Ernst & Young Welcomes High Court Ruling On Equitable Claim

by Caroline Maxwell, for LawAndTax.com, London

11 February 2003

The UK's High Court on Monday threw out a £2.6 billion claim by insurer, Equitable Life against its former auditor, Ernst & Young.

Equitable Life was brought to its knees in 2000 by an unexpected £1.5 billion liability on guaranteed annuity rate (GAR) pensions, and argues that E&Y should have warned the previous management team of the potential size of the GAR liability, which the organisation was unable to pay.

According to the Telegraph, which reported prior to the High Court judgement:

'The writ against Ernst & Young alleges that the business could have been sold for £2.9 billion in September 1998 if the accountants had assessed the true value of the GAR liabilities. The £2.6 billion the society is claiming now is the difference between this potential sales figure - plus a £600 million investment return it said it would have achieved by March 2001 - and the amount it actually raised by selling Permanent Insurance in 2000, and other assets to Halifax in 2001.'

Ruling on Monday, Mr Justice Langley dismissed Equitable Life's case as 'fanciful' and 'flawed', but left the door open for the company to put its case again.

'In my judgement, if they are to be pursued, Ernst & Young is entitled to have...(the accusations against it) presented with a rigour and reality which is presently lacking,' he explained.

Equitable has announced that it will appeal against the ruling.

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