An agent mistakenly fails to recommend an available rider the client wanted, and the client later suffers a loss the rider would have covered. The coverage that may protect the agent from the resulting professional liability claim is:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Errors and omissions (E&O) insurance, also known as professional liability insurance, covers an agent for claims arising out of professional errors, omissions, or negligent acts in performing their duties — such as failing to recommend needed coverage or misstating policy provisions. E&O is not required by California law for agents, but it is strongly recommended because even defending a baseless claim can be costly. E&O policies generally cover negligence but exclude intentional misconduct, fraud, and knowingly wrongful acts, so an honest mistake is precisely the exposure the coverage is designed to address.
Why the other options are wrong
- B) Workers' compensation covers employees injured on the job; it does not cover an agent's professional mistakes in advising clients.
- C) The insurer's general liability policy protects the insurer's premises and operations, not the individual agent's professional errors in a sales transaction.
- D) Life insurance purchased by the client provides death or annuity benefits to the client; it does not protect the agent from professional liability.
Memory hook
E&O is the agent's own safety net for honest mistakes. It covers negligence, never intentional fraud.