THE county council is bracing itself for a £7 million claims bill after one of the insurance firms it has used in the past became insolvent.
Municipal Mutual Insurance Ltd ran into financial difficulty in 1992 and ceased accepting new business.
However, it continued to pay claims for clients which originated before that year – in the anticipation of setting up a solvent offshoot of the company.
But a recent court decision which went against MMI meant its long-standing hopes of setting up the off-shoot were finally over.
And it has triggered a scheme which means the council may have to pay back up to 90% of the money it has received from MMI to settle matters – such as asbestos-related claims.
The council's director of finance, Peter Handford, said the authority's repayment to MMI could reach £7.26 million.
It is a major blow to the cash-strapped council, which is already having to cope with huge cuts to its budget.
Councillor John Harrison, cabinet member for finance, said: "Everything seemed to be okay on the surface, until the recent court decision."
The scheme – called a scheme of arrangement – was agreed in 1994 by MMI's creditors, including Derbyshire County Council, as an alternative to liquidation.
The scheme was only to be triggered if MMI's known liabilities exceeded its assets – a point which was reached in November last year.
Asked why the council agreed to the scheme, Mr Handford said: "The county council agreed to the scheme, along with all its other creditors, as the best means of avoiding additional costs from an early liquidation of the company."
He added the council had only been using MMI for some of its insurance cover at the time it stopped offering new policies in 1992.
Control of MMI has now passed to administrator Gareth Hughes, of Ernst and Young LLP. He is reviewing the finances and consulting with creditors on how much they will have to give back.
As of September 2012, the council had received £7.4 million, with a further £677,000 of known claims outstanding and still to be settled. It would also be liable for future claims which have been incurred but are yet to be reported.
Mr Handford said the council has £7 million set aside to cover whatever repayment it ends up having to make to MMI. Any repayments are likely to be carried out over a number of years.
