Franchise businesses operate under a contract — the franchise agreement — that imposes specific insurance requirements the franchisee must meet or risk losing their franchise. Understanding what the franchise agreement requires is the first step in building a compliant program. Understanding what the franchisor's corporate insurance program does and does not cover is the second step. Most franchisee programs fail on one of these two points: either they don't meet the contractual minimums, or they assume the corporate program covers exposures it was never designed to address.
Commercial General LiabilityThe foundational coverage for any franchise operation — covers bodily injury and property damage at franchise locations from customer injuries, product-related incidents, and advertising injury. Franchise agreements typically specify minimum GL limits (commonly $1M per occurrence / $2M aggregate) and require the franchisor to be named as an additional insured. Franchisors with national operations often provide an umbrella or master GL policy at the corporate level — but it protects the brand, not the individual franchisee. The franchisee must carry their own GL regardless of any corporate program.
Commercial PropertyCovers the franchise location building (if owned), leasehold improvements, franchise-specific equipment, signage, inventory, and business personal property. Franchise tenant improvements — build-outs required to meet the franchisor's brand standards — represent significant investment and must be insured at replacement cost. If the franchisee leases the space, tenant's improvements coverage is required for the build-out investment.
Business Income / Business InterruptionA critical coverage for franchise operations. If a covered property loss forces a franchise location to close — a fire, water damage, or a covered equipment failure — business income replaces the lost revenue while the location is being restored. Many franchise agreements include specific requirements for business income coverage because a closed location affects both the franchisee's revenue and the franchisor's royalty income. Extended business income coverage for the period after reopening is also important for franchises with strong customer loyalty patterns.
Workers' CompensationAll franchise employees — including part-time and seasonal workers who make up much of the hourly workforce in food, retail, and service franchises — must be covered by WC in virtually every state. Franchise WC exposure varies dramatically by the type of franchise: a cleaning service franchise has very different WC risk than a fast food franchise or a fitness studio franchise. WC classification must match the actual work performed, not just the industry category.
Employment Practices Liability (EPLI)Franchise businesses face elevated EPLI exposure because of high employee turnover, hourly workforce management challenges, tip credit and wage-and-hour compliance issues in food service franchises, and the power dynamics inherent in managing young or entry-level employees. Many franchise systems have faced class-action wage-and-hour claims that reached franchisors through joint employer theories — the individual franchisee faces their own exposure for local employment practices regardless of corporate EPLI coverage.
Commercial AutoRequired for any franchise with vehicles — delivery franchises, service franchises with company vehicles, or any franchise where employees drive on company business. Franchise agreements often specify minimum commercial auto limits. Non-owned and hired auto coverage is also essential for franchises where employees drive personal vehicles for business purposes.
Commercial UmbrellaMany franchise agreements require franchisees to carry umbrella limits of $2M–$5M as a condition of the franchise agreement. Umbrella provides excess limits over GL, auto, and employers liability — critical for the severe injury claims that can arise in high-traffic franchise operations like quick service restaurants, fitness centers, or children's entertainment concepts.
ACORD 125 — Commercial Insurance ApplicationPrimary submission document for franchise accounts. Capture the franchisor name, franchise concept (food, retail, service, fitness, etc.), number of franchise units, whether the insured is the franchisee or the franchisor, annual gross revenue, and the specific insurance requirements from the franchise disclosure document (FDD) or franchise agreement.
ACORD 126 — Commercial General Liability SectionRequired for GL. Franchise operations must be fully described — type of franchise operations, number of locations, products or services provided, and any third-party delivery or contractor operations conducted under the franchise brand. The franchise agreement's additional insured requirements must be confirmed and documented.
ACORD 130 — Workers Compensation ApplicationRequired for WC. Franchise employee classifications vary by concept — food service (9082), retail (8017 or 8018), cleaning services (9014 or 0917), fitness (9016 or 8017), and childcare (8864) each carry different rates. Payroll must be broken down by classification and all locations listed.
ACORD 140 — Property SectionRequired for commercial property. Franchise build-outs and tenant improvements must be specifically described and valued at replacement cost. Franchise-specific equipment — point-of-sale systems, branded equipment, proprietary cooking equipment in food franchises — must be identified separately from standard BPP.
→What is the franchisor name and franchise concept — food service, retail, fitness, cleaning, childcare, automotive, healthcare, or another category?
→How many franchise units does the insured operate?
→What are the minimum insurance limits required by the franchise agreement?
→Does the franchise agreement require the franchisor or any other party to be named as an additional insured?
→Does the franchisor provide any master insurance program that the franchisee participates in?
→What is the total annual gross revenue across all franchise locations?
→Does any franchise location deliver products or services to customers at off-site locations?
→Does the franchise operate company vehicles? Do employees use personal vehicles for business purposes?
→What is the employee count — full-time and part-time — across all locations?
→Does any franchise location serve alcohol?
→What is the value of leasehold improvements / franchise build-out at each location?
→What is the value of franchise-specific equipment at each location?
→Has the franchisee had any liability claims, employee claims, or regulatory actions in the last 5 years?
→Does the franchise agreement include joint employer language that could affect the franchisee's liability exposure?
→Is the franchisee in compliance with all franchisor brand standards?
→Does the franchisee have a right of first refusal or option to acquire additional franchise units?