The policyholders of collapsed insurer Independent Insurance are inching towards an agreement over payment of their legal costs
An agreement has been reached for private policyholders, but their corporate counterparts will have to sweat out a High Court test case to find out if they can recover the costs. The insurer went into provisional liquidation in June last year. After nine months of negotiations, the Financial Services Compensation Scheme (FSCS) has agreed to pay pre-liquidation legal costs for 90 per cent of the private policyholders. The FSCS, successor to the Policyholders Protection Board, has decided in principle to pay around £2m in outstanding legal fees. Had the arrangement not been made, some 1,500 private policyholders would have been forced to cough up. Independent's panel firms - Davies Arnold Cooper (DAC), Berrymans Lace Mawer and Davies Lavery - have been sorting out the agreement, with DAC partner Gerald O'Mahoney leading the negotiations. He said: "While we're pleased to have secured 90 per cent of the legal fees for private policyholders, we'll continue to fight for corporate policyholders on compulsory insurance policies, who should also have their pre-liquidation legal fees met in full. It's for this reason that we're going to the High Court for a final decision." Who should pay the £2.5m fees incurred on compulsory policies by Independent's 2,000 corporate policyholders has not yet been resolved. DAC is taking a test case to the High Court in an effort to get a precedent-setting judgment. O'Mahoney said: "The FSCS believe that the 1975 act protects third-party victims. We say it protects policyholders - that's why it's called the Policyholders Protection Act." DAC has instructed Colin Edelman QC of Devereux Chambers to argue its case. Herbert Smith is advising the FSCS. Sorting out this issue is of paramount importance for the three panel firms. When Independent collapsed, Davies Lavery lost a client that accounted for a quarter of its business and DAC lost one of its top two personal injury clients. An arrangement with provisional liquidator Dan Schwarzmann at PricewaterhouseCoopers meant that fees for run-off work would be met, but costs incurred pre-liquidation remained contentious.