American International Group (AIG) has refused to pay holders of bonds covering losses on Hollywood films, after its decision was upheld by the Court of Appeal.

UK film company Flashpoint sold the bonds in the name of Hollywood Funding and was to pay back securities from proceeds of the movies. redit Suisse First Boston (CSFB) managed the sales and Australian insurer HIH insured the first three, known as Hollywood Funding 1, 2 and 3.

AIG's New Hampshire Insurance reinsured the bonds. he transactions were put together in England and are therefore subject to English law.

Last week, a UK court rejected an appeal by HIH Insurance to make New Hampshire Insurance and Independent Insurance Company reimburse it for a payout. The court said HIH should not have paid bondholders when Hollywood 2 defaulted. The reinsurers refused to pay out due to “various misrepresentations, breaches of warranty and coverage defences”.

The court ruled that the reinsurers did not have to cover losses where the agreed-upon number of films had not been made. It also held that the policies were insurance policies, not unconditional guarantees of payment.

In a statement, AIG said: “The issue here is not the refusal by an insurer to pay a claim under its policy. The real issue is whether CSFB understood what it was doing when it approached the insurance market to issue a property and casualty policy that was not drafted as the functional equivalent of a financial guarantee policy.”

AIG is using the ruling as support for another AIG subsidiary, Lexington Insurance, refusing to pay out on Hollywood Funding 5, which also defaulted. This policy was almost identical to HIH's and was reinsured by a group of companies, including Axa.

The $48m bond (£34m) was used to finance films such as the Academy Award-winning Gods and Monsters. According to Standard & Poor's, there is $9.1bn (£6.3bn) of AIG-supported debt still outstanding from the films.

The AIG statement said: “Although Lexington was not party to this case, its insurance policy was identical in all material respects to HIH's policy. Therefore, the decision is confirmation that Lexington's actions have been entirely appropriate.”

Investors have been left uneasy by AIG's decision not to pay out. The company was forced to cancel a sale of bonds last month, amid fears that it may refuse to pay out on a claim.

There have been further doubts as to whether securities of this type should have been given an “AAA” rating by Standard & Poor's.