FSCS considers appeal.

The Financial Services Compensation Scheme (FSCS) is "considering its position" following a judgment that will make it liable to cover the legal expenses of businesses caught up in insurance company insolvencies.

In December, the Court of Appeal upheld a judgment, made in March 2003, that the FSCS was liable to pay the pre-liquidation legal costs of GeoLogistics Ltd, which was caught up in the collapse of Independent Insurance.

GeoLogistics claimed that the FSCS should cover the legal fees it incurred defending an employer's liability claim prior to the collapse of Independent in June 2001.

Under the terms of its policy with Independent, GeoLogistics was entitled to full indemnity for its legal costs.

"Initially hundreds of policyholders with Independent Insurance will benefit to the tune of £2m from the Court of Appeal's ruling confirming the FSCS's responsibility to pay their legal fees," said Gerald O'Mahoney, an insurance partner at Davies Arnold Cooper, which acted on behalf of GeoLogistics.

He said that the decision sets a precedent for cases involving insolvent insurance companies.

"The FSCS's liability to meet legal costs in respect of the various insurance insolvencies currently going through schemes of arrangement could reach anything up to £60m."

The FSCS has until 18 January to decide if it will make a request for leave to appeal directly to the House of Lords.