Court threat as Aviva chairman vetoes talks

The prospect of a bitter court fight over £5bn of surplus Norwich Union insurance funds has moved closer after the group's chairman rejected an urgent plea for talks from the officially appointed policyholder advocate.

Claire Spottiswoode – hired by the insurer to represent policyholders' interests – is understood to have asked for the audience last Tuesday amid increasing frustration at the way Aviva, Norwich Union's owner, is handling the situation. But sources say chairman Lord Sharman turned down the request three days later. The distance between the sides now makes it likely that the affair will end up in a long and costly court battle.

Aviva's board is scheduled to meet at the end of the month, days before Ms Spottiswoode has to respond to the third and final offer on how to divide the surplus assets between policyholders and Aviva shareholders.

Last Tuesday Aviva said it would distribute roughly half of the £5bn to 1.1 million policyholders over three years. They will receive 90 per cent of the cash, while the company will get 10 per cent – the traditional way in which returns from "with profits" life funds are divided up.

However, the two sides remain at odds over the rest of the money, with the insurer arguing that it should receive a greater share. Sources have indicated that Ms Spottiswoode is unlikely to accept the latest proposals made in the undisclosed offer but will leave it until the end-of- month deadline to respond. She said last week that the new offer "wasn't materially different from the previous one".

Her attempts to assess the offers are also thought to have been hampered by "constant changing of the numbers". Days before the Tuesday offer, Aviva is believed to have advised her office of a £500m shift in the value of the assets to be redistributed.

Talks between Ms Spottiswoode and Aviva have lasted more than two years, with customers and shareholders now unlikely to receive any payouts until 2009 at the earliest.

In 2000, the French insurer Axa sparked outrage when it won a High Court victory allowing it to pay just 31 per cent to policyholders. This resulted in changes to the law that called on insurers to appoint a policyholder advocate, to represent their interests in negotiations.

A spokesman for the Office of the Policyholder Advocate for Aviva declined to comment.