Tennessee Realtor State Practice Exam

What type of coverage does errors and omissions insurance provide?

1. Coverage for physical damage to properties

2. Coverage for legal advice

3. Coverage for licensees who make inadvertent mistakes

4. Coverage for client disputes

The correct answer is: Coverage for licensees who make inadvertent mistakes

Errors and omissions insurance, often referred to as E&O insurance, is specifically designed to protect professionals from claims of negligence that arise from mistakes or oversights made during the course of their work. This type of coverage is particularly relevant for real estate professionals, as they may face claims from clients alleging that they failed to provide adequate information, made an error in a transaction, or otherwise did not perform their duties to the required standard of care. In the context of real estate, this insurance helps safeguard licensees against the financial ramifications of inadvertent mistakes that could lead to disputes or lawsuits from clients. Thus, having this coverage is crucial for real estate agents and brokers, as it offers financial protection for the costs associated with defending against such claims, including legal fees and settlements. The other options do not adequately reflect the purpose and function of errors and omissions insurance. Coverage for physical damage to properties relates more to property insurance, legal advice pertains to professional liability insurance for law professionals, and client disputes generally fall under general liability insurance rather than errors and omissions coverage.