Indie trial: Consultants didn't advise on reinsurance properly

Independent’s consultants failed to offer advice on the precise nature of reinsurance contracts, which led to confusion amongst the board and directors, said defence counsel at Southwark Crown Court today.

Proceedings were largely dominated by cross examination of Terry Masters, managing director of Aon Risk Consulting, by Ian Winter QC who represents Michael Bright.

Winter’s cross examination focused on the period at the beginning of 2001 when Independent, advised by Aon Risk Consulting, was busy negotiating a suite of reinsurance contracts with ERC.

Bright’s defence said there was significant confusion over a “pledge” requirement, in the region of £141m, which was required to be held in escrow in order for Independent to secure cover from ERC.

According to the defence Independent’s board interpreted the pledge as being included in the company’s liquidity, while ERC understood it to mean the money would be removed from liquidity.

“What I am saying is the board and indeed all of you were confused,” said Winter.

“I don’t think I was confused,” replied Masters.

Winter retorted: “If you understood that the funds had to be held in an escrow account why did you not advise the board and company directors?”

But Masters said he had discussed the issue with financial director Dennis Lomas as early as February 2001.

It emerged earlier in the day, during examination by prosecutor Andrew Baillie QC, that Independent did not have enough cash to meet the £141m pledge.

In the afternoon, Winter continued to argue that Masters had not played a hands on role during the period at the beginning of 2001. The defence drew attention to the fact that Masters had taken a two week holiday returning to work on March 1.

Citing an FSA interview with Masters, Winter contended that the consultant had presented Bright with a contract—binding Independent to underwrite reinsurance for ERC—without being aware of its precise wording.

Do you think this justified Aon's £175,000 in consulting fees? Asked Winter.

Masters defended his actions by arguing that Bright was willing to sign anything in order to secure general liability cover for Independent’s London and provincial businesses.

The three former directors of Independent Insurance Group—Michael Bright, Philip Condon and Dennis Lomas—are charged with conspiracy to defraud. They deny the charges.

Condon was absent for a third day.

The trial continues.