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Lenders Liability Coverage

Lenders Liability Coverage

Definition

Provides coverage for errors and omissions (E&O) arising out of the extension of credit by financial institutions. For example, a bank could be held legally liable if it agreed to provide a line of credit for a business firm, then failed to honor the agreement, causing the firm to experience financial difficulties. Another instance in which a bank can incur lender liability occurs when, under a loan workout agreement, a bank takes managerial control of a company and as a result of mismanagement causes the company to sustain additional losses.

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