Buying a franchise: check your insurance cover

Joining a franchise network does not automatically mean you are covered by its insurance. Before buying or taking over an outlet, you need to establish which risks will be covered, by whom and from what date. This review helps you avoid discovering after an incident that essential cover is missing or that its cost was left out of your budget.

1. Distinguish legal obligations from network requirements

There is no single insurance policy that becomes compulsory simply because you become a franchisee. Your obligations depend in particular on your business activities, the vehicles you use and, in certain professions, the professional liabilities involved. Your commercial lease may also require specific cover. Finally, the franchise agreement may require additional insurance, minimum cover limits or regular submission of insurance certificates.

A contractual obligation is not necessarily a legal obligation. Ask your adviser to identify the source of each requirement, then have an insurer or broker check that the proposed cover genuinely meets your business needs.

In France, pre-contractual disclosure is governed in particular by Article L. 330-3 of the Commercial Code, introduced by the Doubin Law of 31 December 1989, and Article R. 330-1. Where the conditions for these provisions to apply are met — the right to use a trade name, trade mark or trading identity is granted in return for an exclusive or near-exclusive commitment — the pre-contractual disclosure document and draft agreement must be provided at least twenty days before signing or paying any sum required in advance.

Use this period to identify the insurance clauses. However, this disclosure does not replace a tailored assessment of your risks, and the statutory period is not a general right to withdraw after signing.

2. Establish exactly who insures what

Ask the franchisor to confirm in writing whether a group insurance policy exists. A partnership with an insurer may simply be a commercial offer: it proves neither that you have joined the scheme nor that you are covered.

For each type of protection advertised, clarify:

• the identity of the policyholder and the insured parties;
• the premises and activities covered;
• the cover, limits, exclusions and amounts you must bear yourself;
• the enrolment procedure and the date cover actually starts;
• the procedures for reporting and handling claims.

Distinguish the franchisor’s liability from that of your independent business. Insurance taken out by the franchisor does not necessarily cover an injury in your shop, an error by your employee or damage caused during a delivery.

Prepare a simple table listing each identified risk, the corresponding policy, the named insured, the cover limit and the amount you would have to pay yourself. Every blank entry needs checking, but does not necessarily call for the immediate purchase of additional cover.

3. Check cover against your actual business activities

Explain to the insurer how your business operates in practice, rather than simply giving the franchise brand’s trading description. Describe your products, services, deliveries, online sales, equipment and periods of closure. Failing to disclose a secondary activity may complicate a claim, depending on the policy and the circumstances.

Pay particular attention to business interruption cover. This does not automatically compensate for every fall in turnover: whether it applies depends on the insured events and the policy terms. Check the indemnity period, any waiting periods and the calculation method.

Ask a practical question: if insured damage prevents you from opening for several months, which expenses and what loss of gross profit will be taken into account? In particular, have the insurer explain how expenses that continue during closure will be treated, including any ongoing contributions payable to the franchise network.

Then compare quotations on a like-for-like basis. A lower premium may conceal an inadequate cover limit or a higher insurance excess — the portion of the loss you must pay yourself. Budget for premiums, but also for this residual risk.

4. When taking over a business, arrange continuity of cover

Do not assume either that the seller’s policies automatically end or that they will protect you without any action on your part. What happens to them depends in particular on the structure of the acquisition, the nature of the assets and the applicable provisions. Ask your lawyer and insurer to coordinate on this point.

Request the full policies, endorsements, latest insurance certificates, proof of payment and available claims history. Open claims deserve particular attention: who will continue dealing with the insurer, and who will receive any eventual payout?

Before the keys are handed over, obtain written confirmation of the cover in force and its effective date. Report any changes to the business operator, activities, equipment or security measures so that the insurer can specify any necessary adjustments.

Key takeaway: before committing, bring together the franchise agreement’s insurance requirements, a risk table and confirmation of suitable cover. An insurance certificate alone is not enough to understand your protection.