Freshfields faces a possible £10 million damages claim brought by the Bank of Ireland.
In its statement of claim, the bank says Freshfields failed to advise BI Mortgages Services, a subsidiary of the Bank of Ireland, to notify its insurer of a possible damages claim from merchant bank NM Rothschild.
When Rothschilds sued, the insurers refused to cover BIMS.
The writ issued by BI and BIMS claims Freshfields was under a duty of care to act with reasonable care and skill.
It alleges the law firm was negligent and in breach of contract for failing to consider whether certain correspondence from Rothschilds constituted a claim or receipt of notice of intention to make a claim.
BI and BIMS say the alleged negligence has deprived them of an indemnity against liabilities they may incur as a consequence of Rothschilds' action.
Even if it were held that the insurers had wrongly refused to indemnify BIMS, the legal advice put BIMS in a disadvantageous position in its dealings with the insurers, it is alleged.
Clifford Chance is representing Rothschilds in its case against BIMS and damages could be £24 million plus interest. Rothschilds' claim concerns the role of BIMS as manager of a loan portfolio for the Housing Loan Corporation (HLC).
It is alleged BIMS failed to ensure that mortgage loans financed by Rothschilds conformed with HLC's loan criteria. Rothschilds is claiming damages for losses on loans that consequently went sour.
Damages against Freshfields cannot be quantified until the conclusion of Rothschilds' action against BIMS. It could be up to £10 million, the sum assured under its insurance policy.
Freshfields, rejecting the claims, said it would "vigorously defend any action".