Thousands of holidaymakers could be left out of pocket following a high court hearing today which will decide whether their insurance policies should be honoured.

The holidaymakers, who bought travel insurance through Insurance Management (London), to be underwritten by Lloyd's, may find themselves with invalid polices, yet unable to claim compensation. Up to 35,000 people could be affected; an additional 4,000 people have already made claims totalling about £2.5m and are waiting for a result.

All these policies were bought from the following brokers: Atlas Travel, Hamilton Barr, Jardine Lloyd Thompson, Journey Travel Insurance, Ketteridge Group, Matthew Gerrard, Insurance Group Protection and Travel Protection Group. They were largely sold on behalf of travel agents.

These brokers used Insurance Management (London) to place business with Lloyd's, although the Department of Trade and Industry is now investigating whether Insurance Management arranged the cover correctly, as Lloyd's says it never authorised its name to be used.

The outcome of the case is expected by the end of the week.

Lloyd's asked the DTI to investigate and, as a result, Insurance Management was wound up in May.

"Insurance Management (London) was put into liquidation but we believe that polices were continuing to be sold even when investigations were taking place and it is these which are affected," said Adrian Beeby of Lloyd's.

He added that Lloyd's had agreed to honour claims linked to medical problems. "We would not be prepared to see people die abroad, even if the court rules in our favour," he said.

But other claims, such as those for theft or cancellation, are not likely to be paid by Lloyd's. It would be up to policyholders to try and recover the money from Insurance Management (London), which, to date, has not gone into receivership.

What to do if you have an affected policy?

If you think your policy has been sold by one of the brokers mentioned, contact your travel agent or the Lloyd's helpline on 0800 917 5971, which is open Monday to Friday, from 9am until 5.30pm.

You should also phone this number if you have a claim. Adrian Beeby, of Lloyd's, says anyone who has not yet taken their holiday should buy cover from another provider before they go - even if it means writing off their earlier policy.

"It could be that the earlier cover they have bought is worthless and they should replace it now rather than have problems in the event of a claim."