CGU has apologised to an independent intermediary for the way it "terminated" its £135,000 agency agreement.
An "internal error" resulted in clients of Telford-Reede being told of the move before staff and management of the County Durham-based firm.
Telford-Reede director Susan Howlett said she was astonished when clients began contacting her with the news that the 25-year-old relationship with CGU had been severed.
She said: "It's atrocious that CGU has acted in this way. It falsely implies that we have done something wrong."
CGU's letter dated December 8, 1999, announced that Telford-Reede no longer had an agency with the insurer. It adds: "Our staff will be pleased to assist you with advice regarding this policy and on the full range of our other products which may be of interest to you."
CGU also advises Howlett's clients to begin sending their premium payments directly to its office in Newcastle instead of Telford-Reede.
Howlett said she contacted CGU immediately for an explanation. But it was not until December 14 that she received a terse reply from business account manager Maureen Wolf.
This reads: "Having completed another review of your account, it is with great regret that I must advise you that due to the unprofitable nature of the account we must terminate your agency agreement with CGU from February 1, 2000."
The letter goes on: "I will call within the next few days to collect the cover note book."
Ian Frater, spokesman at CGU's London head office, confirmed the agency had been terminated on profitability grounds.
But he admitted the matter had been handled badly. "It was a bad internal error and we have apologised to Telford Reede," he said.
Howlett said relations with CGU began to deteriorate two years ago, when she rebuffed its predecessor General Accident.
It had wanted the intermediary to transfer all of its household business to the insurer in return for supporting its large motor account.
But Howlett rejected this offer, afraid that it might compromise Telford-Reede's status as an independent intermediary.
Since then, Howlett claimed CGU had declined new business from the intermediary and the value of its account had fallen from £250,000 to its current £135,000 value.
