Independent Insurance creditors may sue FSA

The creditors of the collapsed Independent Insurance have moved towards suing the Financial Services Authority and the Department of Trade and Industry through the European Commission for failing to spot troubles at the group.

The insurer went into receivership in 2001, when the company did not have enough reserves to meet liabilities. About 500,000 policyholders were left without cover.

In London yesterday, creditors working with the law firm, Class Law, agreed to pursue UK regulators in Europe on grounds they made several breaches of the Commission's insurance directive. They will also argue the FSA ignored concerns over the company's finances raised by French regulator in January 2001.

"The most economical way forward for the creditors is to take action through the European courts, where they will not have to pay costs if the action fails," Kevin Young, chairman of the creditors' action group, said. "The DTI and the FSA were charged with responsibilities by the Commission to monitor the solvency of all insurance companies. We contend that they failed in that obligation – if they had monitored the company more closely, they would have uncovered the inadequate reserves."