If a Carvel franchisee obtains a claims-made insurance policy, what are the requirements for tail coverage after the franchise agreement expires or terminates, or the business closes?

According to Carvel's 2025 Franchise Disclosure Document, if a franchisee chooses to obtain a claims-made insurance policy, they are obligated to secure a tail coverage policy. This tail coverage must be in effect for at least one year following the expiration or termination of the Franchise Agreement, or the closure of the franchised business, whichever event occurs first.

The purpose of tail coverage is to protect the franchisee from potential claims that may arise after the policy period has ended but are related to incidents that occurred during the time the claims-made policy was active. This is particularly important in industries where claims may surface long after the actual incident.

The required limits of this tail coverage must be equal to or exceed the limits that were provided in the original claims-made policy. This ensures that the franchisee maintains a consistent level of protection even after the franchise agreement has ended or the business has closed. This requirement is in place to safeguard both the franchisee and Carvel from potential liabilities arising from past operations.

In practical terms, a prospective Carvel franchisee needs to factor in the cost of this tail coverage when evaluating their insurance options. While a claims-made policy might offer lower premiums during the active term of the franchise agreement, the cost of the tail coverage should be considered as part of the overall insurance expense. Franchisees should consult with their insurance providers to understand the costs and benefits of claims-made policies versus occurrence-based policies, and to ensure they can meet Carvel's tail coverage requirements.