A couple who say they have lost hundreds of thousands of dollars through investments made on the recommendation of financial advisory group Vestar have lost their case to try to sue its insurance company for failing to cover it for negligent advice.

Hamilton nurse Donna Barraclough and her welder husband, Tony Hall, took a test case to the High Court at New Plymouth three weeks ago to see if it was possible to sue QBE Insurance as the provider of personal indemnity insurance for Vestar.

On the advice of Vestar, the couple invested $658,000 in 10 companies, including failed finance firms Bridgecorp, Capital & Merchant and Property Finance Securities, and estimate they have lost at least $300,000.

They claimed Vestar failed to exercise proper care and skill in its financial advice and QBE should have to pay to cover Vestar's negligence as part of its indemnity insurance cover.

Vestar, which has since been renamed FP North, went into liquidation last year and liquidators have said it is unlikely to have any assets left to pay money to claimants.

Barraclough and Hall's argument hinged on Vestar's insurance policy. The insurance company had a number of exclusion clauses, including that it would not cover Vestar if it recommended companies that subsequently went under, such as Bridgecorp.

A court is able to overrule those exclusion clauses in special cases. But Associate Judge David Abbott found the exclusion clause did not fit into the rules to allow the case to proceed as an exception.

"The plaintiffs cannot show an arguable case that their claim is preserved by the section," he stated in his judgment.

"This will be a disappointment to the plaintiffs, who may well have a valid claim against FP North. However, that is an entirely different matter from saying that QBE accepted a liability for the risk."

Barraclough said the decision was a disappointment and she felt let down by the justice system.

As a nurse she had to take indemnity insurance and if she did something wrong then her insurance paid out.

"It seems that with financial advisers they can get away with not having to pay."

She said there needed to be more accountability by those who provided professional indemnity insurance.

"In other countries with indemnity insurance they pay out - in this country they seem to wiggle their way out of paying and lawmakers seem to make it happen."

She said she and her husband had already spent more than $80,000 on fighting the case.

"The problem is the insurance company can just throw as much money at it as they want."

She believes that even if they had won, the insurance company would have appealed.

"I am annoyed that the judicial system allows them to get away with it. indemnity insurance is just a joke."

Barraclough said the couple had not wanted to speak to anyone about their situation because they were embarrassed.

But now they felt so strongly about what had happened they wanted to tell their story to let others know how tough it is for consumers. "We are not looking for sympathy. We would just like the public to be aware."

Karen Towt, the lawyer representing Barraclough and Hall, said indemnity insurance was an issue which needed to be looked at by the Government.

A number of financial advisers have been hit by the problem in the wake of the finance company collapses.

Last year, Lumley Finance said it would not cover any financial advisers who received claims against them as a result of the collapse of finance companies.

Lumley said that type of claim was specifically excluded from its policies as the cost of the cover would be prohibitive.

Towt said adding QBE to the Vestar case was its first avenue but it did not stop it from being able to go after the directors of the company and the former investment committee.

A separate test case against Vestar's directors and investment committee has been lodged in the High Court at Auckland by lawyer Lawrence Herzog.