Insurers have launched fresh legal action against hundreds of The Accident Group (TAG) panel firms to recover what could amount to tens of millions of pounds paid out as 'investigation' fees - which were later held to be prohibited referral fees.

The action is being brought by a group of Lloyd's insurers, while insurer Winterthur - which has already sent out letters before action to 550 firms - will join it shortly.


The action is separate from Winterthur's £70 million claim for alleged negligence against the panel firms. Winterthur had reserved its position on the investigation fees, but at a hearing last month Mr Justice Aikens ruled that any insurers or funders that wish to take action against the law firms in relation to these fees must join the Lloyd's action by the end of the month.


Allianz Cornhill Legal Protection has also been invited to join and is considering whether to do so.


The action relates to a fee of around £350 per case, which TAG firms were obliged to pay to its sister company Accident Investigations Limited (AIL) under their contractual arrangements.


In 2004, the Court of Appeal upheld Senior Costs Judge Peter Hurst's ruling that these fees - which were ultimately paid by the after-the-event insurers - could not be classed as disbursements, but were at the time prohibited referral fees.


A Law Society spokesman said it is keeping a 'watching brief' on the litigation, and that 'whether or not there will be regulatory action is a matter for the Regulation Board in due course'.


Phil Ruse, head of Allianz Cornhill Legal Protection, said the average claim per case could be around £500 if insurers add interest to the amount of the fee paid, as claims were funded by a loan. The number of cases is understood to exceed 70,000.


A hearing to decide whether to grant the insurers a group litigation order will take place next month.


Stephen Cantle, a partner at City firm Kennedys, which acts for more than 200 former TAG panel firms in relation to AIL fee litigation, said: 'There are a number of issues that need to be properly aired. For example, these claims on referral fees are all on the basis of subrogation claims [where the insurer claims the right to stand in the shoes of the insured]. I am not convinced this is correct.'


Steve Holland, executive director of Alexander Forbes Professions, said: 'The qualifying insurers for these panel firms have denied coverage for the AIL fee under the professional indemnity policies, even though the negligence and AIL fee claims are inextricably linked.'