Heath sues over shock pounds 18m loss on aviation account: Underlying trade satisfactory as insurance broker pays 11p final

CE HEATH, the insurance broker, is suing two of its rivals for up to pounds 45m after losing heavily on an Australian underwriting business that it no longer controls.

Heath said yesterday it would tumble to a post-tax loss after suffering a surprise pounds 18.6m hit from a discontinued aviation account. Heath sold the business when it floated off the rest of its Australian operation last year, but still has to pick up the losses under an indemnity agreement.

The group is seeking damages from the insurance brokers who introduced the aviation business and advised on its reinsurance. These were Nelson Hurst, the firm bought out from Citicorp two years ago, and one of the smaller quoted brokers.

The aviation account has suffered escalating claims and has found itself inadequately protected by reinsurance. Although Heath warned of the deterioration last November, the size of the provision was unexpected.

Heath's legal action alleges breach of fiduciary duties and negligence. Peter Presland, Heath's chief executive, said his company was seeking to recover the total losses suffered on the aviation business, which come to around pounds 45m.

David Woodward, Nelson Hurst's chief executive, has still to receive details of Heath's claim. But he said Heath had suffered no more than other companies operating in the Australian aviation market.

Mr Presland also said Heath was cutting costs by shutting four or five of its UK offices and making about 70 staff redundant, at a cost of pounds 5m.

Better news from Australia was that Heath expects to recover Adollars 80m ( pounds 36.5m) from the Accident Compensation Commission in Victoria. This is pounds 5.6m more than it had previously estimated it would receive from a long-running legal dispute, which has been settled in favour of the insurers. Mr Presland said he expected to start receiving some of this money by the end of the year.

Heath said its underlying trading results were satisfactory and confirmed its intention to pay a final dividend of 11p, as indicated at the interims. Heath's shares finished the day 12p lower at 313p.