Which type of loss is generally NOT covered by an errors and omissions (E&O) policy for an insurance producer?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Errors and omissions insurance protects an insurance producer against liability arising from negligent acts, errors, or omissions in performing professional duties. Typical covered situations include negligent mistakes in completing applications, missed deadlines in forwarding premiums, and incorrect professional advice about coverage. Like all professional liability policies, E&O coverage excludes intentional wrongdoing and fraud. Public policy forbids insuring against deliberate misconduct, because allowing coverage would encourage wrongdoing by removing the financial consequences. E&O coverage therefore applies only to honest professional mistakes, errors made in good faith while performing the producer's duties, and not to acts the producer knew were wrongful.
Why the other options are wrong
- B) A negligent error in completing an application is a classic E&O loss, an honest professional mistake made in the course of performing the producer's duties. Professional liability coverage exists specifically to protect against this kind of inadvertent error.
- C) Missing a deadline in forwarding a premium is a negligent omission that falls squarely within E&O coverage. Failing to handle a premium timely is an honest professional mistake, which is precisely the exposure the policy is designed to address.
- D) Negligent advice about coverage limits is a professional services error that E&O insurance covers. The policy protects the producer against liability arising from mistakes in the professional advice and services provided to clients, as long as the conduct is negligent rather than intentional.
Memory hook
E&O pays for honest mistakes, never for intentional fraud.