Franchise insurance

From CEOpedia | Management online

Franchise insurance lies in the fact that franchisee should buy an insurance policy or policies protecting franchisee and franchisor and also their employees and officials against losses, responsibility or expense whatsoever in according to fire, property damage, personal injury, death, products liability or theft, occurring upon or in connection with such place or by reason of franchisee's operation on or from such premises (H. Brown i in., 2013,s. 2-22, 2-23)

Franchise's agreements

Franchise's agreements require to obtain insurance to cover business operations. In case of brick-and-mortar business the insurance requirements will be substantial, while in case of home-based establishment the insurance requirements might be minimal. In all cases it will be required that the franchiser be called as an "additional insured," what means that the franchiser enjoys the same coverage as the franchisee, even if the franchiser not pay for the coverage. Every franchisee can ask the insurance broker to look at the insurance conditions and make sure that they are reasonable. The insurance broker can also provide quotes of insurance premiums (R. Grossmann, 2017)

Typical requirements in a franchise agreement

Usually in a franchise agreement, there will be specific insurance conditions. Routine insurance conditions might include (W. Maillet, 2014, p. 92, 93):

  • "Comprehensive public liability insurance - liability imposed by law due to bodily injury and property damage both on and away from the premises
  • Commercial general liability insurance
  • Product liability insurance. - for physical loss or damage to inventory
  • Property damage insurance for property damage due to fire, flood, smoke, vandalism, etc
  • Business interruption insurance for financial loss from closing of the business due to damage or destruction of property
  • Employment practices insurance coverage arriving from such claims as discrimination, wrongful dismissal or harassment
  • Workers safety insurance coverage for employees at the workplace
  • Auto insurance - coverage for delivery vehicles, etc"

Types of franchise insurance

Types of franchise insurance which are reqiure (H. Brown i in., 2013, p. 4-79 - 4-81):

  • Property Insurance - It is required to purchase "all risk" insurance in amount at least costs of all business assets
  • Credit Life Insurance: It is require that the franchisee to buy life insurance in amount enough to pay off all of the business creditors in the case of the franchisee's death. It is necessary only if the franchisee as an individual
  • "Building Insurance: If the franchisee owns the building in which it operates, he or she must adequately insure at replacement cost. In the event the building is destroyed by fire the franchisee is obligated to use such proceeds to rebuild and recommence operation as soon as possible"
  • Other Insurance Required by Law : The franchisee needs to pay for all legally required insurance
  • Other Insurance: All insurance required by contracts needs to be pay by the franchisee

Examples of Franchise insurance

  • Commercial General Liability Insurance: This type of insurance covers claims of bodily injury or property damage caused by the franchisee's negligence. It may also cover claims of personal and advertising injury, such as libel and slander.
  • Professional Liability Insurance: This type of insurance covers claims of negligence or mistakes made in the course of providing professional services, such as accounting or consulting.
  • Products Liability Insurance: This type of insurance covers claims of bodily injury or property damage due to a defect in a product or service sold or provided by the franchisee.
  • Property Insurance: This type of insurance covers losses due to fire, theft, or other disasters.
  • Commercial Auto Insurance: This type of insurance covers losses due to accidents involving vehicles owned by the franchisee.
  • Workers' Compensation Insurance: This type of insurance covers medical and rehabilitation expenses, as well as lost wages, for employees injured on the job.
  • Employment Practices Liability Insurance: This type of insurance covers claims related to wrongful termination, discrimination, and other wrongful employment practices.

Advantages of Franchise insurance

Franchise insurance offers several advantages:

  • First, it offers protection against losses and liabilities incurred by the franchisee and the franchisor, including those related to property damage, personal injury, death, products liability, and theft. This helps to ensure that the franchisor and franchisee are both protected in the event of a claim.
  • Second, it covers the costs of replacing or repairing any damaged property that may have been caused by a covered event. This helps to avoid costly legal fees and/or court cases that may arise from an uninsured loss.
  • Third, it provides coverage for the franchisor’s employees and officials in the event of an accident or injury. This helps to protect the franchisor from potential liabilities and the associated costs.
  • Finally, it offers coverage for any losses or damages incurred by the franchisee due to the operating of the franchise. This can help to protect the franchisee from financial losses that may result from a lawsuit.

Limitations of Franchise insurance

Franchise insurance has several limitations:

  • It is not a comprehensive policy, as it does not cover all potential risks associated with running a franchise.
  • It does not cover losses or expenses due to negligence or criminal acts of the franchisee or employees.
  • It does not cover losses due to non-payment of rent or other debts.
  • It does not cover losses due to natural disasters, such as earthquakes and floods.
  • It does not cover losses due to changes in laws or regulations.
  • It does not cover losses due to product recalls, or the failure of a franchisee to comply with franchise agreements.
  • It does not cover the cost of defending lawsuits, or the cost of damages resulting from a lawsuit.
  • It may not cover all types of damage that can occur in a franchise, such as property damage, theft, or personal injury.
  • It may not cover the cost of replacing or repairing damaged or stolen property.
  • It may not cover the cost of defending a lawsuit brought against the franchisor.
  • It may not cover the cost of defending a lawsuit brought by a franchisee against the franchisor.

Other approaches related to Franchise insurance

Franchise insurance can also include other approaches such as:

  • Risk management: Risk management involves identifying, assessing and managing the risks associated with the franchise. This can be done through risk assessment, monitoring, review and control.
  • Business interruption insurance: Business interruption insurance covers losses resulting from the interruption of business operations due to a disaster or other event. This type of insurance is designed to provide financial protection when a franchisee is unable to operate their business due to a covered event.
  • Liability insurance: Liability insurance is designed to protect the franchisee and franchisor from claims of negligence or other forms of liability. This type of insurance can provide protection for a variety of situations, including bodily injury, property damage, and personal injury.
  • Vehicle insurance: Vehicle insurance is designed to provide protection for vehicles used in the franchise. This type of insurance can provide coverage for damage to the vehicle, liability for accidents, and medical payments for injuries sustained in an accident.

In summary, franchise insurance covers a variety of risks and liabilities associated with running a franchise, including risk management, business interruption insurance, liability insurance, and vehicle insurance.


Franchise insurance — recommended articles
Insured contract — First party insurance — Loss Payee — Runoff Insurance — Insured peril — Commercial lines — Period of indemnity — Compulsory insurance — Insurance

References

Author: Kinga

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