Equitable members group launches action

Equitable Life's celebration that it has finally capped £1.5bn of liabilities came to an abrupt end yesterday when a group of disgruntled former policyholders became the first faction to announce steps toward suing the society for lost earnings.

The Equitable Late Joiners Action Group (ELJAG) has appointed the City law firm Travers Smith Braithwaite to pursue Equitable for compensation for investors who have lost on average 23 per cent of the value of their funds over the past year.

The group, made up of 300 former members, alleges that Equitable misled them about the size of liabilities arising from the existence of guaranteed annuity rate (GARs) policies.

An estimated 140,000 individuals joined Equitable after September 1998, the point at which the society embarked on testing its controversial strategy of paying out smaller bonuses to GARs in court.

ELJAG says that at the time, Equitable's salesforce told new clients it would only have to find about £50m in compensation if the courts ruled against the differentiated bonus policy.

The total bill turned out to be more than £1.5bn when the House of Lords said in July 2000 that bonuses to GARs had to be increased, creating a massive liability which destabilised the society and forced it to close to new business.

Neil Britten, the chairman of ELJAG, said: "Equitable began the legal action in the knowledge that the cost of losing could be in the billions. If we had known that we would never have invested with it."

Travers Smith Braithwaite will examine the cases of the 300 former policyholders who have already handed over £250 in fees to support a class action. It hopes other late joiners who have now left Equitable will join.

Equitable will defend itself against an action. It has made a undisclosed provision in case it does have to pay compensation.