The High Court has dismissed an attempt by Finance Trust Bank to claim compensation directly from an insurance company following a dispute over alleged professional negligence by a surveying firm. The ruling has drawn attention to the limits of insurance claims, the rights of third parties, and how professional indemnity insurance works under contract law.
The case arose after Finance Trust Bank suffered a financial loss linked to the work carried out by Katuramu & Co., a surveying firm insured by Sanlam General Insurance. The bank argued that errors made by the surveyor led to its loss and that it should be allowed to recover the money directly from Sanlam under the professional indemnity insurance policy held by the firm.
However, the court ruled against the bank, relying on the long-established legal principle known as the doctrine of privity of contract. This principle states that only parties who are directly involved in a contract, and who have signed it, can enforce its terms or benefit from it. In this case, the court found that the insurance contract was strictly between Sanlam and Katuramu & Co., and did not extend rights to Finance Trust Bank.
In delivering the judgment, the presiding judge acknowledged that Finance Trust Bank had suffered a significant financial loss and that the situation was unfortunate. However, the court stressed that sympathy could not override clear legal principles. According to the judge, the insurance policy was designed to protect the insured professional firm from financial exposure arising from negligence claims, not to provide a direct route for third parties to receive payment.
The court examined the wording of the insurance policy and found no clause that gave Finance Trust Bank, or any other third party, the right to claim directly from the insurer. Under Uganda’s Contracts Act, a third party can only enforce a contract if the agreement clearly states that it is intended to benefit that third party, or if the contract expressly grants such enforcement rights. The court held that neither condition was met in this case.
The judge further explained that Sanlam’s professional indemnity policy was meant to indemnify, or reimburse, Katuramu & Co. if the firm was found liable for negligence. It was not structured as a guarantee that would automatically pay any party who suffered a loss connected to the firm’s work. As a result, the bank’s claim failed on legal grounds.
Finance Trust Bank had also argued that it had previously taken the matter to the Insurance Regulatory Authority’s Complaints Bureau and that this should strengthen its case. The court addressed this point and made it clear that while any party has the procedural right to lodge a complaint with a regulator, that right does not automatically create legal standing to demand payment under a private insurance contract.
According to the ruling, regulatory complaint mechanisms are meant to promote oversight and fair practice, but they do not override the provisions of national laws passed by Parliament. The court stated that regulatory guidelines cannot set aside the doctrine of privity as provided for under the Contracts Act.
From a broader market perspective, the court warned that allowing third parties to claim directly from insurers could have serious consequences for the insurance industry. The judge noted that such a precedent would expose insurers to unpredictable and unlimited risks, making it difficult to price policies accurately. This could lead to higher insurance premiums and may eventually make professional indemnity insurance too expensive for many firms, including surveyors, lawyers and consultants.
The judgment also highlighted the proper process for handling professional negligence claims. Where a third party suffers a loss due to the actions of a professional, the correct legal approach is for that third party to pursue a claim against the professional firm itself. If liability is established, the insured professional can then turn to its insurer for indemnity under the terms of the policy.
Reacting to the ruling, legal analysts from SM & Co. Advocates said the decision provides important clarity for banks, insurers and professionals. They explained that professional indemnity insurance is not designed to replace the legal responsibility of the professional to the client or affected party. Instead, it serves as financial protection for the professional once liability has been established.
The experts also advised banks and other institutions to carry out thorough due diligence when relying on professional services, including understanding the limits of insurance cover. They noted that clear contractual arrangements and risk management strategies are essential, especially in transactions involving property valuation and secured lending.
The case is expected to influence how future disputes involving insurance, professional negligence and third-party claims are handled. It reinforces the importance of contract wording and serves as a reminder that insurance policies cannot be enforced by outsiders unless the law or the contract clearly allows it.
For the financial and insurance sectors, the ruling underlines the need for clarity, caution and adherence to established legal principles when disputes arise over losses and liability.
