Insurers have been warned to tread carefully when dealing with claims from financial institutions to ensure their recover from the reinsurers, according to a leading law firm.

Law firm Barlow Lyde & Gilbert (BLG) said insurers should examine their reinsurance contracts to ensure they contained 'follow the settlements' clauses.

"If the contracts do not contain 'follow the settlements' clauses, the reinsured will have to be able to demonstrate on the balance of probabilities that it had a liability under the original policy, and that it had a valid claim under the reinsurance," the law firm said.

BLG said that with lawsuits being brought in the US by Enron shareholders, as well as action by investors and creditors of former telecommunications giant WorldCom, insurers and reinsurers were still feeling the consequences of the corporate collapses.