Equitable Life has dropped a substantial part of a negligence claim against its former auditors Ernst & Young. The withdrawal of a "lost sale" claim has cut damages sought by the British insurer by around GBP1.3 billion.
The claim was based on the assertion that Equitable’s former board of directors would have tried to sell the company had Ernst & Young warned them of increasing financial danger. The ongoing legal case now stands at around GBP750 million, compared with the GBP2.05 billion previously.
In a testimony to the court, Equitable’s 15 former directors – who are themselves being sued by Equitable – maintained that contrary to the claim they would not have chosen to sell the company, even if they had been made aware of the cavity that was opening up in the company’s accounts.
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.
Commenting on Equitable’s claim, Ernst & Young 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,
Equitable insisted it was not abandoning the same lost sale claim against the former directors themselves, who are being sued for negligence and breach of duty. Collective damages being sought from the individuals remain at around GBP1.7 billion – although many have stated that they would be ruined by the legal costs alone if they lost the case.