UK - The UK government is facing a high court challenge from Equitable Life policyholders over its failure to fully implement the compensation recommendation of the Parliamentary Ombudsman.

The Equitable Members Action Group (EMAG), which represents 21,000 policyholders, has launched a judicial review into the government's response to Ann Abraham's report in July 2008, which reported 10 findings of maladministration and recommended the establishment of a compensation scheme for policyholders.

While the government apologised for maladministration at the time, it only accepted certain findings of the Ombudsman's report and instead of setting up a compensation scheme it agreed to pay ex-gratia payments to members who suffered "disproportionate impact" from the failure of the insurer in 2001. (See earlier IPE article: Gov't offers Eq Life apology but limits compensation)

EMAG claimed the government's system, overseen by former judge Sir John Chadwick, is a "pale shadow of the proper independent tribunal that the Parliamentary Ombudsman called for", as it argued the ex-gratia process has "very narrow terms of reference" that eliminates around 90% of the estimated £4.6bn of policyholders losses from the review.

The association, which has appointed the law firm Bindmans to act on its behalf and retained Dinah Rose QC, issued a Pre-Action Protocol letter to HM Treasury in March which notified it of the intention to seek a judicial review and the issues on which it may challenge the government's response to the Ombudsman's report.

Paul Braithwaite general secretary of EMAG, said: "The government's continued intransigence has forced us to take legal action. The proposed hardship scheme is totally inadequate, will take years to implement and looks like leaving 90% of victims out in the cold."

EMAG's main challenge is the Treasury's "lack of 'cogent reasons' for its refusal to accept several of the Ombudsman's findings of injustice warranting billions in compensation", as Braithwaite warned "our members are truly outraged at this government's shabby response in continuing to treat us with contempt".  

The review - which follows Abraham's decision to publish a special follow-up report to Parliament on the basis that injustice "will not be remedied" -also aims to challenge the narrow remit and the legality of the terms of reference given to Chadwick in advising on the scheme of ex-gratia payments.

Stephen Grosz, head of public law at Bindmans, said: "We have identified serious flaws in the government's response to the Ombudsman's Equitable Life report. We are asking the court to quash the response, forcing ministers to think again."

EMAG is also asking the court to expedite the claim and set an early hearing date on the basis of the long delays since the Equitable failure was first revealed and the estimation that 15 victims are dying each day without receiving redress.

HM Treasury has until 30 April 2009 to respond to the legal challenge, but a Treasury spokesman said: "The government carefully considered the Ombudsman's report and has agreed set up a payment scheme that is practical and fair to both policyholders and taxpayers, and which can pay out as swiftly as possible. We have asked former Lord Justice of the Court of Appeal, the Rt Hon Sir John Chadwick, to advise on the fairest way to proceed."

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