Should I sign a Letter of Reliance?

Q: My client mentioned that their lender will request to have a separate agreement signed, in addition to my professional services contract.  Is this typical, or does this signal additional risk?

A:  Your client’s lender is not generally the intended recipient of your instruments of service.  Some lenders request that you sign a “letter of reliance,” indicating that the lender will rely on your services in underwriting their loan.  This usually increases your risk.

Signing a separate agreement with a lender could form the foundation for the lender to make a “detrimental reliance” claim against your firm, alleging that they suffered damage in their underwriting process because they relied upon certain representations made by your firm.  Detrimental reliance claims may be uninsurable since they are based on additional liabilities that you assumed under contract that may not be predicated on your negligence.

Always review your contract with a knowledgeable attorney.

To learn about our Insurance Offerings and our Risk Management program, visit our website or Contact us today at 713-552-1900. Be sure to have a lawyer or licensed Risk Manager review your contracts for insurability and other risk implications.

Contact us today to discuss your Risk Management concerns and learn about our Insurance Offerings.

The Risk Specialty Group and RLI Design Professionals are pleased to feature our Contract Tip series.  We’ll review a question submitted by a design firm relating to the subject of contracts.  Keep in mind, though, that these discussions are general in nature and in making specific business decisions, it’s important to review your options with a knowledgeable attorney.