EQUITABLE LIFE’s decision to drop a High Court damages claim against Ernst & Young, the accountant, last week has cost the insurer’s long-suffering policyholders £30m in legal bills, writes Jessica Bown.

Advisers say that the failure of the action should prompt the 700,000 people who still have money in Equitable’s with-profits fund to move their savings elsewhere — if they can.

About 50,000 are trapped because they have already converted their pension fund into an annuity, and annuitants cannot transfer to another provider.

Tom McPhail of Hargeaves Lansdown, an independent adviser, said: “We cannot see any convincing arguments to stay with Equitable Life, unless perhaps your policy is nearing maturity and you will be able to withdraw your cash penalty-free in the next couple of years.

“People who were hanging on in the hope of benefiting from a cash injection of some kind have seen that possibility recede with the failure of this action, and I wouldn’t counsel anyone to hold on in the hope of government compensation.”

Equitable’s claim against Ernst & Young was centred on the accountant’s alleged failure to inform the then board about the extent of the mutual’s financial problems.

However, Equitable decided to abandon the case after lawyers pointed out there was a good chance the former directors would not have acted differently had Ernst & Young given different advice.

Vanni Treves, chairman of Equitable Life since 2001, said: “Not to have launched this action would have been a dereliction of our responsibilities to policyholders. We are deeply disappointed that we have been unable to secure redress for them.”

The collapse of the case has angered policyholders, many of whom lost thousands of pounds when Equitable almost collapsed in 2000 after miscalculating how much it would have to pay out in guarantees on many of its policies.

Their only hope of remuneration now rests on the negligence claims against 15 of the former directors, which were being heard in conjunction with the Ernst & Young case. These claims could now also be dropped. The High Court is expected to rule on them before the end of the year.

Ann Abraham, the parliamentary ombudsman, is investigating the government’s role in the near-collapse of Equitable Life, but her findings are not expected until early next year.

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