Independent Insurance provision liquidator PricewaterhouseCoopers (PwC) confirmed it is taking legal action against KPMG, the failed insurer's auditors, for alleged negligence.

Mark Batten and Dan Schwarzmann, the joint provisional liquidators, served the particulars of claim against KPMG on Tuesday.

The claim is for alleged negligence in audit work carried out between 31 December 1997 and 31 December 2000.

Sources close to the case said PwC sought "hundreds of millions" in damages.

The liquidators are believed to be claiming that KPMG should have spotted the irregularities in Independent's accounts prior to its collapse in 2001.

A KPMG spokesman said any claim would be defended "vigorously".

PwC confirmed in 2003 that it had sent a "notice of pre-protocol" to KPMG, as well as Independent's actuaries Watson Wyatt.

The liquidators have already launched an action against Watson Wyatt over its alleged negligence in not spotting the shortfall in the Independent's reserves.