After-the-event insurers could find themselves in the unenviable position of having to fund both parties in a case following the introduction of conditional fee agreements in April, says law firm Berrymans Lace Mawer.
Should this happen, the legal expenses insurer will stand to lose whichever side wins.
Partner Stephen Walsh said: "The replacement of legal aid with 'no win, no fee' agreements from April could lead to the unusual situation in which after-the-event insurers have their own panel of claimant firms running claims against the same insurer's panel of defendant firms."
He warned: "Insurers could risk suing themselves in cases like this."
Walsh highlighted the need for safeguards in such a situation. For example, the insurer might appoint separate claims managers in a case to avoid a potential conflict of interest.
But Jon Hepburn, spokesman for after-the-event insurer Litigation Protection, thought it unlikely that a conflict of interest would arise.
He said: "We have procedures for checking whether any defendant or claimant in a case is already on our books. If the checks are clear then we proceed, but if they are not we will notify the parties of a conflict of interest."