Building a Stronger Franchise by Protecting Your Brand

For franchisors, creating a successful and thriving brand is more than just expanding operations. It’s about fostering a sense of community and trust that stretches across all locations. With multiple independently owned and operated franchises, it becomes essential to ensure that every franchise upholds the same values, experience, and high standards. However, along with the immense growth potential that the franchise model offers, there are unique risks involved that must be managed carefully. Protecting the brand, the franchisees, and the entire franchise community requires a robust insurance strategy that safeguards not just the business but the relationships and network that drive success.

At Rollo Insurance, we believe in supporting the franchise community by offering tailored insurance solutions that prioritize collaboration, protection, and long-term growth. As trusted advisors to franchisors across Texas and beyond, we’re here to help build a resilient framework that benefits everyone within your network.

How Does a Franchisor’s Insurance Policy Protect Its Franchisees?

A franchisor’s insurance policy is designed to protect the franchisor’s interests, but it also creates a strong foundation for the entire franchise network. While individual franchisees typically carry their own insurance policies to cover specific operations, the franchisor’s coverage plays an important role in protecting the brand, fostering collaboration, and ensuring the continued success of the franchise community. Here are some key ways the franchisor’s insurance policy benefits everyone involved:

• Brand Protection: If the franchisor faces a significant liability claim that damages the brand’s reputation, the franchisor’s insurance can help manage the financial fallout and protect the overall brand value, which ultimately benefits all franchisees.
• Systemic Risk Management: The franchisor’s insurance can cover liabilities arising from the franchisor’s own operations, such as corporate-level decisions or actions that could impact the entire franchise system.
• Legal Support: In certain situations where a claim involves both the franchisor and a franchisee, the franchisor’s insurance might provide legal support or coordination.

It’s also important for franchisees to have insurance coverage specific to their business needs. Franchisors often set minimum insurance requirements, ensuring that franchisees are adequately covered while contributing to the network’s overall security.

What Types of Insurance Should a Franchisor Have?

To adequately protect their business, franchisors should consider the following types of insurance:

• General Liability Insurance: This is a foundational coverage that protects the franchisor from claims of bodily injury or property damage arising from their operations. This could include incidents at the franchisor’s corporate headquarters, franchisor-organized events, or even claims stemming from the franchisor’s training materials or operational guidelines.
• Professional Liability Insurance (Errors & Omissions Insurance): This protects the franchisor against claims of negligence or errors in the professional services they provide to franchisees. This could include mistakes in training, operational manuals, site selection advice, or marketing strategies that lead to financial losses for franchisees.
• Directors & Officers (D&O) Liability Insurance: This protects the franchisor’s board of directors and officers against claims alleging wrongful acts, errors, omissions, or breach of duty in their management of the franchisor company.
• Commercial Property Insurance: If the franchisor owns their corporate headquarters or other physical locations, this coverage protects those buildings and their contents from damage due to covered perils like fire, wind, or hail.
• Cyber Liability Insurance: Given the vast amounts of data franchisors handle (franchisee information, customer data, financial records), this coverage is essential to protect against data breaches, cyberattacks, and related liabilities.
• Business Interruption Insurance: If a covered event forces the franchisor’s corporate operations to shut down, this coverage can help recoup lost income and cover ongoing expenses.
• Umbrella Insurance (Excess Liability): This provides an additional layer of liability protection above the limits of the franchisor’s other liability policies.
• Workers’ Compensation Insurance: If the franchisor has employees at their corporate offices, this coverage is typically required to cover medical expenses and lost wages for employees injured on the job.
• Vicarious Liability Insurance: This is a critical consideration for franchisors. Vicarious liability means that a franchisor can be held legally responsible for the negligent actions of its franchisees or their employees, even though the franchisor doesn’t directly control the day-to-day operations of the franchise. This liability typically arises when the franchisor has significant control over the franchisee’s operations, branding, and customer experience. While a standard General Liability policy might offer some initial defense, specialized Franchisor Liability Insurance policies are designed to specifically address vicarious liability exposures. These policies can help cover legal defense costs and potential settlements or judgments resulting from a franchisee’s negligence. Franchisors often implement strict operational guidelines, training programs, and brand standards to ensure consistency and mitigate vicarious liability risks. However, insurance specifically tailored to this exposure is a vital layer of protection.

Under What Circumstances Can a Franchisee’s Customer Sue the Franchisor?

While franchisees are independent business owners, there are circumstances under which a franchisee’s customer might sue the franchisor:

• Apparent Authority: If the franchisor exerts significant control over the franchisee’s operations, branding, and customer experience to the point where a reasonable customer believes they are dealing directly with the franchisor, the franchisor could be held liable for the franchisee’s actions. This is often tied to the concept of vicarious liability.
• Direct Negligence by the Franchisor: If the franchisor’s own actions or inactions directly contribute to the harm suffered by the customer, the franchisor can be sued. This could include:

• Defective Products or Systems: If the franchisor mandates the use of a defective product or operating system that causes harm to a customer.
• Negligent Training or Guidelines: If the franchisor’s training or operational guidelines are inadequate or negligent and lead to a customer injury or loss.
• Failure to Oversee Safety: If the franchisor has a duty to oversee safety standards across the franchise system and fails to do so, leading to a foreseeable customer injury.

• Breach of Contract: In rare cases, a customer might argue that the franchisor made specific promises or warranties that were breached, even if the direct transaction was with the franchisee.
• Joint Venture or Agency Relationship: If the relationship between the franchisor and franchisee is deemed to be a joint venture or an agency relationship under the law, the franchisor could be held liable for the franchisee’s actions. This is less common in typical franchise agreements, which are designed to establish independent contractor relationships.

Rollo Insurance: Protecting Your Franchise

Successfully navigating the complexities of franchise insurance requires more than just an understanding of risks—it demands a deep appreciation for the community and values that underpin your brand. At Rollo Insurance, we recognize that your franchise is more than just a business; it’s a network of relationships, a shared vision, and a commitment to excellence. Our expertise lies not only in assessing exposures and understanding vicarious liability but also in crafting insurance programs that safeguard your brand’s integrity, enhance your operational resilience, and foster a sense of security within your franchise community.

We understand that when you succeed, your franchisees succeed, and the entire community thrives—contact us today and discover how Rollo Insurance can become your trusted partner in building a secure and sustainable future for your franchise.