Third parties cannot directly demand payment from insurers under another person’s policy, unless expressly allowed or directly conferred a benefit. High Court Overturns Tribunal's Award.

Waboga David
4 days ago
7 min read

FACTS

Finance Trust Bank Limited (the Respondent) engaged M/s Katuramu & Company Consulting Surveyors Limited (the Insured) to conduct inspections, boundary openings, and valuations of properties as a prerequisite for extending credit facilities to its customers.

The Insured was required to maintain professional indemnity insurance coverage from a reputable insurer. Sanlam General Insurance Uganda Limited (the Appellant) issued Professional Indemnity Policy No. 0/100/5011/2019/00017 to the Insured for this purpose.Relying on the Insured's valuation reports, the Respondent advanced various credit facilities. However, several borrowers defaulted, leading to independent reviews that uncovered significant valuation errors by the Insured, including:

Valuation of incorrect properties;
Failure to disclose graveyards on the properties;
Valuation of vacant or undeveloped properties as if they were developed; and
Other material inaccuracies.

The Respondent attributed its loan recovery challenges and resultant losses, quantified at UGX 1,905,145,996, to the Insured's professional negligence. The Insured notified the Appellant of the claims and requested indemnification to cover payments to the Respondent.

The Appellant refused to make any payments.The Respondent lodged a complaint with the Insurance Regulatory Authority's Complaints Bureau (IRA Bureau). On February 9, 2024, the IRA Bureau ruled in the Respondent's favor, directing the Appellant to pay UGX 1,905,145,996 (subject to policy limits and excess) within 30 days.

The Appellant appealed to the IAT (Miscellaneous Application No. 36 of 2022), which, on August 1, 2024, upheld the IRA Bureau's decision, framing and resolving key issues in the Respondent's favor. The Appellant then appealed to the High Court on grounds alleging errors of law by the IAT.

ISSUES

Whether the Respondent (Finance Trust Bank), not being a party to the insurance contract, had locus standi to claim under Katuramu’s Professional Indemnity Policy.
Whether Section 12(1)(j) and (k) of the Insurance Act, 2017 and Guideline 6(d) of the IRA Complaints Bureau Guidelines confer third-party enforcement rights.
Whether the Insurance Appeals Tribunal erred in law by upholding the award to FTB.

A preliminary objection was also raised regarding the defective Notice of Appeal, which failed to expressly limit grounds to questions of law as required under Regulation 27(3) of the Insurance Appeals Tribunal Regulations, 2019.

SUBMISSIONS

Appellant (Sanlam General Insurance)

The Appellant argued that the doctrine of privity of contract (rooted in common law principles from cases like Tweddle v Atkinson [1861-73] All ER Rep 369 and Re Harrington Motor Co Ltd, ex p. Chaplin [1928] Ch 105) bars third parties from enforcing contracts to which they are not privy. The Respondent, as a non-party, has no direct claim against the Appellant; any obligation arises only after the Insured is found liable.

The Appellant contended that Section 64 of the Contracts Act, Cap 284 (the statutory exception to privity) was misapplied: The policy neither expressly permits third-party enforcement nor confers a direct benefit on the Respondent. The indemnity clause protects only the Insured from claims by its clients.

The Appellant further stated that Sections 12(1)(j) and (k) of the Insurance Act, and Guideline 6(d) of the IRA Complaints Bureau Guidelines merely provide a forum for complaints, not substantive rights to enforce policies. These do not override privity or the Contracts Act.

Moreover, the appellant asserted that the IAT failed to evaluate policy exclusions (e.g., fraud and dishonesty) and lacked jurisdiction to award the specific sum without proof of negligence.

Lastly that all grounds raised pure questions of law, per Lubanga Jamada v Dr. Dumba Edward (Civil Appeal No. 10 of 2011).

Respondent (Finance Trust Bank)

Contended that insurance law is a special law that overrides general contract principles.

That professional indemnity policies are "of a special nature," intended to protect third parties relying on the Insured's services. The Insured's managing director negligently signed inaccurate reports, breaching its duty of care to the Respondent.

Argued that as an "affected person" and third-party beneficiary, the Respondent has locus standi under Section 12(1)(j) and (k) of the Insurance Act (which empowers the IRA to resolve public complaints and grant restitution) and Guideline 6(d) (allowing third parties to lodge complaints).

The Insurance Act, as special legislation post-dating the Contracts Act (2017 vs. 2010), prevails and defines insurance contracts as conferring benefits on third parties upon adverse events.

The Notice of Appeal was defective, warranting dismissal, as it included factual inquiries.

Relied on Section 12(1)(j) & (k) of the Insurance Act, 2017 and Guideline 6(d), arguing that third parties and “affected persons” can file complaints and claim relief.

Maintained that professional indemnity insurance is intended to protect third parties relying on professionals’ expertise.

LEGAL REPRESENTATION

Appellant, M/S Yiga Advocates and AF Mpanga Advocates

Respondent, Muwema & Co. Advocates

COURT’S FINDINGS

On the Preliminary Objection

The Court first addressed a preliminary point of law regarding the nature of appeals from the Insurance Appeals Tribunal (IAT).

Under Regulation 27(3) of the Insurance Appeals Tribunal Regulations, 2019, appeals to the High Court lie only on questions of law.

Justice Asiimwe found that grounds III and IV of the appeal raised issues of fact and mixed law and fact, particularly concerning the evaluation of evidence and policy exclusions. Consequently, these grounds were struck out, and the objection partly succeeded.

