A long-running dispute between Finance Trust Bank and Sanlam General Insurance has exposed deep cracks in the insurance industry, after the insurer refused to pay Shs 1.9bn awarded by a tribunal even though the ruling was made in the bank’s favour.
Analysts say the case, which pitted two of Uganda’s most prominent lawyers against each other, Fred Muwema for Finance Trust Bank and David F.K Mpanga for Sanlam, has become a test of whether insurers are willing to honour professional indemnity policies when their clients admit negligence, as it was in this case.
In this round, Muwema came out on top.
The dispute began after Finance Trust Bank hired Katuramu & Co Consulting Surveyors to carry out valuations, boundary openings, and inspections for loan applicants. As a condition of their engagement, the bank required the firm to maintain professional indemnity insurance, which it secured from Sanlam.
Relying on the valuation reports, the bank advanced loans to various clients. But when borrowers defaulted and the bank commissioned independent valuers, it discovered glaring errors. Some properties were wrongly valued, graveyards were concealed, and some plots listed as developed were in fact empty.
Finance Trust argued that these mistakes made it difficult to recover the loans and foreclose on the mortgaged properties. In 2023, it filed a claim before the Insurance Regulatory Authority’s Tribunal seeking compensation under Katuramu’s insurance cover.
Its case was strengthened by a letter dated October 4, 2023, in which Katuramu & Co admitted negligence, stating it had “sanctioned valuation reports without verifying the contents”, breaching its professional duty.
Sanlam, however, fought back. In documents filed before the tribunal, the insurer argued that Katuramu’s admission of negligence was “in bad faith” and accused the bank of “contributory negligence”. It said Finance Trust had failed to carry out basic due diligence before issuing loans.
After hearing both sides, the tribunal rejected Sanlam’s defence. It found that the bank had outsourced the valuation function precisely because Katuramu possessed professional expertise that bank staff did not.
“The complainant’s reliance on the skill and knowledge of the insured in extending loans to various clients further strengthens the argument that the loss was a direct consequence of professional negligence,” the tribunal ruled.
It ordered Sanlam to pay Finance Trust Bank Shs 1.9bn.
Rather than pay, Sanlam appealed to the High Court, insisting that Finance Trust could not claim under an insurance policy issued to another party.
Justice Patricia Kahigi Asiimwe agreed, citing the “principle of privity of contract” which prevents parties who are not signatories from enforcing a contract.
Although the judge acknowledged that the Contracts Act creates exceptions, she said the Sanlam policy did not contain any clause explicitly allowing Finance Trust to enforce it.
“The beneficiary is the insured, that is, Katuramu & Co,” she ruled.
She said the contract doesn’t confer a benefit on the respondent [Finance Trust Bank]. Consequently, the bank has no locus standi to bring a claim as a third party.”
Finance Trust has now appealed to the Court of Appeal, arguing that Justice Asiimwe’s ruling has created a crisis for the banking sector.
“The judgment has raised serious concerns of great public importance regarding the enforcement of professional indemnity policies,” the bank said.
Yet Sanlam’s refusal to pay even after a tribunal ruling raises uncomfortable questions.
If major insurers can sidestep responsibility, where does that leave banks, surveyors, and ordinary customers who depend on professional indemnity cover for protection?
