: corporate clients will be liable for 2.5million if case is lost

Corporate policyholders with collapsed insurer the Independent - which went into administration last year - will be on the hook for 2.5 million of legal costs if a test case in the High Court later this month does not succeed.

The case is being brought by City firm Davies Arnold Cooper acting for some of the 2,000 corporate policyholders where there has been no agreement in their attempt to recover pre-liquidation costs payable under compulsory insurance policies.

The judgment in the test case could have a significant impact - if it is made in the claimants' favour - on recoverability of legal costs for other policyholders where insurance companies become insolvent.

The test case comes after Davies Arnold Cooper, and the two other firms acting for private and corporate policyholders - Berrymans Lace Mawer and Davies Lavery - secured agreement in principle for the payment of up to 2 million of pre-liquidation legal costs payable under Independent policies held by around 1,500 private individuals.

The three firms achieved the agreement - which represents about 90% of total costs incurred - following months of negotiations with the Policyholders Protection Board and its successor organisation the Financial Services Compensation Scheme.

Gerald O'Mahoney, the Davies Arnold Cooper partner leading the negotiations for the panel of firms, said: 'While we're pleased to have secured 90% of the legal fees for private policyholders, we will continue to fight for corporate policyholders on compulsory insurance policies who should also have their pre-liquidation legal fees met in full.

It is for this reason that we are going to the High Court for a final decision.'

Jeremy Fleming