David Huggins, principal of Huggins Legal, discusses this week’s Supreme Court of WA decision in Young Investment Group Pty Ltd v QBE Insurance (Australia) Limited, which demonstrated how professional indemnity insurers can be held to account.
David acted for the Plaintiffs in the case which, he says, has important implications for financial services-related disputes. The decision shows that claimants don’t have to accept what they are told about insurance coverage; faced with a circumstance where coverage is doubtful or denied, they should consider pursuing judgment against the firm concerned, he adds.
On 11 March 2019, the Honourable Chief Justice Quinlan handed down his decision in Supreme Court of WA Proceedings Young Investment Group Pty Ltd v QBE Insurance (Australia) Limited  WASC 74.
I acted for the Plaintiffs in the proceedings. The decision has important implications for financial services related disputes.
The background is that the plaintiffs were clients of a broking business known as Stripe Capital. Stripe Capital was an authorised representative of the stockbroking firm, ASANDAS. Stripe Capital, by way of one of its Directors, caused the plaintiffs to suffer very substantial trading losses. ASANDAS, under the Corporations Act, was responsible for these losses.
ASANDAS went into liquidation. The plaintiffs obtained a default judgment in the Federal Court against it for their loss and ASANDAS was eventually deregistered. Significantly, they obtained a default judgment for liquidated amounts rather than for damages to be assessed. QBE was ASANDAS’ professional indemnity insurer. ASANDAS could have potentially made a claim for indemnity with respect to the amount of the default judgment.
The deregistration of ASANDAS triggered s601AG of the Corporations Act. This provision allowed the plaintiffs to commence proceedings against QBE to recover the amount that was payable by QBE to ASANDAS with respect to the default judgment. The plaintiffs were successful and judgment was given in their favour up to the limit of the indemnity of the policy, which was $10,000,000, less the deductible that applied.
The proceedings involved a very limited amount of evidence with the core evidence being the statement of claim upon which the default judgment was based. QBE argued that exclusion clauses in the policy operated such that it was entitled to deny coverage to ASANDAS and therefore had no liability to the plaintiffs.
In essence, the Court resolved the Proceedings by examining the operation of the exclusion clauses in the context of the allegations pleaded in the statement of claim. No other evidence was relied upon by either side as to the actual circumstances referred to in the statement of claim. The orders made with respect to the default judgment were treated as being conclusive as to value of the plaintiffs’ losses that could potentially be recovered from QBE.
These proceedings are significant because they show a pathway for claimants to get access to professional indemnity insurance. I have never litigated a financial services claim where an insurer is involved where the insurer has not raised the possibility that it would deny coverage. This issue is used as a negotiating tactic at mediation conferences so as force claimants to accept poor settlement outcomes. In some cases insurers simply deny coverage. Claimants, of course don’t know whether or not the insurer is actually entitled to deny coverage.
What these Proceedings show is that claimants don’t have to accept what they are told about insurance coverage. Faced with a circumstance where coverage is doubtful or denied they should consider pressing on to obtain a judgment against the firm concerned. As a practical matter this may not be an overly difficult task against a firm that does not have an insurer to support it. Invariably, such a firm will not be able to meet the judgment which will lead to liquidation and deregistration. Upon deregistration, the claimants can pursue their claims directly against the insurer without all of the complications of having a liquidator involved.
With these issues in mind, and more generally, claimants in financial services related cases have to be very careful about how they frame their allegations so that they maximise the likelihood that insurance coverage will be available. Claimants sometimes take the approach of pleading a variety of allegations. The more allegations there are, the more likely it is that an allegation will be made that will cause an exclusion clause in an insurance policy to operate.
In this regard, insurance policies provide coverage with respect to core operations such as the provision of advice and acting in accordance with a client’s instructions. If advice has been negligently provided or an adviser has acted contrary to a client’s instructions that is all that needs to be pleaded. Advice is either appropriate or inappropriate or an adviser has either followed client instructions or they have not. Pleading allegations about fraud, conflicts of interest or failure to comply with regulatory obligations does not further the prosecution of a client’s claim but it greatly increases the likelihood that an exclusion clause will operate to exclude the claim.
Read the case here.
David Huggins is the principal of Huggins Legal. David has more than two decades of experience in all aspects of financial services-related disputes, including regulatory disputes. David has worked at ASIC, ASX and a national law firm and has operated Huggins Legal since 2005. David has a deep commitment to legal practice and to obtaining compensation for his clients. Where possible David looks to achieve settled outcomes but if necessary he will take matters to trial. David has written extensively for the West Australian Newspaper and other publications and has appeared on television as an expert commentator. In addition, David has been a Director of the Australian Compliance Institute and the Independent Market Operator. David is an Adjunct Lecturer for the College of Law and is a member of the Compliance Committee for two managed investment schemes. Contact David at firstname.lastname@example.org