Insurance Chief Faces �8m Writ
Independent insurance is suing its former chief executive for �8 million in the first major legal action resulting from its collapse.
A High Court writ alleges that Garth Ramsay breached his �500,000 a year contract. Independent, which is in provisional liquidation, is seeking damages from Ramsay for negligence and breach of duties.
The collapse of the insurer three years ago has forced the insurance industry to pay claims against the firm's policies.
Some �234 million has been paid out - equivalent to about �5 on every household insurance policy in the country. According to the writ, a meeting of Independent's board on March 5, 2001, was told that the company had made profits of �30.2 million.
Days later the directors agreed to pay a dividend of �8.3 million. But the company was insolvent and had no profits with which to pay a dividend, the writ claims.
Ramsay should have known that the company faced significant problems over its financial position, capital base, solvency, management and reserves, it is alleged.
Michael Bright, Independent's founder and executive chairman until shortly before the collapse, has already declared himself bankrupt.
The writ states that in March 2001, it emerged that Bright had pledged assets worth �141 million to the reinsurance group Ireco, which Independent was unable to satisfy.
On March 12, 2001, reinsurance arrangements were renegotiated so that Independent was required to pay Ireco �44 million in
Auditor KPMG was commissioned to carry out an investigation into Bright's involvement.
It revealed that Bright had not told his fellow directors of the terms on which some reinsurance contracts had been agreed.
The writ states that Ramsay knew this, and was aware that the level of claims was likely to be at least �51 million higher than had been projected, and could be �50 million higher than that, wiping out current reserves.
At the time of the collapse, the Financial Services Authority was criticised for not doing enough and it was claimed that problems at Independent were only spotted due to the vigilance of French regulators, who had become concerned about the firm's subsidiary in Paris.
But the writ says that the FSA had also been concerned about the insurer's position and had threatened to impose strict limits on its business.
A spokeswoman for liquidator Pricewaterhouse-Coopers said it would 'pursue any route to making recoveries for all creditors'.
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