What is the minimum coverage period for business income and extra expense insurance required for a Carls franchise?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
- (4) Commercial Property insurance that extends coverage on a replacement cost basis for the Franchised Restaurant, business personal property (including electronic equipment, tenant improvements & betterments), and business income and extra expense for a minimum of 12 months or actual loss sustained to cover loss of profits, continuing expenses and loss of rents. Covered causes of loss should be "Special Form" or "All Risk" with coinsurance conditions not less than 80%. Flood insurance is also required for locations that reside in FEMA Flood Zones beginning with the letters "A" or "V." Earthquake insurance is also required for locations that reside in FEMA Seismic Design Categories "E" or "D."
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to the 2024 FDD, Carls requires franchisees to maintain commercial property insurance that includes business income and extra expense coverage for a minimum of 12 months or actual loss sustained. This insurance should cover loss of profits, continuing expenses, and loss of rents. The covered causes of loss should be "Special Form" or "All Risk" with coinsurance conditions not less than 80%.
This requirement ensures that Carls franchisees have sufficient financial protection to cover potential business interruptions. The "Special Form" or "All Risk" coverage requirement means that the policy covers all causes of loss unless specifically excluded, providing broad protection. The coinsurance condition of not less than 80% means that the franchisee must insure the property for at least 80% of its value to avoid penalties in case of a partial loss.
Additionally, Carls requires flood insurance for locations in FEMA Flood Zones beginning with the letters "A" or "V," and earthquake insurance for locations in FEMA Seismic Design Categories "E" or "D." These additional requirements address specific regional risks that could impact a franchisee's business operations and financial stability.
Carls also mandates that they and their affiliates be named as Loss Payee with respect to the Commercial Property coverage. This stipulation ensures that Carls has a direct claim to insurance proceeds in the event of a loss, protecting their financial interests in the franchised location.