Equitable Life has abandoned a large part of its £2 billion case against its former auditors, Ernst & Young.
In the High Court yesterday, it withdrew its claim that E&Y should have advised directors to put the business up for sale when problems with guaranteed annuity rates began to emerge.
But in testimony to the court, Equitable's former directors said they would not have chosen to sell the society.
A claim that E&Y was negligent in its auditing of Equitable Life's accounts is still proceeding.
E&Y said in a statement last night: "We have always maintained this was a case that should never have been brought.
"The fact that four years into this process and nearly half way through the trial Equitable has abandoned its £1.3 billion sale claim against Ernst & Young shows what a really desperate state their case is in.
"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.
"Millions of pounds of policyholders money has been poured down the drain in a speculative and irresponsible gamble that was always bound to fail."
Equitable chairman Vanni Treves said he did not believe yesterday's move weakened the rest of its case against Ernst & Young. Equitable closed its doors to new policyholders in 2000 after the House of Lords ruled it was liable to meet the cost of the controversial guaranteed annuities, or Gars.
The policies were written in the 1970s and 1980s at a time when interest rates were high but costs began to spiral out of control when rates began to fall.
Equitable is also suing 15 former directors for a further £1.7 billion.