Buying a Franchise in Lebanon: Reviewing Insurance and Liability Limits

The insurance clause may seem like a minor detail when buying a franchise in Lebanon, but it can determine who pays if a customer is injured, equipment is damaged or a claim arises over a product bearing the brand’s name. Within a franchise network, a shared brand identity does not mean shared legal or financial liability. Review insurance requirements alongside indemnity clauses before committing to initial fees or calculating the venture’s total cost.

Separate your liability from the franchisor’s

The franchisor and franchisee are, in principle, legally and financially independent entities. Using the brand’s name does not mean the franchisor’s insurance covers your outlet, nor that the franchisor will automatically bear the cost of customer claims. Ask for confirmation of the insured company, the locations covered and the declared business activities, rather than accepting a statement that ‘the brand is insured’.

Start with a simple risk map: who selects the product? Who manufactures or imports it? Who provides the instructions for use? And who handles storage, serving and maintenance? The answers can help you negotiate how liability is allocated, but they do not, on their own, determine the rights of those who suffer harm or your legal liability towards them.

For example, a claim arising from a slippery floor inside the outlet differs from one involving a defect in a product that the franchisor requires you to buy from a specified supplier. Do not accept a single, broadly worded clause that automatically makes you responsible for both. Ask for a process to establish the cause of the harm, exchange documents and recover costs from the responsible party, subject to what the applicable law permits.

Understand Lebanon’s legal framework before relying on a standard clause

Lebanon has no comprehensive law specifically governing franchise agreements, nor a dedicated statutory disclosure regime prescribing a standard set of pre-contract information. The relationship is subject to general legal rules, principally the Code of Obligations and Contracts and the Commercial Code, alongside rules governing the relevant business activity, consumer protection and other matters, as applicable. The absence of specific legislation does not necessarily make every contractual allocation of liability enforceable.

Legislative Decree No. 34 of 1967 on commercial representation also raises questions about how certain relationships should be legally classified. Do not assume that protections associated with commercial representation apply to your agreement simply because it is called a franchise or includes exclusivity. A Lebanese lawyer should review the nature of the relationship and the legislation in force.

The Lebanese Franchise Association’s Code of Ethics includes a commitment to disclose material information in writing, within its scope of application to members and the relationships it covers. However, it is not a law of general application or a substitute for reviewing the contract and insurance policy. Request written details of previous claims relevant to the operating model and any insurance requirements imposed by the franchisor, while respecting the confidentiality of those affected.

Turn the insurance requirement into something insurers can quote for

A requirement for ‘adequate insurance in accordance with the franchisor’s requirements’ does not provide a reliable basis for budgeting. Request a written schedule of the cover required and its limits, then submit it to an insurance broker or insurer before signing. Distinguish between insurance required by law for your business activities and cover required contractually by the franchisor. Do not treat the brand’s standard checklist as a statement of Lebanese legal obligations.

Depending on the outlet’s activities, discuss public liability, product liability, property and equipment insurance, and business interruption cover. These are areas to review, not a universal list of compulsory policies. Some risks may require separate policies or specific endorsements, or cover may not be available on the terms required.

Ask for written answers to the following questions:

• Does the policy cover deliveries and work away from the premises, if these form part of the operation?
• What are the exclusions, and what excess must you pay for each claim?
• In what currency are premiums and claims paid, and how will equipment and stock be valued following damage?
• Are legal defence costs covered, and do they count towards the indemnity limit?
• Does a business interruption claim require insured physical damage to have occurred first?

Do not rely solely on a brief certificate of insurance; request the policy terms, exclusions and endorsements. Budget for the premium, excess and potential uninsured losses, not just the premium. If the franchisor reserves the right to increase cover limits, negotiate advance notice, clear criteria and consideration of whether the required insurance is available locally.

Define indemnities and claims management in the contract

Insurance may cover a particular incident while the contract requires you to indemnify the franchisor for broader losses excluded by the policy. Compare the indemnity clause with the insurance cover, provision by provision, particularly if it extends to ‘all claims’, suppliers’ actions or the franchisor’s own mistakes. Ask for your obligation to be tied to acts and breaches attributable to you, and have the liability limits and their exceptions reviewed by a lawyer.

If the franchisor asks to be named as an additional insured, clarify the implications and cost with the insurer. Do not assume that this gives the franchisor unrestricted cover or insures all your contractual obligations towards it.

Also specify who must notify the insurer, who manages the defence and who approves any settlement. Avoid obligations that allow another party to admit liability on your behalf or settle at your expense without your involvement, and comply with the insurer’s conditions on notification and admissions of liability. Maintain an internal procedure for documenting incidents and retaining invoices, maintenance reports and complaints.

Practical takeaway: Before signing, bring the draft agreement, the franchisor’s requirements and the insurance quotation together in one file. Ask your lawyer and insurance specialist to identify any gaps in writing. Clear contractual rights and suitable insurance cover complement one another; neither replaces the other.