Mobile Based Franchising and Liability Insurance Issues in Franchising Agreements

Mobile based franchising companies must consider the potential eventuality of being sued or named in a lawsuit, which is directed at a franchisee due to a traffic accident while conducting the franchise outlets business operations. In places like New York, California, Washington D.C. the number of lawsuits from traffic accidents are astounding. Without protection and separation from the franchise outlets, a franchisor might unnecessarily open themselves up for liability issues of one of their franchisees.

It is for this reason that in my franchising agreements are decided to spend special attention to the clauses regarding insurance, limits of liability and operations of vehicles in the franchise business. Below is a copy of the clause that I inserted into our franchise agreements;

3.21 Insurance

3.21.1 Limits of Liability

Prior to the commencement of any operations under this Agreement, Franchisee must maintain, at their sole expense, a business liability, comprehensive and completed operations insurance policy or policies in accordance with standards and specifications set forth in the Confidential Operations Manual, which must include at a minimum the following coverage:

(a) Comprehensive general liability insurance, in the amount of $100,000 bodily

injury per occurrence and $50,000 property damage per occurrence;

(b) Vehicle insurance in the amount of $100,000 single limit, including

comprehensive and collision;

(c) Worker’s Compensation and Employer’s liability insurance (if Franchisee

has employees); and

(d) Equipment insurance for the value of all The Car Wash Guys equipment.

If Franchisee finances the equipment, the lending institution may also require Franchisee to maintain fire/theft/comprehensive insurance for the value of that equipment.

3.21.2 Additional Insured

Franchisor shall be named as an additional insured under all insurance policies, as its interests may appear, and contain a waiver by the carrier of all subrogation rights against Franchisor. Maintenance of insurance under this paragraph shall not relieve Franchisee of liability under the default provisions set forth in this Agreement.

3.21.3 Other Requirements

Franchisor may, at its discretion, change the required coverage and the limits of liability for Franchisee’s insurance during the term of this Agreement. Franchsior may require Franchisee to increase the minimum limits of coverage to keep pace with regular business practice and prudent insurance custom. In the event Franchisor does this, Franchisee may be paying a higher or lower premium.

The insurance will not be limited in any way because of any insurance Franchsior maintains. The insurance will not be subject to cancellation except upon twenty (20) days’ written notice to Franchsior. Certificates of Franchise’s insurance policies will be kept on deposit with Franchisor. Maintenance of the required insurance will not diminish Franchisees liability to Franchisor under the indemnities contained in this Agreement.

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If you run or operate the mobile franchise company you must pay attention to the insurance issues and make sure you or additionally insured to prevent risks to your financial health as a franchisor. You will need to contact the franchise attorney to make sure the clause in your contracts is up-to-date, considers all the recent case law and is liable for the jurisdiction of your franchise company and the jurisdiction of the franchise outlets where you will be selling these franchises. Make sure you get a franchise attorney who is knowledgeable inexperienced in this area. I hope you will consider this in 2006.