How does the Cream franchisee's obligation to maintain insurance (Item 9) protect the franchisor from potential liabilities arising from the franchisee's operations?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
| Workers’ Compensation | Statutory minimum coverage amounts, with employer liability minimum limit of $1,000,000. |
|---|---|
| Umbrella Liability | Not less than $3,000,000 to be in excess of Commercial General Liability, Auto Liability, and Employer’s Liability. |
| Trade Name Restoration/Food Borne Illness | $1,000,000 to cover lost profits due to any alleged or actual contamination, supplier contamination, inoculations, and testing. Coverage must also include crisis management expense coverage. |
| Employment Practices Liability | $1,000,000 limit for coverage of any wrongful employment action and third-party coverage for harassment and discrimination of non-employees. Coverage must name us as co- defendant. |
| Cyber Liability | $1,000,000 to insure any first- or third-party claims including data breach, identity theft, phishing attacks, ransomware, bricking, crisis management expense, defense expenses, and notifications costs. |
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, franchisees are required to maintain specific insurance policies, which protect Cream from potential liabilities arising from the franchisee's operations. The required insurance coverage includes Workers’ Compensation with statutory minimum coverage amounts and an employer liability minimum limit of $1,000,000. Additionally, franchisees must carry Umbrella Liability insurance of not less than $3,000,000, exceeding Commercial General Liability, Auto Liability, and Employer’s Liability.
Further protecting Cream is the requirement for Trade Name Restoration/Food Borne Illness insurance with $1,000,000 coverage for lost profits due to contamination, supplier issues, inoculations, and testing, including crisis management expenses. Franchisees also need Employment Practices Liability insurance with a $1,000,000 limit, covering wrongful employment actions and third-party harassment/discrimination, naming Cream as a co-defendant. Cyber Liability insurance, with a $1,000,000 limit, is necessary to insure against data breaches, identity theft, phishing attacks, ransomware, and related expenses.
By mandating these insurance policies, Cream ensures that franchisees have sufficient coverage to handle various risks associated with their operations. This protects Cream from potential financial losses and legal liabilities that could arise from franchisee activities. The specific coverage amounts and types are designed to address common risks in the food service industry, such as foodborne illnesses, employee-related claims, and data breaches. This is a common practice in franchising, where franchisors require franchisees to maintain insurance to mitigate risks and protect the brand's reputation and financial stability.