Equitable throws in towel; Ernst & Young “vindicated” says Land |
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Fri, 23 Sep 2005 13:05
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LONDON: There seems no end to Equitable Life’s troubles. The insurer which had been suing its former auditor Ernst & Young for negligence yesterday decided to drop the case.
The firm decided to abandon the $700 million damages claim as evidence from its former directors convinced it that it would lose the case. The insurer is also suing its directors for mismanagement that led this once impressive insurance firm to near bankruptcy in 2000.
Equitable had launched a £2bn case against Ernst & Young in April blaming the auditor for their near collapse. It said the auditors failed to inform Equitable’s directors of the financial mess in time. However, the insurer dropped part of its claim £1.3bn in July.
Dropping the case entirely yesterday, was a ‘clear vindication’ for Ernst & Young, its chairman Nick Land said. Land also demanded that Equitable’s board directors “consider their position” and decried the insurance firm’s legal actions over the past four years as “a scandalous waste of time, money and resources for all concerned.”
The auditor’s barrister Mark Hapgood Q.C. called the abandonment “the biggest climb-down” in the legal history of the nation. It was the largest ever claim brought against an auditor in Britain.
While Equitable’s policy holders were understandably disappointed and angry by the news, chairman Vanni Treves defended the decision saying the group’s lawyers had advised them to withdraw, saying it would be “foolhardy to continue”. The court could very likely rule that the former directors would have performed in much the same way regardless of advice or warning from the auditors, Treves said.
The assurer said it would still pursue its £1.7 billion claims against 15 of its former directors accusing them of mismanagement.
Equitable had to close its fund to new business after a dispute with its Guaranteed Annuity Rate (GAR) life insurance policy holders. These guaranteed policies were sold in the 1970s and 1980s but the firm miscalculated its obligation. It even tried to renege on the promised payouts. In 2000, the country’s highest court – the House of Lords - had ruled that Equitable honor the guarantees which pushed the firm to near bankruptcy.
The firm thought it would recover some of the losses through the legal action against Ernst & Young but is now faced with £30m legal bill.
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