By: Rosebert Kahubya & Jamwa Rhees Remo

Introduction
Professional Indemnity Insurance (PII) is a key risk- mitigation tool for banks that rely on third-party professionals such as lawyers, surveyors, and valuers. However, recent judicial guidance confirms that the mere existence of such insurance does not automatically give the bank a right to enforce it unless enforceable contractual rights are in place. In Sanlam General Insurance Uganda Limited v Finance Trust Bank Limited Civil Appeal No. 0046 of 2024, the High Court reaffirmed the doctrine of privity of contract, holding that a bank cannot enforce a Professional Indemnity Insurance Policy issued to a third party unless the policy expressly grants it enforcement rights.

Background to the Decision

The dispute arose from a Professional Indemnity Insurance Policy issued by Sanlam General Insurance Uganda Limited to M/s Katuramu & Company Consulting Surveyors Limited. Finance
Trust Bank Limited sought to rely on the policy following losses allegedly arising from the surveyor’s professional services. 

The Insurance Appeals Tribunal ruled in favour of the
Bank. On appeal, Hon. Lady Justice Patricia Kahigi Asiimwe overturned that decision, holding that the Bank lacked locus standi as it was not a party to the
insurance contract.

Privity of Contract and Third-Party Enforcement

The Court reaffirmed the doctrine of privity of contract, under which only parties to a contract may
enforce rights arising from it. While Section 64(1)(a) and (b) of the Contracts Act, Cap. 284 recognizes limited exceptions where a contract expressly confers enforceable rights on a third party, the Court found that no such rights were granted to the Bank under the policy. 

Any benefit under the Professional Indemnity Insurance Policy accrued solely to the insured professional, and not to the Bank.

Statutory Framework and Insurance Regulation

The Bank argued that Sections 12(1)(j) and (k) of the Insurance Act, 2017 (now Section 11(1)() and (k) of the Insurance Act, Cap. 191) and the Insurance Regulatory Authority Complaints Bureau
Guidelines override the doctrine of privity. The Court rejected this argument, holding that the statutory right to lodge a complaint with the Insurance Regulatory Authority is distinct from the contractual right to enforce an insurance policy. The legislation does not confer enforcement rights on third parties, nor does it displace the doctrine of privity of contract.

Practical Implications for Banks

The decision confirms that banks cannot rely on Professional Indemnity Insurance Policies held by
third-party professionals unless they have direct contractual rights against the insurer. In the absence of such rights, financial institutions remain exposed to loss despite the existence of insurance cover. 

The decision remains a binding precedent, pending appeal.

Risk Mitigation Measures

Banks seeking to mitigate this risk should adopt clear contractual safeguards:

Additional Insured Status

Naming the bank as an additional insured provides direct contractual privity and offers the strongest basis for enforcement.

Assignment of Policy Rights

Assignment may allow enforcement as an assignee but is subject to policy restrictions, insurer consent, and the execution of a separate agreement, making it a secondary option.

Certificate Holder Status

Being listed as a certificate holder merely evidences the existence of cover and does not confer enforcement rights.

Conclusion

The decision in Sanlam General Insurance Uganda Limited v Finance Trust Bank Limited reinforces the continued application of the doctrine of privity of contract in Ugandan insurance law. Banks must move beyond passive reliance on insuranc

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