Hong Kong Franchise Insurance Guide: Clarifying Responsibilities, Cover Gaps and Claims Before Signing

When buying a franchise in Hong Kong, insurance can easily be treated as an administrative task to complete before opening. Yet a customer injury, damaged goods or a temporary closure may involve the franchisee, franchisor and landlord at the same time. For prospective franchise owners, the priority is not simply to obtain an insurance certificate, but to establish before signing who must arrange cover, which activities are insured and what losses you would still have to bear yourself.

1. Distinguish Between Statutory Requirements, Contractual Requirements and Optional Cover

Hong Kong has no legislation specifically governing the offer and sale of franchises, nor any franchise-specific statutory disclosure regime or registration requirement. The parties’ rights and obligations are largely determined by their contract and common law principles, alongside applicable general legislation. Do not assume that the franchisor is legally obliged to provide a comprehensive insurance package.

Insurance requirements should be divided into three categories:

• Statutory requirements: The Employees’ Compensation Ordinance (Cap. 282) requires employers to take out employees’ compensation insurance covering their liability for work-related injuries under statute and common law. Recruitment support from the franchisor does not mean its policy covers your employees.
• Contractual requirements: The franchise agreement, lease or shopping centre management rules may require public liability insurance, specified limits of cover or the inclusion of other parties as joint insureds.
• Operational needs: Property, stock, product liability and business interruption cover should be assessed against your actual activities and your capacity to absorb losses.

The Occupiers Liability Ordinance (Cap. 314) concerns occupiers’ duty of care towards visitors. It should not, however, be read as imposing a general statutory requirement for every shop to hold public liability insurance. Whether insurance is compulsory still depends on other applicable requirements and your contracts.

2. Check Who Is Actually Covered by the Franchisor’s Insurance

An insurance certificate provided by the franchisor is only a starting point for verification. Prospective franchisees should request the policy schedule, wording and endorsements relevant to their outlet, and ask an insurance intermediary or legal adviser to confirm the scope of cover. Do not rely solely on the brand name or the overall policy limit.

First, check whether the insured parties include the company that will actually operate your franchise outlet, and whether the premises address and business description are correct. The brand name, company name and business registration name may differ. A policy naming only the franchisor does not necessarily cover every independently owned franchise company.

Next, list your actual services, such as takeaway, collection, services at customers’ premises, off-site events or online sales, and confirm whether each is covered. If you introduce new activities or change your products, check whether you need to notify the insurer and amend the cover.

Finally, establish whether the limit applies per incident or is an annual aggregate shared across all outlets. If the franchisor arranges cover under a group policy, claims by other outlets may reduce the limit available to you. Ask how you will be notified of renewals, cancellations and changes to cover.

3. Budget for Risks Beyond the Premium

When comparing policies, do not simply choose the cheapest premium. At a minimum, also review excesses, exclusions, sub-limits and the expenses you would have to keep paying after an incident.

For example, a closure caused by flooding does not necessarily mean the policy will replace all lost income. Business interruption cover is often linked to specified insured property damage and is subject to waiting periods, indemnity periods and other terms. Nor should you assume that failures in the franchisor’s systems, a supplier halting production or damage to the brand’s reputation are automatically covered.

Pay particular attention to indemnity provisions in the franchise agreement. If you agree to bear certain losses claimed against the franchisor, your policy may not cover that contractual liability. Ask your solicitor and insurance intermediary to review these provisions together, rather than assuming that separate reviews will identify every gap.

Also confirm whether royalties, rent and other fixed costs remain payable during a closure. Whether an insurer will pay a claim and whether you have a contractual obligation to make payments are separate questions. Your cash budget should allow for excesses and expenses incurred while waiting for a claim to be paid.

4. Put Incident Reporting and Renewal Responsibilities in Writing

Consider preparing an insurance responsibility schedule as an annex to the franchise agreement. For each type of insurance, it should identify who arranges it, who is insured, the required cover, who pays and the deadline for providing evidence of renewal. If the franchisor can increase the required cover, seek a reasonable notice period and clarify who will bear any additional cost.

Incident handling should also follow written procedures. Specify who notifies the insurer, who preserves photographs and relevant records, who communicates with customers and who coordinates claims involving more than one policy. A member of staff reporting an incident to the franchisor does not necessarily satisfy the policy’s notification requirements. Both reporting routes should be clearly defined.

Do not admit legal liability or settle with a claimant without first checking that you are authorised to do so, as this could affect cover. Customer information and CCTV footage must also be handled in accordance with the Personal Data (Privacy) Ordinance and other applicable requirements. A claim does not give you unrestricted permission to pass such material on.

Practical takeaway: Before signing, review the franchise agreement, lease and proposed insurance documents together. Make sure every responsibility has a clearly identified owner, and budget for uninsured risks. A franchisor’s assurance that ‘cover is already in place’ is no substitute for the policy terms.