Buying a Franchise in Venezuela: What Insurance to Agree On

Before buying a franchise in Venezuela, check who will bear the losses if a fire damages the premises or a customer makes a claim following an accident. Within a franchise network, sharing a brand does not automatically mean sharing insurance cover. Reviewing this obligation before signing helps you understand the cost and avoid a situation where the contract requires protection that the policy does not actually provide.

1. Distinguish contractual obligations from actual cover

Venezuela has no comprehensive franchise-specific law or general mandatory pre-contractual disclosure regime equivalent to those in some other countries. This does not mean the relationship falls outside the law: the Commercial Code and Civil Code govern commercial and contractual obligations and liability, alongside other rules applicable to the business activity.

The franchise agreement may specify which insurance policies the franchisee must take out. However, a contractual clause does not, by itself, extend an insurer’s cover. To understand which risks are covered, you need to read the policy, its specific terms, exclusions and endorsements.

Before accepting an insurance obligation, request a full list of the required cover. Then ask an authorised insurance intermediary to confirm its availability and terms. A Venezuelan lawyer should also check whether the particular business activity carries any additional insurance obligations.

Do not confuse a brand requirement with a general legal obligation: identify them separately.

2. Match each type of cover to a risk at the premises

Avoid buying a policy simply because its name matches the requirement in the agreement. Draw up a risk inventory and check how each proposed type of cover would respond:

• Property damage: identify the premises, fit-out, equipment, furniture and stock. Clarify which assets are owned, leased or supplied by third parties, and who has an insurable interest in them.
• Liability: review protection against third-party claims arising from the business. General liability cover does not necessarily include liability relating to products, food or particular services.
• Business interruption: check whether losses arising from an interruption to trading are covered, what event must trigger the interruption and how long the cover applies. Do not assume it covers every closure.
• Specific risks: ask how electrical breakdowns, deterioration of refrigerated stock, theft and water damage are treated where they are relevant to the business.

Request written answers. For example, if an electrical failure spoils refrigerated products, ask whether insured physical damage must have occurred first and which exclusions would apply.

If the franchisor says it has a group policy, insist on verifying that your company, location and business activity are included. A generic certificate for the brand does not prove that your premises are protected.

3. Calculate the costs you will still have to bear

The premium is only part of the cost. The excess is the portion of a loss that the policyholder must bear under the agreed terms. There may also be limits per event, sub-limits for particular assets and waiting periods.

Request comparable quotations based on the same assets, values, activities and cover. Pay particular attention to:

• The currencies used for the sum insured, premium and claim payment, and the applicable conversion rules.
• The basis for valuing assets and any deductions for depreciation.
• The consequences of declaring values below the appropriate amounts.
• Excesses and specific limits for the most relevant risks.
• How values are updated when equipment or stock changes.

Budget for both the premium and a reserve to cover excesses and uninsured losses. Do not treat a potential insurance payout as immediately available money: whether a claim is payable, the documentation required and its settlement will depend on the insured event and the policy.

4. Set out a clear procedure in the agreement

Negotiate a schedule specifying the required cover, limits, evidence of insurance and the date from which cover must be in place. Distinguish risks during the fit-out of the premises from those arising once the business opens to the public.

Clarify who takes out and pays for each policy, and what status the franchisor will have: insured party, additional insured or beneficiary, where appropriate and accepted by the insurer. These roles are not interchangeable and do not confer the same rights.

It is also worth agreeing who will report an insured event, preserve evidence and co-ordinate inspections. Notifying the franchisor does not replace notification to the insurer under the applicable terms and deadlines.

If the brand can change its requirements, ask for objective criteria and a procedure that takes availability and cost into account. Avoid open-ended commitments to take out any future cover without assessing it first.

Practical conclusion: before signing, obtain the insurance schedule, a viable quotation and the terms of cover. If these documents do not align, resolve the discrepancy before accepting the obligation.