LONDON--The new management of defunct U.K. mutual Equitable Life Assurance Society is suing Ernst & Young L.L.P. for £2.6 billion ($3.7 billion), charging that the firm was negligent in its past audits of Equitable Life.

In a lawsuit filed Monday in London's High Court, Equitable Life, once one of the United Kingdom's largest pension providers, claims that Ernst & Young "did or ought to have known that, within the insurance industry, the Society had a particularly high risk exposure'' and that the firm "ought not to have signed the audit reports in the form that it did.''

Equitable Life closed to new business in 2000 after the House of Lords ruled that it must meet guaranteed annuities totaling more than £1.5 billion ($2.2 billion) (BI, Jan. 1, 2001).

London-based Ernst & Young said in a statement that "we are confident that there is no basis for this claim,'' noting that the charges are "opportunistic (and) based on hindsight."

New Equitable Life Chairman Vanni Treves and Chief Executive Charles Thomson told policyholders in an April 15 letter that the company's law firm, Herbert Smith, had written to former directors, auditors and advisors "seeking explanations for their actions'' when working for Equitable Life. Messrs. Treves and Thomson wrote that Ernst & Young had "not provided a substantive reply,'' which led to Equitable Life's legal proceedings against the firm.

Meanwhile, Equitable Life will not ''at this stage'' take legal action against its former legal advisors and at least one former director, who was appointed on January 2000, the letter states. An announcement will be made shortly about whether the mutual plans to take legal action against any other former directors.

In addition, Equitable Life will await the outcome of a government inquiry into the insurer's collapse before deciding whether to sue the Financial Services Authority, the U.K. insurance regulator, although the inquiry report may not be published until next year, the letter notes.