Negligent Recommendation of Environmental Consultant: Another Form of Lender Liability

When a lender requires a borrower to obtain an environmental assessment as a condition to providing financing and then negligently recommends an unqualified company to perform the work, the lender may be liable to the borrower for damages resulting from the environmental company’s negligent failure to uncover contamination. This was the finding of an Ohio court in a recent case.

A borrower planning to buy an abandoned gas station went to a bank for financing. The loan officer indicated that the bank’s policy required an environmental assessment and recommended a company to do the work. The environmental company reported that the property had no environmental hazards, but 18 months after the purchase, extensive contamination was discovered. The borrower sued the bank for damages, arguing that (1) the bank entered into a fiduciary relationship with the borrower that obligated the bank to give the borrower careful and non-negligent advice, and (2) even if no such fiduciary relationship existed, the borrower was entitled to rely on the bank’s negligent misrepresentations.

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