Syndicates follow similar actions of Winterthur Swiss

Lloyd's syndicates and managing agencies caught up in the collapse of claims farmer The Accident Group (TAG) have sent letters to TAG solicitors demanding the return of illegal referral fees, said industry insiders.

The Lloyd's insurers who provided ATE cover to TAG claimants, believed to be represented by law firm Reynolds Porter Chamberlain (RPC), are following the action of Winterthur Swiss Insurance Company.

In January, Winterthur Swiss sent letters to 700 solicitor firms alleging negligence in accepting TAG claims of poor quality. The letters said that the insurer "reserves the right to bring proceedings against them in respect of insurance policies underwritten in connection with TAG".

It is believed the RPC letter was sent to a similar number of claimants.

A TAG subsidiary, Accident Investigations Ltd, charged solicitors £310 plus VAT for investigating claims, money that was subsequently recouped from claimants' awards. These fees were judged to be illegal in July 2004 by the Court of Appeal.

Lord Justice Buxton ruled that "investigation fees" of possible claims, which solicitors claimed back from ATE insurers, were in fact referral fees, meaning they were illegal and could not be claimed from defendants, ATE policies, or from claimants themselves.

The Law Society issued a warning to former TAG solicitors that they would need to examine their accounts to establish any possible liability in September 2004.

Scott Farrell of Towry Law Professions said he was not surprised other TAG insurers had followed Winterthur Swiss's action. "I expect that more and more insurers will come after the referral fees."

But Farrell said the TAG situation was unlikely to affect renewal rates, as solicitors would be repaying the fees directly, the illegal nature of the referral fees meaning they would be unable to claim on their insurance.