Sinclair Roche & Temperley is suing its insurance brokers, alleging it was not paid the full amount of compensation owed after the firm lost a professional negligence claim against former client Somatra.
The firm, which merged with Stephenson Harwood in 2002, is suing Alexander Forbes, under its former name Nelson Hurst, for £250,000. The proceedings are at the point of being issued.
Sinclair Roche placed its professional indemnity insurance with Nelson Hurst in 1994 - the same year the negligence was found to have occurred.
Somatra sued Sinclair Roche for negligent work when the firm represented the company against a group of underwriters following the sinking of one of its supertankers. The total liability for the firm reached £18m.
Sinclair Roche was initially ordered to pay £8m to Somatra for costs and damages. The firm tried to appeal against the order to obtain a stay of execution, but was refused. At the same time, it was unable to formalise its merger with Stephenson Harwood until the debt was settled.
Sinclair Roche, represented by David Rutherford of Ince & Co, claims it had full insurance cover but was not paid in full because HIH subsidiary FAI General, which Alexander Forbes had turned to for cover, became insolvent in 2001.
A partner at the firm told The Lawyer that, had FAI been an authorised insurer, Sinclair Roche would have received the full payout by the Financial Services Compensation Scheme.
"On the basis of specialist legal advice, we are of the opinion that, by placing cover with an unauthorised insurer, Alexander Forbes was in breach of contract and duty," he said.
Simmons & Simmons insurance lawyer William Roger is acting for Alexander Forbes. A spokesman for Alexander Forbes said there was no case to answer.
"FAI General was fully authorised to provide insurance cover," he said. "Alexander Forbes acted properly and in line with normal procedures."