The Manufacturing Science Finance union is claiming compensation on behalf of 5,000 staff who lost their jobs when Royal Insurance merged with Sun Alliance to form the new group.
Union lawyers today start a "class action" at Liverpool Employment Tribunal claiming that management defied a European directive when it failed to consult employees before making them redundant.
If the company is successful other merged groups such as CGU and Norwich Union will face similar claims together amounting to another pounds 18m.The case will also set a precedent for all mergers and take-overs in Britain.
Roger Lyons, general secretary of MSF, said yesterday that if the union failed in its litigation, the Government would be forced to introduce fresh law to ensure that the UK abided by the directive.
The European statute stipulates that there should be three months of consultation with employees if a merger will mean job losses or closures.
Mr Lyons said that the 5,000 sacked workers at RSA first heard their jobs were under threat when the company let the figure slip on Radio Four's Today programme. "They choked on their Rice Krispies. This is not the way to tell people they are going to lose their jobs."
He pointed out that the directive on collective redundancies states that workers' representatives should be involved in the decision-making process before there was any "contemplation" of redundancies.
The union is concerned that the tribunal on Merseyside might adhere to another legal ruling which found that the amalgamation of Royal Insurance and Sun Alliance was a "transfer of shares", not a merger, and therefore not susceptible to European law. "If that were the case, there would be a glaring loophole in British law which is duty-bound to reflect the European directive," he said.
If the decision goes against the union, Mr Lyons said he would complain to the European Union under Article 169 of the Treaty of Rome.