Errors and omissions (E&O) insurance protects an insurance agent against claims arising from:
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
E&O insurance is professional liability coverage that protects the agent against claims alleging negligent errors, omissions, or mistakes in performing insurance duties, such as failing to procure requested coverage, giving incorrect advice, or mishandling an application. E&O policies respond to professional negligence arising from the agent's services. Intentional, fraudulent, and criminal conduct is excluded from coverage because insuring deliberate wrongdoing would violate public policy. The agent's personal investment losses are unrelated to professional services and are not covered by an E&O policy.
Why the other options are wrong
- D) Intentional fraud is excluded from E&O coverage. The policy responds only to negligent acts or omissions, not to deliberate wrongdoing. This option reflects a different rule and does not match the law that governs the transaction.
- A) Criminal acts are excluded from professional liability coverage as a matter of public policy. Insuring criminal conduct would encourage it. Accordingly, this plausible-sounding answer is one that examiners expect candidates to eliminate.
- C) The agent's personal investment losses are unrelated to the professional services the E&O policy covers. They are not a basis for an E&O claim. This statement does not survive the statutory analysis presented above and is therefore wrong.
Memory hook
E&O pays for mistakes, not malice. Negligence is covered; fraud and crime are not.