Avoid These Common Lender Liabilities

As a commercial lender, you are swamped with regulations and laws to abide by. Navigating these codes can be tricky, and side stepping liabilities is another concern for these professionals. While not every exposure can be predicted, the right Commercial Lender Professional Liability insurance can mitigate risk and financial responsibility. In addition, become familiar with the following common exposures.

Failure to fund.

This liability can occur when a bank refuses to fund a loan until an enforceable written contract is made. According to Find Law, usually, a defense of Statute of Frauds prevents recovery in this situation. However, theories of promissory estoppel or negligent misrepresentation provide a possible source of recovery despite the statute of frauds problems.


A lender could be liable for fraud if the plaintiff can prove that the lender made a promise they didn’t intend to keep, or if they misrepresented a material fact. As your customers rely on the information you provide them about their loan to be true, these claims of fraud are taken very seriously in court.

Acts of bad faith.

At a minimum, a finding of bad faith requires conduct by the lender which is arbitrary, capricious or unreasonable. Moreover, some courts have ruled that in order to obtain punitive damages, a plaintiff must prove that the defendant consciously pursued a course of conduct with knowledge that the conduct presented a substantial risk of harm to another, says the article.


These liability claims arise when the client accuses the lender of acting unlawfully or threatens acts that are unlawful, or if the lender threatens the free agency of the other party, especially when the client has no protection against such acts.

Interference of contract.

If the lender breaches or interferes with their contract willfully, and causes material damage, a hefty lawsuit is likely to follow.

While many of these accusations and acts of negligence are unintentional, they can cause reputational and financial damages to the financial institution. Therefore, becoming familiar with these types f claims can help to prevent them from occurring in the first place. For more information about how to secure your operation and best practices, contact your trusted insurance agent today.

About FGIB

Since 1983, Financial Guaranty Insurance Brokers has distinguished itself as a provider of Professional Liability, Cyber Liability, and Crime insurance products for financial entities, in addition to providing crime insurance and general business insurance products to a number of firms across the United States. To receive timely, personalized service from a knowledgeable and experienced staff, call us today at (877) 485-4413 to speak with one of our professionals.