Equitable Life gets conflicting advice on potential mis-selling

Equitable Life has failed to establish clear legal guidance on whether its policyholders without a guaranteed annuity rate (GAR) have a potential case of mis-selling against the society, despite delaying publication of its compromise scheme to wait for this guidance.

The society is understood to have been shocked by the far-reaching nature of the first legal opinion on mis-selling and will now publish three conflicting legal opinions along with its long-awaited compromise scheme tomorrow.

Equitable formulated the compromise to try to cap its liability to policyholders with a valuable guarantee, which could cost more than £2.6bn. It will ask GARs to give up their guarantee in return for a one-off uplift to the values of their policies. It is also understood to offer non-GARs a financial benefit.

Equitable will publish the multiple opinions because it was unhappy with the first advice on the question of mis-selling from Nicholas Warren QC. Mr Warren is understood to have said that the case for mis-selling could extend to everyone in the non-GAR category, including those who have left the society.

This view was not expected by Equitable or by other observers, who predicted that Mr Warren might say that some non-GARs who joined the society in the last 10 years might be entitled to compensation.

Legal advice was sought on this matter because non-GARs have lost substantial amounts from their investments because Equitable was forced by the House of Lords last July to increase its pay-outs to those with guarantees.

As well as Mr Warren's argument, Equitable will print the view of another QC andof the Financial Services Authority, who commissioned Ian Glick QC to look at the same question.

One person familiar with the situation said: "The Warren report was bad news for Equitable. It now has to say to policyholders that the legal question is too difficult to deal with, claims could take years to be established and that there is only a small amount of money available anyway."

If policyholders support the compromise, Equitable will receive up to £500m from Halifax, which bought most of its assets in February. It would also be able to put a lid on the GAR liability, which would otherwise massively constrain its investment freedom for the 40 years that the fund has left to run.