Insurance company Equitable Life dropped a $3.7 billion lawsuit against accounting firm Ernst & Young, ending what had been the country's largest claim ever brought against an auditor.
Equitable, Britain's oldest mutually owned insurance company, almost failed in 2000 and filed the lawsuit in May, blaming its former auditor for not warning the company about its poor financial footing. The company had more than $1.6 billion in liabilities, mostly due to its sale of pension policies guaranteeing annuity payments of up to 11.5 percent. Equitable said that had Ernst & Young warned them of accounting concerns, it would likely have put the business up for sale in the late 1990s.
Each side will pay its own costs to settle the claim, and a separate investor lawsuit claiming negligence and breach of fiduciary duty against 15 former directors of Equitable will continue. " To carry on our claim against E&Y with such a high risk of not recovering any loss would be foolhardy," Equitable said in a statement.
Ernst & Young said that its defense of the lawsuit cost the auditor $36 million in legal fees. Equitable closed its life fund to new business in 2000, and its finances have stabilized since a new board took office in early 2001.
