As lenders brace for the start of a high-profile legal battle on Tuesday, the insurance industry lurks on the sidelines.

Merchant banking group Close Brothers and South African Firstrand Bank are headlining a case that may have enormous implications for the lending industry.

The drama stems from Court of Appeal ruling last October that a broker could not lawfully receive a commission from a lender for car finance without obtaining the customer’s fully informed consent.

The legal ruling caused a shockwave in an industry already preparing for an Financial Conduct Authority (FCA) review. Moody’s quoted a potential compensation of £30bn if the consumers are successful.

However, according to Nicola Pangbourne, a partner at the law firm Kennedys, the insurance industry is nervously watching on.

She pointed out that if the court goes against the lenders and the £30bn number is correct, “where is this money going to come from”?

“Many banks have purchased insurance policies with an element of professional indemnity cover, designed to respond to claims for errors or omissions in providing a service,” she explained.

Pangbourne highlighted that “in principle, payments of equitable compensation to consumers may be indemnifiable if the claim itself falls within the terms and conditions of the relevant policy.”

She also noted that some insurance policies may be sufficiently broad to cover the financial implications of a redress scheme.