NIG is facing a multi-million pound lawsuit as a result of a policy written by its failed Special Risk Division, now in run-off.
The dispute concerns an estimated £2m in unpaid claims that the insurer is refusing to pay on a credit default policy taken out in 1999.
College Credit Ltd, a subsidiary of Private & Commercial Finance Group plc, took out the disputed scheme to cover its motor trade finance deals. At the time the policy was thought to be the only one of its kind in the market, covering the high risk area of non-prime debt.
NIG originally offered the policy with reinsurance backing from UKI, before continuing to write the risk as a sole underwriter when UKI pulled out at the end of 2000.
Though the policy was only sold to a handful of finance companies, industry analysts suggest the business cost NIG millions of pounds, with a combined ratio estimated to be well over 250.
The policy was one of a number of investments, including exposure to claims farmer The Accident Group, that forced the Special Risks Division into run-off last year.
It is understood that liability for both the TAG exposure and the current lawsuit rest with
Credit Suisse, under the terms of NIG's takeover by Royal Bank of Scotland.
It is understood that directors of Private & Commercial Finance are confident of success in the case.
A source close to the firm said they believe firmly in the merits of their case and would be very reluctant to accept less than the amount they consider is owed to them, as well as recovering the legal costs they have incurred and expensed.
If the case goes to the High Court as scheduled on 20 April the combined legal costs could run in excess of £1m.
Both NIG and Private & Commercial Finance declined to make any comment.