Equitable slashes auditor claim

The Equitable case is far from over

Equitable Life has slashed its claim for damages from former auditor Ernst & Young to £700m from £2.05bn.

The insurer has dropped its "lost sale" claim - the allegation that directors would have sold the firm if they had known the true scale of its problems.

Ernst & Young is accused of signing off Equitable's accounts without warning of the problems that led to its collapse.

The auditor has vehemently denied the claims; on Monday it denounced Equitable's attempts to get damages.

"The fact that four years into this process and nearly half way through the trial Equitable has abandoned its 1.3bn pound sale claim against Ernst & Young shows what a desperate state their case is in," the auditor said.

"This is one of the worst examples ever seen of the disreputable tactic of making a hugely inflated claim, now admittedly hopeless, against a 'Deep Pocket' in the hope of forcing a settlement out of fear of litigation risk".

'Focusing our attention'

Equitable had been contending that its directors could have raised more than £1bn by selling the firm had they known the scale of the problems it faced.

However, former directors said in court that they would not have chosen to sell the company.

"It appears from the evidence given by the former directors that, although the old board should have sold the business to raise capital, they would not have done so," Equitable Chairman Vanni Treves said in a statement.

"We are now focusing our attention on Ernst & Young's audit failure and our bonus claim. We believe that it does not weaken the overall claim value that we expect to receive at the end of this trial."

Equitable claims an audit failure led to it overpaying bonuses to policyholders. The firm closed to new business in December 2000 after more than 200 years in the market.

An inquiry by Lord Penrose found that the society was the "author of its own misfortunes" and that over-generous payouts to policyholders had led to a financial black hole amounting to billions of pounds.

Equitable has been looking to recoup some of its losses and has also launched an almost £2bn claim against 15 former directors.