What Insurance Endorsements Should Franchisors Actually Require?

Key Takeaways

• The "Hooks": Additional Insured, Waiver of Subrogation, and Primary and Non-Contributory are the mandatory modifications that bind a franchisee's insurer to your brand.

  
  

• The Joint Employer Trap: Asking for Additional Insured status on Workers' Comp is a legal landmine. It can be used to argue you are the "boss," making you liable for the franchisee's payroll and labor issues.

  
  

• Contractual Priority: Insurance "blanket" forms are dormant unless your Franchise Agreement specifically triggers them with exact, written language.

  
  

• Defense Costs Matter Most: These protections ensure you don't spend six figures on lawyers just to prove you aren't liable for a franchisee's mistake.

The Reality of Vicarious Liability: Why they sue the Brand

If a customer slips at a franchise location or an employee is hurt on the job, your brand is going to be named in the lawsuit. Plaintiffs' attorneys target franchisors because of the "business in a box" model. They aren't just looking at the local owner; they are looking for the deep pockets.

Consider a recent case where a worker at a Philly Pretzel Factory injured her hand in a rolling machine. She didn't just sue the local shop; she sued the franchisor for negligence in safety procedures. Even though the franchisor had insurance requirements in place, the court found the specific policy language didn't cover the franchisor for the worker's specific injury claims.

This is Vicarious Liability. Plaintiffs argue that your manual, your training, and your systems make you responsible for the harm. If you don't have the right "hooks" in the franchisee's policy, you are left paying for a high-stakes legal defense on your own. You need the franchisee’s insurance company to be contractually obligated to pick up the phone and hire your defense team the moment a claim is filed.

How do I modify a franchisee's policy to actually protect the brand?

To protect your corporate entity, the franchisee’s General Liability policy must be modified with three specific "hooks." These aren't separate policies; they are endorsements that change the DNA of the coverage.

1. Additional Insured

This adds you to their policy. The most common technical language comes from ISO Form CG 20 10. It typically reads:

"Who Is An Insured is amended to include as an additional insured the organization shown in the Schedule... but only with respect to liability for 'bodily injury' or 'property damage' caused, in whole or in part, by your acts or omissions."

Think about a food franchise that experiences a massive slip-and-fall. Because the franchisor was a "Scheduled Additional Insured," the franchisee’s carrier paid for the franchisor’s legal defense from day one. Without this, the franchisor would have had to use their own corporate insurance, triggering a massive deductible and a premium spike.

2. Waiver of Subrogation

Subrogation is the legal right of an insurance company to "step into the shoes" of the franchisee to sue a third party to get their money back.

Imagine a franchisee’s store burns down due to a faulty oven. Their insurer pays them $500,000 for the damage. Then, that same insurer sues you, the franchisor, claiming your mandated equipment specs caused the fire. A Waiver of Subrogation prevents this "betrayal" by the franchisee's own carrier. It tells the insurer: You paid the claim, now you stay in your lane.

3. Primary and Non-Contributory

This sets the "order of operations" for payment. It ensures that the franchisee’s policy pays first—from the very first dollar—before your corporate policy is even touched. It prevents the franchisee’s insurer from seeking "contribution" or a split-payment from your insurance. It keeps the loss on the franchisee’s ledger where it belongs.

The Danger Zone: Why Workers' Comp is Different

One of the most common mistakes in a Franchise Disclosure Document (FDD) is asking to be an "Additional Insured" on Workers' Comp. It sounds like a safe bet, but it’s a trap for two very specific reasons.

The Joint Employer Trap

Workers' Comp is a statutory benefit based strictly on the employer-employee relationship. If you are listed as an "insured" on that policy, you are providing evidence to the Department of Labor and plaintiff's attorneys that you are a Joint Employer.

In the famous "Joint Employer" cases of the last decade, the central battle was whether the franchisor had enough control to be considered the actual boss. Being an "Additional Insured" on a Workers' Comp policy is essentially handing the opposition a smoking gun. This opens you up to every labor law, tax, and discrimination suit in that location. It makes it look like that worker is your employee.

Carriers Won't Do It

Beyond the legal risk, there is a practical reality: Insurance companies simply won't allow it. Workers' Comp carriers do not issue Additional Insured endorsements because you don't have a direct "insurable interest" in someone else's payroll. You aren't the one cutting the checks. If you ask for this in your requirements, you are asking the franchisee for something they literally cannot provide, which creates immediate friction in the partnership.

