Curtain up on Equitable's £3.7bn claim

EQUITABLE LIFE'S £3.7bn claim against its former auditors Ernst & Young and 15 of its own ex-directors began today at a hearing in a packed High Court.

The action is being brought by the current board, chaired by Vanni Treves. It alleges that Ernst & Young failed to warn the company of problems that led to its near-collapse and that the directors were negligent in their duties. All the allegations are denied.

Iain Milligan QC, representing Equitable, opened the proceedings, expected to last up to a year, with the promise that matters would 'only be resolved in the light of oral evidence' still to come. Witnesses due to give evidence include former Equitable chief executive Roy Ranson and the 14 other former Equitable directors, six of them non-executives.

Equitable wants £2.05bn from Ernst & Young and £1.7bn from the ex-directors. All are accused of negligence and/or a breach of statutory duty before a House of Lords decision in 2000 that brought Britain's oldest mutual life insurer to its knees.

The Lords ruled that Equitable had to honour payouts on guaranteed annuity rate (GAR) policies, which suddenly became more profitable for savers than market-price annuities as interest rates fell in the early 1990s. The verdict blew a £1.5bn hole in Equitable's finances.

The company argued that Ernst & Young should have spotted in 1997-1999 that the accounts were deficient because they did not include proper provisions for GARs. It said that if it had known its true state, it could have sold itself before the Lords case or declared lower bonuses to non-GAR savers.