North Korea, the last Stalinist dictatorship, is fighting a £30 million legal battle with insurance syndicates at Lloyd’s of London, which accuse it of making fraudulent claims in an attempt to prop up its collapsing economy.

Supporters of North Korea’s claim say that the insurers are trying to renege on a risky contract. It is also suggested that they failed to differentiate between North Korea, one of the most repressive and isolated countries, and South Korea, its rich democratic neighbour, when the contract was signed.

The state-owned Korea National Insurance Corporation (KNIC) is demanding €44 million in a London court from a group of reinsurers, including Lloyd’s syndicates, for damage caused in a catastrophic helicopter crash in 2005.

The North Koreans have supplied exhaustive documentation and their claims have been authenticated by independent loss adjusters and upheld in a North Korean court. But the reinsurers argue that the nature of the regime makes it impossible to trust and that the claim is a fraudulent one intended to bring in desperately needed foreign exchange.

“It’s not possible for the North Korean regime to do anything legitimate,” says Michael Payton, of the law firm Clyde & Co, who is representing a group of reinsurers, including Allianz of Germany. “We are very concerned about the circumstances of the claimed loss.”

The accident took place in April 2005 when, it is claimed, a helicopter owned by Air Koryo, the North Korean state airline, was dispatched from Pyongyang, the capital, to collect a woman who was in labour with triplets from a remote island. On the return flight it crashed into a warehouse on the outskirts of the city, causing a fire that destroyed a large amount of humanitarian relief goods.

The KNIC settled an insurance claim by the airline, which had compensated the owner of the warehouse, and claimed this back from its London reinsurers. According to the contract, disputes were to be settled under North Korean law and last month a court in Pyongyang ordered the reinsurers to pay the North Korean company the €44 million. They refuse to do so.

According to a source close to the reinsurers, the comprehensiveness of the documentation provided by the North Koreans, including photographs of the accident site and exhaustive lists of all the materials lost, was in itself unnatural and a reason for suspicion.

Lawyers for the KNIC say that, having pocketed premiums for the previous nine years without any claims, the reinsurers are simply reluctant to pay out such a large sum.

“There is no evidence at all to suggest that the helicopter claim is fraudulent,” says Tim Akeroyd, of the law firm Elborne Mitchell, which is acting for the KNIC. “All the evidence available, including the reports of loss adjusters appointed by Mr Payton’s clients, clearly established that this was a bona fide claim.”

The contract also states that claims in North Korean won will be converted at a rate of 160 won to the euro, close to the Government’s exchange rate. But the black market rate, which is used for all practical purposes in North Korea, is closer to 2,000 won to the euro. If this were applied it would reduce the reinsurers’ bill from €44 million to €3.5 million.

“All this business about spending the money on their nuclear programme is complete tosh,” a source close to the North Korean side said. “They just don’t like the contract they wrote and they regret it bitterly.”

Times Recommends

• Both sides blame US for worsening relations
• Stieg Larsson: losing the plot over his cash
• Odd creature paralysed by incompatible parts