The Correct Move: Only require a Waiver of Subrogation on the Workers' Comp policy. This protects your wallet (the insurer can't sue you to recover claim costs) without making you the "boss" in the eyes of the law.

The "Ongoing vs. Completed Operations" Gap: Why timing is everything

Most franchisors check for Additional Insured status but fail to check the edition date or the scope of the form. There are two distinct phases of a claim, and you need to be covered for both.

• Ongoing Operations (CG 20 10): This covers an accident that happens while the franchisee is actively performing work or running the shop. If a customer slips while the store is open, this form is triggered.

  
  

• Completed Operations (CG 20 37): This is the one most people miss. It covers claims that arise after the work is done.

  
  

The Story: A home services franchisee installs a water heater and then sells their territory. Six months later, the heater leaks and floods the customer's basement. If the franchisor only required "Ongoing Operations" coverage, and the franchisee's policy was canceled when they sold, the franchisor is left wide open. You must require both forms to ensure your protection lasts as long as the legal "tail" of the work performed.

Why isn't a "Blanket" policy enough to protect me?

Most franchisees will show you a policy that says "Blanket Additional Insured." They think they are done. They aren't. Most blanket forms (like ISO CG 20 38) contain a "Trigger Clause" that only activates if you have a written contract that explicitly demands the coverage.

If your Franchise Agreement is vague, the "Blanket" stays dormant. It provides zero coverage. You must ensure your contract language is identical to the requirements of the insurance form. This is why the "Insurance" section of your FDD needs to be technically precise, not just general.

The "Following Form" Umbrella: Don't lose your protection at $1 Million

Most General Liability policies have a limit of $1 Million. If a catastrophic claim hits—like a multi-vehicle accident involving a delivery driver—that million will vanish in weeks.

You require the franchisee to have an Umbrella or Excess Liability policy for this reason. However, if that Umbrella policy isn't "Following Form," your Additional Insured status might not carry over into that second layer of money.

The Rule: Your Franchise Agreement should state that the Umbrella/Excess policy must be "Following Form" and provide the same Additional Insured and Waiver of Subrogation protections as the primary policies. Otherwise, you’re only protected for the first million, and you're on your own for the rest.

How does a "Co-Defendant" endorsement protect me from whistleblower suits?

Employment Practices Liability Insurance (EPLI) covers harassment and wrongful termination. But standard policies only cover the franchisee.

Take a look at a recent case involving a daycare franchise. A whistleblower sued for wrongful termination after reporting neglect. They sued both the owner and the franchisor. Because the franchisor was not the employer, the franchisee's standard policy refused to defend the brand. The franchisor was forced to pay hundreds of thousands in legal fees out of pocket.

To avoid this, you need a Co-Defendant or Franchisor Endorsement. This forces the carrier to provide a shared defense for the brand whenever the franchisor is "looped in" to an employment suit. It is the only way to ensure you aren't left holding the bag for an employment decision you didn't even make.

Why should I treat this as a partnership instead of a demand?

When a franchisee complains about the cost or the complexity, educate them. These requirements are "Normal and Customary." Every landlord, every national vendor, and every government contract will ask for the exact same "Triple Threat" of Additional Insured, Waiver of Subrogation, and Primary and Non-Contributory language.

By enforcing these standards, you are helping the franchisee build a professional business infrastructure. You are building a moat around the entire brand, ensuring that one local mistake doesn't take down the whole system.

Common Questions

Can I be an Additional Insured on a Cyber Liability policy? Usually no. Cyber policies are tied to the specific network of the holder. Instead, require Third-Party Liability so you're covered if their breach affects your brand's data.

How often should I audit these policies? At a minimum, annually. However, many franchisors now require franchisees to use a "COI Tracking Service" that automatically alerts the brand if a policy lapses or an endorsement is removed mid-year.

What is the difference between a "Certificate of Insurance" and an "Endorsement"? A Certificate is just a snapshot—it’s a piece of paper that says "I have insurance." An Endorsement is a legal amendment to the actual policy. You can have a Certificate that says you are an Additional Insured even if the policy hasn't actually been endorsed. Always ask for the endorsement pages.

What happens if a franchisee uses a non-standard form? Many "cut-rate" insurance carriers use proprietary forms instead of standard ISO forms. These often contain hidden exclusions that strip away franchisor protection. Require that all policies be written on standard ISO forms or their equivalent.

By aligning your Franchise Agreement with these specific ISO forms, you aren't just checking a box. You are securing the legacy of your brand.