As a board we have a duty to act in our policyholders best interests, no matter how difficult that duty may be

Equitable chairman Vanni Treves

Ernst and Young have dismissed the action as "opportunism".

Equitable claims the former directors failed to recognise there were serious legal questions over some of its policies, and failed to act on legal advice that they could lose a test case being brought against them.

Chairman Vanni Treves said: "The actions or inactions of these former directors caused many policyholders substantial loss of benefits.

"As a board we have a duty to act in our policyholders best interests, no matter how difficult that duty may be."

Court battle

Equitable said it was also waiting for the outcome of a House of Lords ruling on an unrelated case to see if it could bring claims against four former directors who left the board before 1996.

Equitable's problems came to light in 1999 when it admitted that it could no longer afford to pay policyholders with guaranteed pensions the amount they had originally promised when interest rates were higher.

These policyholders took the company to court when it tried to back out of its previous commitments.

Equitable Life lost the court battle and was left with huge legal bills, as well as being forced to pay the policyholders what it had said it could no longer afford to.

Compromise deal

As a result, it was forced to close to new business in December 2000 and sold part of its business to the Halifax, now part of HBOS.

The firm agreed a compromise deal in February, where policyholders with guaranteed pension returns will give up their guarantees in return for a one-off 17.5% boost to the value of their investments.

This will allow Equitable to cap its future liabilities and, the company hopes, avoid financial collapse.