The Importance of “Grantor of Franchise” Additional Insured Endorsements for Franchisors
In the complex world of franchising, risk management is as essential as brand consistency. One key protection often underestimated is ensuring the franchisor is correctly listed as an additional insured on each franchisee’s insurance policy. While many franchisors require this in their agreements, not all endorsements provide the proper protection. One specific form, the “Grantor of Franchise” additional insured endorsement, is particularly important for franchise systems.
Understanding Additional Insured Endorsements
An additional insured endorsement modifies an insurance policy so that an entity not originally insured under the policy (such as the franchisor) receives coverage for liability arising from the named insured’s (the franchisee’s) operations. This ensures that if a customer is injured or a claim arises from the franchisee’s activities, the franchisor can be defended and indemnified under the franchisee’s policy. Without this endorsement, a franchisor could face legal and financial exposure for claims it had little or no control over.
The Issue with Generic Endorsements
Not all additional insured endorsements are created equal. Many insurance carriers use standard Additional Insured endorsements, such as CG 20 10 or CG 20 26, designed for contractors, landlords, or vendors. While these can extend coverage to certain business relationships, they often don’t properly recognize the franchisor–franchisee relationship. This gap can cause insurers to deny coverage for the franchisor, arguing that the policy wasn’t intended to include liability arising from a franchise arrangement. That’s where the “Grantor of Franchise” endorsement becomes critical.
The “Grantor of Franchise” Endorsement Explained
The “Grantor of Franchise” endorsement (commonly ISO form CG 20 33 or a manuscript equivalent) explicitly extends coverage to franchisors for liability arising out of the acts or omissions of their franchisees. In other words, it ensures the franchisor is protected when a claim is connected to: the franchisee’s operations under the franchisor’s brand name; the franchisor’s role in granting or overseeing the franchise relationship; or marketing, signage, or trademarks used by the franchisee. This endorsement is specifically designed for the franchise model, recognizing that franchisors may face vicarious liability for incidents at franchise locations even though they don’t control day-to-day operations.
Why the Correct Endorsement Matters
Without the “Grantor of Franchise” endorsement, a franchisor might find itself unprotected in a lawsuit stemming from a franchisee’s negligence. Common consequences include denied claims, uncovered defense costs, and reputational damage. By specifically requiring the Grantor of Franchise wording, franchisors close this coverage gap and ensure that the insurance carrier acknowledges the unique nature of the franchise relationship.
Franchisor Best Practices for Risk Management
To fully protect their interests, franchisors should: specify the required endorsement in the franchise agreement, ideally referencing “Additional Insured – Grantor of Franchise” or ISO form CG 20 33 (or its equivalent), as well as requiring both ongoing and completed operations coverage and Primary and Non-Contributory wording; collect and verify both certificates of insurance and the actual endorsement forms; and implement an annual verification process or work with an insurance compliance vendor to monitor franchisee renewals.
Precision Protects Your Brand
In franchising, precision in insurance language is not just a legal technicality. It’s a brand safeguard. The “Grantor of Franchise” endorsement provides franchisors with the tailored protection they need, ensuring they are properly defended and indemnified when claims arise from franchisee operations. By requiring this specific endorsement and actively verifying compliance, franchisors reinforce the stability of their system, protect their financial interests, and demonstrate a commitment to risk management across their franchise network.