Franchises in Guatemala: check the insurance requirements

A franchise may look affordable until insurance obligations emerge that were not included in your budget. Before entering Guatemala’s franchise market, check which policies the brand requires, whether they can be arranged locally and which risks you will still bear. A contract that simply says you must ‘maintain adequate insurance’ is not enough: you need requirements you can obtain quotes for and meet.

1. Distinguish contractual requirements from legal obligations

Guatemala has no specific franchise law or special regime requiring a franchise disclosure document to be provided before a contract is signed. The relationship is governed by the Commercial Code, Decree 2-70; the Civil Code, Decree-Law 106, where applicable; and the Industrial Property Law, Decree 57-2000, in relation to the trade mark and other protected rights.

Article 280 of the Commercial Code excludes commercial franchises from the chapter on commercial agents, distributors and representatives. You should therefore not assume that the protections afforded to those arrangements automatically apply to your contract.

A requirement imposed by the brand is not, in itself, a legal obligation. Ask for clarification on which insurance policies are contractual requirements and which are required by rules applicable to the specific business activity. A local lawyer should verify the latter in light of the business, its premises and its operations.

Do not assume that an insurance policy replaces your responsibilities towards employees, customers or the authorities. Its purpose is to cover specified risks, subject to defined terms and limits.

2. Turn the clause into a checklist you can obtain quotes for

Request the insurance section before signing and give it to an intermediary or insurer authorised to operate in Guatemala. If the brand uses an international contract, confirm that the required terms and cover can be provided locally.

Prepare a checklist covering the following:

• Risks covered: property damage, third-party liability or other risks relevant to the operation.
• Property and activities: stock, premises, equipment, deliveries or services provided away from the premises, where applicable.
• Limits: the maximum amount covered and any sub-limits for specific risks.
• Excesses: the portion of a loss you will have to bear yourself.
• Exclusions: events or circumstances that are not covered.
• Period of cover: when insurance must start and how it must be maintained without interruption.
• Documentation: the policy, certificates and supporting documents you must provide to the brand.

Do not accept a sales description as proof of cover. Request a written proposal setting out the terms. If a requirement cannot be met, negotiate an alternative and obtain written acceptance before committing.

3. Calculate the cost and the losses you will still bear

The premium is not the full financial picture. Excesses, inadequate limits and excluded losses also matter. Separate your insurance budget from the funds you would need to deal with an uninsured incident.

Work through specific scenarios: damage to the premises, a customer claim or an interruption to operations. For each one, ask what the policy would cover, what documentation would be required and which expenses would continue while the claim was being resolved.

If business interruption cover is offered, check what triggers it, any waiting periods and how long it lasts. Do not assume that every closure entitles you to compensation, or that royalties and other contractual commitments are automatically suspended.

Compare proposals offering equivalent cover, rather than looking at price alone. A lower premium may come with a higher excess or significant exclusions. Include payment and renewal dates in your cash-flow planning too.

4. Establish who is protected and how incidents are handled

Clarify who takes out the insurance, who pays for it and who receives any insurance payment under each type of cover. If the franchisor requires itself to be named on the policy, ask the insurer to explain the proposed status and its implications. Being an additional insured and being a beneficiary are not interchangeable concepts.

If the brand offers a group policy, request evidence that your outlet is included, details of its limits and the claims procedure. Ask whether limits are shared with other outlets and what happens if your participation in the scheme ends.

The contract should also specify who reports an incident, who retains evidence and who coordinates communications with the insurer. Avoid accepting obligations to admit liability or enter into settlements without first reviewing the policy terms.

Finally, distinguish insurance from contractual indemnity clauses: taking out cover does not mean that every liability you assume towards the franchisor is insured. Have both sections reviewed together.

Practical conclusion: before buying, obtain the insurance clause, a viable quote and a written explanation of the exclusions. Sign only once you know what compliance will cost and which losses you would still have to pay for yourself.