Litigants are even more likely to target defendants who carry insurance after the High Court last week narrowed the scope of proportionate liability claims.

QBE was ordered to pay the legal costs of both High Court and Federal Court appeals in Selig v Wealthsure, meaning its total liability is more than the $3 million professional indemnity policy it underwrote for Wealthsure.

The case started after Mr and Mrs Selig invested in a business called Neovest on the recommendation of their Wealthsure authorised representative, only to lose their investment when the Ponzi scheme collapsed.

The Seligs sued in the Federal Court, citing breaches of the Corporations Act and Australian Securities and Investments Corporation Act, and the case was appealed to the Full Federal Court and finally the High Court.

The High Court case is considered an important ruling on proportionate liability under the Corporations Act and is notable for the decision to hit QBE with costs.

Proportionate liability enables courts to award damages against defendants based on how much they contributed to the loss.

It was introduced to prevent litigants going after defendants who have insurance, or “deep pockets”, instead of others who may be more responsible for a loss, leading to higher insurance premiums.

Proportionate liability is only allowed in claims of misleading and deceptive conduct, but Allens Linklaters partner Andrew Maher says it has previously been argued that if apportionable and non-apportionable claims all give rise to the same loss, then the defendant’s liability can be apportioned.

The High Court says proportionate liability will not succeed for non-apportionable claims, which means a litigant with non-apportionable claims against multiple defendants does not need to sue all of them to recover the loss.

If it wins against multiple defendants, it can choose from which to recover the loss.

The court has clarified the scope of proportionate liability “but it will be perceived to have narrowed it”, Mr Maher told insuranceNEWS.com.au.

The decision also expands insurers’ liability for legal costs, which may add up to more than the policy limit.

When the Seligs first sued in the Federal Court, QBE defended the proceedings and sought declarations on the extent of Wealthsure’s responsibility, naming others including Neovest, the scheme promoter and a law firm.

The Seligs won a $1.76 million judgement from Wealthsure and three other parties, but others, including Neovest, were excluded because they were either bankrupt or in liquidation.

QBE appealed that decision to the Full Federal Court, by which time the financial adviser was also bankrupt and Wealthsure could not have paid the award against it.

The High Court has overturned the Full Court ruling.

In awarding legal costs against QBE it says the insurer put the Seligs through “significant” further legal expense by appealing, and used up policy funds that would have been payable to the couple.

“The insurer acted for itself in seeking to better its position” and took a chance, as litigants do.