Gaps in legislation may mean investors who purchased life insurance from intermediaries and brokers before August 1st, 1998, are not eligible for compensation of losses due to fraud or liquidation.

The Investor Compensation Act, which came into effect on that date, set up a compensation fund for defrauded investors while re moving statutory bonding for investment firms.

The apparent absence of consumer protection has come to light following the case of insurance intermediary, Andrew Casey Life and Pensions in Cork, where investors are understood to have lost at least £300,000. Both life and pensions pro ducts are legally defined as life insurance business.

The new compensation legislation may not be fully applicable to those clients of the Casey company at a loss but the Irish Brokers' Association (IBA), of which Mr Casey was a member, has said that where appropriate it will ensure his clients are eligible for payment under its bonding scheme.

Under the Investor Compensation Act, which became law last August, the Investor Compensation Company Ltd (ICCL) may pay eligible investors compensation for funds which have been lost through a firm's liquidation or the misappropriation of funds. Clients are entitled to 90 per cent of their losses or £15,500 - whichever is the lesser amount. Eligible investors are those who have invested with companies de fined as "investment firms" under the Act such as stockbroking firms.

Section 30 of the Act divides loss calculations into two categories - claims that may be made regardless of their investment date and claims for investments made after August 1st, 1998. Life insurance intermediary clients may only claim under the second category because they are not defined as "investment firms" under the European directive on which the Act was based.

According to industry sources, Andrew Casey Life and Pensions is unlikely to be considered an "investment firm" for the purposes of the Act. Therefore, clients who made investments before August 1st, 1998, may not receive compensation for their losses under the Act's investor compensation scheme. Investments made and lost after this date are fully entitled to compensation under the Act.

The difficulty for life investors before that date is further compounded by the new legislation's removal of statutory bonding from the Insurance Act 1989 and the Investment Intermediaries Act 1995.

"A bond is on a claims made basis. It's when the claim is made that matters," said the IBA chief executive, Mr Paul Carty. As long as a bond was current it was fully retrospective but once removed it no longer applied; the only way to obtain retrospective cover was to leave bonding in place, he said. Without the existence of bonding, investors were not entitled to compensation from a bonding scheme.

Non-life insurance investment was unaffected by the gap in legislation because it was renewed yearly. The problem only affected life insurance which is considered contracted before August 1st, 1998, said Mr Carty.

As a member of the IBA, the Casey company was obliged to participate in the organisation's bonding scheme which was introduced on August 1st of this year. Each member firm must be bonded for £100,000 per broker with a £50,000 limit per client. Although complaints against the Cork broker were filed in July, the IBA has said it will compensate eligible clients of Andrew Casey Life and Pensions who are able to provide original documentation showing their loss.

"Once the Central Bank and Investor Compensation Company have done their job, we'll process any claims that come in immediately," he said.

As an insurance intermediary, clients of Andrew Casey Life and Pensions were covered for investments made after August 1st, 1998, said a spokesman for the Department of Enterprise, Trade and Employment which regulates insurance intermediaries. Mr Casey was not part of a voluntary bonding scheme after this date as it lapsed on October 1st, 1998, he said.

"It's a matter for the Investor Compensation Board to determine who gets compensation," said the spokesman. The board's decision would come down to an interpretation of the Investor Compensation Act, he said.

Industry sources believe it is likely that the administrator appointed by the Central Bank will seek legal advice to interpret the Act before making a final decision.

The Investor Compensation Company Ltd (ICCL), which has responsibility for informing investors of their rights under the Act, has said letters are being posted to Andrew Casey Life and Pensions' clients today.

Clients have five months to make claims for compensation. Once claims are received they are reviewed by the administrator.