The error — in a contract governing the world’s largest personal injury compensation scheme — means that solicitors handling thousands of claims are about to earn an unintended £5.2 million bonus.

Two firms will share the windfall because of the inadequacy of a legal agreement drawn up by officials and lawyers at the Department of Trade and Industry.

Their flawed work has been revealed as detectives continue to investigate senior officials and employees at the Union of Democratic Mineworkers, which has earned huge profits from compensation claims.

DTI officials attended a meeting with the Serious Fraud Office and South Yorkshire Police’s economic crime unit yesterday, but have refused to disclose what was discussed.

An inquiry has already been announced into the DTI’s role in a scheme that was originally expected to cost £1 billion. The final bill, including compensation payments and legal fees, is now likely to be £7.5 billion.

The review, headed by Stephen Boys Smith, former director-general of the Home Office’s organised crime group, is now expected to ask how the DTI left a costly loophole in the claims handling contract that the Government signed with the UDM in 1999.

Sick and dying miners, whose compensation and legal costs are paid by the DTI, have proved a lucrative business for solicitors’ firms across the country. Their fees for handling 750,000 claims have reached £530 million and are likely to top £1.2 billion before the final case is settled. Two of the firms, BRM Solicitors, of Chesterfield, Derbyshire, and the Sheffield-based Wake Smith, have registered 8,416 chronic obstructive pulmonary disease (COPD) claims since 2003. The cases were passed to them by the UDM.

Each has a close working relationship with a company called Indiclaim, which is wholly owned by Clare Walker, the union’s highest-paid employee.

According to Capita, the company that has run the coal health scheme for the Government since February 2004, none of these cases was registered as a UDM claim.

Because of this, BRM and Wake Smith, which says it was acting on the advice of the union, are being paid, on average, £616 more for each settled claim than other solicitors’ firms that have handled cases for the UDM.

If all its 4,570 UDM claims are settled, BRM can expect to be paid an estimated £10.7 million in costs, £2.8 million more than it would have received under an agreement that the UDM agreement signed with the Government in 1999.

Wake Smith is likely to receive fees totalling an estimated £9 million for its 3,846 UDM claims, £2.4 million more than it would have been paid if they had been registered as UDM cases. Detectives are continuing to investigate payments made by BRM and Wake Smith to Indiclaim, a company owned by Miss Walker, 41, whose house was raided by the fraud squad two weeks ago.

She earned £260,000 last year in salary and bonus for a 20-hour week as part-time head of claims at Vendside, a claims-handling company owned by the UDM.

The union insists that Indiclaim is a training company run by Miss Walker that has no connection to the union or to any individual UDM claimant. Both BRM and Wake Smith, however, agreed to pay referral fees to Indiclaim of between £100 and £500 plus VAT for every UDM claim that they settled successfully.

The two law firms, Miss Walker and the UDM deny that they have acted improperly. The DTI’s discovery of a loophole in its UDM agreement is a severe embarrassment for government officials. Until last Friday the DTI insisted that all UDM claims passed to solicitors’ firms were “handled at the agreed UDM rate”.

On Friday, however, the DTI contacted The Times to say that the department wished to retract all its earlier statements on the subject and could not comment further, pending the outcome of the police inquiry.

Explore UK News

• Crime News

• Education News

• Health News

• Science News

• Scotland News

Times Recommends

• Anne Darwin's performance of a lifetime
• Renaissance for canals as new boaters come aboard
• Case study: forced to marry a cousin at 17