On Locus Standi and the Doctrine of Privity of Contract

The Court reaffirmed the common law doctrine of privity of contract, citing Tweddle v Atkinson (1861) and Re Harrington Motor Co Ltd [1928] Ch 105.Quoting Rhidian Thomas (2022, p. 689), the Court observed:

“There is no privity of contract between the third party and the insurer… although the third party may be considered a beneficiary, this does not give them any rights under the insurance contract.”

Justice Asiimwe explained that, under Black’s Law Dictionary (11th Ed., p. 1453), privity of contract means “the relationship between the parties to a contract, allowing them to sue each other but preventing a third party from doing so.”

Accordingly, a person who is not a party to a contract cannot enforce it — a rule that extends to insurance contracts.

On Application of Section 64 of the Contracts Act, Cap 284

The Court examined whether Section 64 of the Contracts Act created an exception enabling Finance Trust Bank (FTB) to enforce the insurance contract.

Under that section, a third party may only enforce a contract if:

The contract expressly allows the third party to do so; or
The contract confers a direct benefit on the third party.

Upon reviewing the Professional Indemnity Policy (No. 0/100/5011/2019/00017) issued by Sanlam to Katuramu & Co., the Court found:

The policy only indemnified Katuramu against claims for professional negligence;
It did not expressly name FTB as a beneficiary; and
It did not confer any enforceable benefit on FTB.

Justice Asiimwe concluded:

“The beneficiary is the insured, that is, Katuramu & Company. The contract does not confer a benefit on the Respondent. Consequently, the Respondent has no locus standi to bring a claim as a third party under Section 64 of the Contracts Act.” (¶28)

Thus, FTB lacked locus standi under the Contracts Act.

The Insurance Act and IRA Guidelines

The Respondent argued that Section 12(1)(j) and (k) of the Insurance Act, 2017 and Guideline 6(d) of the IRA Complaints Bureau Guidelines conferred third-party rights to lodge and enforce insurance claims.

The Court disagreed. Justice Asiimwe held that while these provisions empower the Insurance Regulatory Authority (IRA) to receive and resolve complaints, they do not create enforcement rights for third parties.

She emphasized:

“The right to file a complaint cannot be the same as the right to enforce a contract as a third party.” (¶35)

The Court further clarified that:

The Insurance Act, though enacted after the Contracts Act, does not override or amend Section 64 of the Contracts Act.
If Parliament had intended to grant direct enforcement rights to third parties under insurance contracts, it would have expressly provided so.

Justice Asiimwe observed:

“If Parliament had intended to grant third-party rights in respect of professional indemnity policies, it would have enacted specific provisions similar to those under the Motor Vehicle Insurance (Third Party Risks) Act.” (¶41)

On the Tribunal’s Reliance on the IRA Guidelines

The Court found that the Tribunal erred in relying on Guideline 6(d) of the IRA Complaints Bureau Guidelines to justify FTB’s claim.Justice Asiimwe reiterated that administrative guidelines cannot override statutory provisions:

“A guideline cannot amend or override legislation. The right to file a complaint is not the same as the right to enforce a contract one is not a party to.” )

To illustrate, the Court compared Uganda’s framework with the Motor Vehicle Insurance (Third Party Risks) Act, Cap 193, which requires third parties to first obtain judgment against the insured before pursuing the insurer directly.

This, the Court held, demonstrates that direct third-party claims are only permissible where the law explicitly provides for them.

The Court emphasized that statutory reform—like the Contracts (Rights of Third Parties) Act 1999 in the UK—would be necessary to grant such rights, but Uganda’s law does not provide for them beyond Section 64 of the Contracts Act.

“If Parliament had intended to grant third-party rights in respect of professional indemnity policies, it would have enacted specific provisions similar to those under the Motor Vehicle Insurance (Third Party Risks) Act.”

On the Tribunal’s Reliance on Guidelines

The Court held that administrative guidelines cannot override statutory provisions, and Guideline 6(d) cannot expand contractual rights beyond what the law provides.

Conclusion

The Court concluded that the Insurance Appeals Tribunal erred in law in finding that FTB had locus standi to enforce the insurance policy between Sanlam and Katuramu & Co.

Justice Asiimwe held:

“The Tribunal erred in law when it found that the Respondent had locus standi under the Contracts Act and the Insurance Act to enforce the contract.”

Having upheld Grounds I and II, the Court found it unnecessary to consider Ground V, as it had become moot.

The appeal was therefore allowed with costs to the Appellant, and the Tribunal’s award of UGX 1,905,145,996 was set aside.

HOLDING

Grounds I & II (on locus standi and misinterpretation of the law) — UPHELD.
Grounds III & IV — Struck out as mixed questions of law and fact.
Ground V — Not determined, rendered moot by findings on locus standi.
Appeal allowed with costs to the Appellant.
Tribunal’s decision and award of UGX 1.9 billion set aside.

KEY TAKEAWAYS

Doctrine of Privity Reaffirmed:
Third parties cannot claim under insurance contracts unless expressly allowed or directly conferred a benefit.
No Direct Right to Enforce Professional Indemnity Policies:
Only the insured professional can claim under the policy; clients or beneficiaries must pursue claims against the insured, not the insurer directly.
Insurance Act ≠ Enforcement Right:
Section 12 of the Insurance Act only gives the IRA administrative jurisdiction over complaints, not judicial enforcement powers for third parties.
Guidelines Cannot Override Statutes:
IRA Complaints Bureau Guidelines cannot expand substantive rights beyond those provided by statute.
Policy Drafting Implications:
Insurers and professionals should clearly define beneficiaries and scope of coverage to avoid ambiguity in third-party claims.