Item 8 of the Franchise Disclosure Document (FDD) is critical to review when it comes to insurance because it outlines the franchisee’s obligations, including any required insurance coverage. Regularly revisiting this section of the FDD helps ensure compliance with the franchisor's standards and prevents unnecessary risks or mistakes in judgement by franchisees.
 

Why is Item 8 Review Important for Insurance?
 

Defines Franchisee Obligations:

Item 8 details what the franchisee is responsible for, including maintaining specific insurance policies. Understanding these requirements ensures they meet the franchisor’s expectations.
 

Clarifies Operational Responsibilities:

It specifies whether the franchisor will assist with insurance (e.g., through preferred a agency) or if it’s entirely the franchisee’s responsibility to secure coverage.
 

Sets the Standard for Compliance:

It may include provisions like naming the franchisor as an additional insured, requiring specific coverage limits, or detailing consequences for failing to meet insurance requirements.
 

Mitigates Financial Risks:

Failing to adhere to the obligations in Item 8 can lead to significant liabilities, fines, or even termination of the franchise agreement. Leveraging these can be a last resort if there is no other option.
 

Anticipates Changes in Requirements:

Item 8 may reference the possibility of updates to insurance standards over time, signaling the need for ongoing compliance checks. This reminds all parties that insurance and the business are in a constant state of evolution and should be reviewed for changes each year. Anticipating change in insurance sets the proper expectations.
 

How Often Should Item 8 Be Reviewed?
 

Franchise Agreement:

Carefully review Item 8 with an insurance consultant or legal advisor to ensure you understand all obligations and their potential costs. This in non-trivial, and the franchisor is recommended to seek expert advise and current risk assessments.
 

Annually:

Conduct a yearly review of Item 8 in conjunction with your insurance policies. This ensures that coverage remains compliant and aligns with any operational changes.
 

During Insurance Policy Renewals:

Whenever renewing insurance, refer to Item 8 to verify that coverage limits, policy types, and naming requirements (e.g., additional insured clauses) are still aligned.
 

When Franchise Operations Change:

Significant changes in your franchise operations (e.g., opening new locations, expanding services) should trigger a review of Item 8 to reassess insurance obligations.
 

Upon Franchisor Updates:

If the franchisor issues updates to their requirements, revisit Item 8 to understand how it affects your current policies.
 

Key Considerations for Franchisees

Work with Specialists: Consult insurance experts familiar with franchise agreements to ensure your policies comply with Item 8 requirements.
 

Keep Insurance Updated: Remind franchisees of their investment and to anticipate up-to-date annual requirements that reflect the risks of the business today.
 

Monitor for Changes: Franchisors may amend their obligations or policies, making ongoing efforts to monitor for new updated policies business-as-usual. 
 

By regularly reviewing Item 8 and aligning your insurance coverage with its requirements, you protect your franchise investment, maintain compliance, and build trust with your franchisees. Franchisors are in a unique position to protect the entire brand and all stakeholders who have a vested interest. Franchisees look to the Franchisor to orchestrate the risk management policy on behalf of all franchise owners or investors.