Insurers won the latest round of the Claims Direct test cases. The victory is likely to have serious repercussions for other claims management companies.

Senior Costs Judge Master Hurst handed down his decision on Tranche 2 of the test cases on Friday.

In Tranche 2, Claims Direct claimants argued that £395 paid by Claims Direct's panel solicitors to Claims Direct subsidiary Medical Legal Support Services was recoverable as a claims management fee.

But Master Hurst found it was an "unlawful" referral fee, which the insurers did not have to cover.

Beachcroft Wansbroughs litigation partner Andrew Parker, who acted for one of the insurers, said that the judgment showed that "payments to introducers of work, however they are dressed up, will not be permitted in claims for costs".

"This was a fixed price in every case and if it wasn't paid, the solicitor didn't get the work," he said.

"It wasn't a matter of client choice. The importance of the decision is the impact it will have on claims management companies that have similar business models."

Claimants are currently awaiting the outcome of their appeal against Master Hurst's judgment on Tranche 1, heard on 18-19 December 2002.

Master Hurst ruled that only £621 of their £1,250 after-the-event (ATE) premium could be recovered from the insurers.

The claimants' solicitors were unavailable for comment.