Equitable Life takes its former directors and auditors Ernst & Young to court today, seeking £3.75 billion damages for alleged failure to warn of impending collapse because of over-generous guarantees.
The claim is the largest brought against private individuals or an auditor in the UK and sets a precedent by targeting non-executive directors as well as their executive
counterparts. Over the past few months, Equitable and E&Y have engaged in a phoney war, each expecting victory, but they have also said the case will cost them £30 million or more each, and with reputations also at stake, an expensive battle looms.
"There is the legal cost if the case dragged on, and the litigation risk of not getting a good result," said Victoria
Cochrane, legal counsel for E&Y, who also highlighted the downsides of a settlement.
"A settlement would set a precedent, others may interpret E&Y as a soft touch."
Equitable Life has also put a brave face on the prospective tussle.
"We have a very strong case and we will see them in court," said an Equitable Life spokesman. "We have always
said that we would not rule out a settlement but any offer would have to be serious and substantial."
Equitable closed its life fund to new business in 2000 after being forced by the House of Lords, to honour high guarantees on policies it sold in the 1970s and 1980s.
The House of Lords said the company could not continue a strategy of paying lower bonuses on policies with guaranteed annuity rates (GARs), which it had tried to do because they had become prohibitively expensive.
The move pushed Equitable to the verge of bankruptcy in 2000.
The case marks the first full examination of non-executive directors' duties by an English court and it has sent directors' liability premiums soaring.