Litigation Protection, one of the few companies which sell insurance for conditional fee arrangements, is losing its contract with its sole underwriter, Isle of Man Assurance.
The move follows the departure of two of the three staff at the company, run and majority-owned by Brian Raincock.
Three out of the five staff at sister conveyancing indemnity company Legal & Contingency have also left in the past month and Raincock last week sold that company to a management buyout team, headed by underwriter Peter Brocklehurst. Three staff have also left Raincock's parent company Dawson Granville Group.
Raincock has been prominent in lobbying the Lord Chancellor's Department to allow the private sector to insure conditional fee arrangements and was invited by Lord Irvine's deputy Geoff Hoon to speak at a special seminar to promote Lord Irvine's reforms.
Raincock said the buyout "has been mutually beneficial" and three separate insurers had already "expressed willingness" to replace Isle of Man as Litigation Protection's underwriter.
The company turned over £500,000 last year and business had been "going very well".
He said staff had left because they found travelling difficult after part of the business relocated from Mark Lane in the City to Arundel in West Sussex.
He acknowledged: "There has been some unrest among staff at my company." But he added: "I have been the victim of vicious market gossip but my company is steady as a rock."
Isle of Man told Raincock in a letter that it felt the "Conditional Fee Protection Plan" that Litigation Protection offered was "shortly to transform from a niche area in which we are ideally suited, to a mainline product....we feel that we must change our stance from being the leader to taking a share of the risk, along with other players in the market".
It would therefore lapse its contract on 1 July. The company told The Lawyer that "the mature of future participation has not yet been decided".
Underwriter Deri-Ann Clark, who left Litigation Protection at the end of April, is now working for professional indemnity insurance company Saturn Professional Risks and is aiming to set up an after-the-event insurance service there.
It is understood staff were unhappy at Raincock's management style. One former employee said Raincock "became a victim of his own propaganda", thought his company was bigger than it was, did not communicate effectively with his staff and did not like delegating work.
The employee added: "He is full of great ideas. If only he followed them through."