A row has broken out between legal expenses insurer DAS and the QC representing Sarwar in the landmark legal expenses case Sarwar v Alam that was heard in the Court of Appeal earlier this week.

Geoffrey Nice QC claimed that DAS does not pay solicitors' costs in losing cases. He said: "It will drive solicitors to make decisions which will not be in the client's interests, but in their companies' commercial interest."

In a letter shown to the Court of Appeal, Paul Upton, DAS assistant manager, personal & commercial, told a firm of solicitors DAS was prepared to instruct them on the same basis on which it instructs its panel solicitors.

The letter said: "I confirm that we do not pay any costs or disbursements to our panel solicitors irrespective of the outcome of the case. Obviously, if the case is successful, you will recover your costs and disbursements from the defendant's insurers."

Charles Wright, DAS's general manager, contended that the letter shown in court was wrong and did not represent the company's usual business practice.

"When you've got this massive number of letters going out, there will be one or two with errors," he said. He maintained that DAS pays solicitors on the losing side in cases.

But this view was greeted with scepticism by others involved in the personal injury litigation process. One lawyer claimed there were hundreds of letters sent by different DAS employees to a number of solicitors which backed up what was shown in court.

Another lawyer pointed out that Upton was a bit high up in the company to be sending out erroneous letters.

The main point being considered in Sarwar v Alam is the steps which need to be taken to establish whether there is before the event insurance (BTE) before after the event insurance (ATE) can be relied on.

Sarwar, who was injured while a passenger in a car driven by Alam, relied on an after the event policy when he could have taken advantage of Alam's BTE policy.

Chester County Court at first instance ruled that the premium for the ATE policy was not recoverable. The Court of Appeal reserved judgment and a decision is expected in the next couple of weeks.