THE MISTAKE.
A commercial real estate lender informs a real estate developer that it will provide a one-year construction loan based on the initial building specifications submitted during the loan review process. The developer starts clearing the land and purchasing the necessary building materials totaling $836,000. The lender reviews a revision to the building specifications and decides not to fund the total loan commitment. The developer is forced to stall the project and sues the lender for failing to fund the initial commitment.
The Consequences
Commercial Real Estate Lender
Deductible: $15,000
Increase to E&O Premium: $8,000
Carrier:
Defense: $350,000
Indemnity: $400,000
Total Cost to Carrier: $735,000 (after deductible)