Property and Casualty Insurance Practice Exam

What does a Fidelity Bond specifically cover?

1. Liability from third-party claims

2. Losses due to employee dishonesty

3. Injury compensation for employees

4. Professional errors and omissions

The correct answer is: Losses due to employee dishonesty

A Fidelity Bond specifically covers losses that an employer may incur due to employee dishonesty. This type of bond acts as a protective measure for businesses against theft or fraudulent activities committed by their employees. For example, if an employee misappropriates funds or engages in acts of theft, the Fidelity Bond will provide financial reimbursement to the business for those losses, helping to mitigate the financial impact of such dishonesty. In contrast, other options relate to different types of insurance needs. Liability from third-party claims generally falls under general liability insurance, which protects against claims from people outside the business due to injury or damage. Injury compensation for employees is typically covered under workers' compensation insurance, which provides benefits to employees injured on the job. Lastly, professional errors and omissions are addressed by professional liability insurance, which protects professionals against claims of negligence or failure to perform their professional duties. These distinctions clarify why the coverage of employee dishonesty is unique to Fidelity Bonds.