Beazley has turned to the High Court in a bid to escape paying compensation to 27 investors who lost money after being misled by their financial adviser.
Alternate Insurance Services was ordered to pay compensation of more than £1.5m after investors lost money in schemes which turned out to be high risk rather than the low risk they believed.
The company has since gone into liquidation and as a result its insurer, Beazley, is asking the High Court to rule that it should not have to cover Alternate or its liabilities to the investors.
According to the High Court writ, when taking out professional indemnity insurance with Beazley Syndicates 623 and 2623 in 2003, Alternate said no claims had been made against the company, its partners or directors, that it was not aware of any circumstances which might give rise to a claim, and that it had disclosed all materials facts.
But it has been alleged that when signing the proposal form the company knew of circumstances which might lead to a claim, failed to disclose them, and suppressed material facts.
Now the underwriters are seeking declaration that the insurance policies for 2003 and 2004 are void due to misrepresentation and that it is not liable to cover the company against legal action in Jersey or to compensate investors who have lost money.
In February, the High Court ruled that Alternate had made false and misleading statements to its clients when acting as a financial adviser on traded endowment policies, using a traded endowment policy investment portfolio plan.
Beazley and Alternate were both unavailable for comment.