How do the Cream franchisee's obligations regarding insurance (Item 9) relate to potential litigation risks (Item 3)?
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, Item 9 outlines the franchisee's obligations, including maintaining specific insurance coverage. This insurance coverage directly relates to mitigating potential litigation risks, as it is designed to protect both the franchisee and Cream from financial losses resulting from various claims and lawsuits. The required insurance types and coverage amounts reflect the specific risks associated with operating a Cream franchise.
Cream requires franchisees to maintain several types of insurance, including Workers’ Compensation with statutory minimum coverage and an employer liability minimum limit of $1,000,000, Umbrella Liability of not less than $3,000,000, Trade Name Restoration/Food Borne Illness coverage of $1,000,000, Employment Practices Liability with a $1,000,000 limit, and Cyber Liability of $1,000,000. These insurance policies are designed to cover potential liabilities and losses that may arise during the operation of the franchise. For example, the Trade Name Restoration/Food Borne Illness coverage protects against lost profits due to contamination, while Employment Practices Liability covers wrongful employment actions.
By requiring these specific insurance policies, Cream aims to protect its brand and the financial stability of its franchisees. Should a claim or lawsuit arise, the insurance coverage would help cover legal costs, settlements, and other related expenses. This reduces the risk of the franchisee facing significant financial hardship and potentially defaulting on their franchise agreement. Furthermore, the insurance requirements ensure that Cream is also protected, as some policies, like the Employment Practices Liability, name Cream as a co-defendant.
Failure to maintain the required insurance can result in termination of the Franchise Agreement. Specifically, Item 23 states that Cream may terminate the agreement if the franchisee fails to maintain the required insurance and does not correct the failure within 10 days after written notice. This underscores the importance of adhering to the insurance requirements to avoid potential legal and financial repercussions, as well as the loss of the franchise.