Buffalo Wild Wings is a well-known restaurant offering delicious wings and a fun atmosphere. Currently, they sit somewhere around 1,200 locations worldwide, half of which are owned by corporate, the other half are franchises.
Each franchisor has specific insurance requirements established which you can find in the franchise agreement. Within the franchise agreement, you’ll always be able to find an insurance clause with a bunch of specific insuring requirements.
Let’s break down some of the items Buffalo Wild Wings is requiring from their franchisees:
- Special form property coverage
- No co-insurance
- Business interruption for at least 12 months including royalty fees
- Standard general liability limits
- Liability aggregate per location
- $2 million dollar umbrella over general liability, auto and employer liability
- Certificate of insurance at least annually
- Additional insured status
- Copy of policy if they ask for it
Insurance Requirement Overview
The insurance requirements that Buffalo Wild Wings states in their franchise agreement are pretty standard. There are only a few that stand out to me as possibly causing some problems:
Business Interruption Including Royalty Fees
Business interruption coverage is a standard coverage you would receive in most business owner’s policies or even stand-alone property policies.
It pays for normal operating expenses, payroll, and net profit (if any). If you include extra expense coverage, then they’ll throw in some extra expenses to get you back up and running as fast as possible.
However, business interruption typically is a first-party coverage offering protection for the business owner. Buffalo Wild Wings is requesting that all annual royalties be paid via business interruption.
We have to make some assumptions here when they are requesting this:
- The business owners business interruption coverage includes royalties
- An average royalty fee based on past revenue
In the unlikely event that a total loss happens and the business cannot operate business interruption would be triggered. The franchisee would need to file a claim with the insurance company and review the business interruption clause with the claims adjuster.
The claims adjuster would need the prior 12 months’ financial statements in order to average out the business interruption expenses until the business is fully operating again, including the royalties.
The lesson here is be sure your franchisees’ business-owners policies include royalty coverage within their business interruption coverage.
Certificate of Insurance Request
Within all contracts between franchisor and franchisee, you’re bound to see a requirement by the franchisor requesting a certificate of insurance. This is a necessary evil at the moment because it’s the only way that a franchisor can easily monitor the insurance of a franchisee.
Once the franchisor requests the certificate of insurance from the franchisee, the franchisee will most likely get their insurance representative involved in the process.
The insurance rep will follow the outlined instructions by the franchisor and upload a certificate of insurance within the certificate tracking company portal or simply forward it via email directly to the franchisor. They then need to confirm that what is on the document matches the insurance requirements outlined by the franchisor. 80% of the time the certificate is wrong and needs to be modified. This goes back and forth until completed and the requirements have been satisfied.
Not only is this a cumbersome process but it’s unreliable. At the end of the day, the franchisor is relying on a PDF document to mitigate their risk. The form has many problems with it, aside from not being real-time, it’s easily falsifiable, it can be inaccurate, and doesn’t guarantee anything to the franchisor.
The only way to avoid the insurance certificate trap is for all stakeholders to pay more attention to what is required and what is actually in place.
How to Avoid the Certificate Trap
The current market doesn’t offer any type of solution to avoid the certificate of insurance trap until we came along. Our goal is to create a real-time insurance verification platform that aligns with your requirements and what the franchisee actually has.
We aim to eliminate manual processes, PDF documents, and bad data and replace it with something that you can rely on to give you accurate, current information on the status of your franchisees’ insurance.
Requesting specific insurance requirements is one thing but actually validating with 100% certainty that those requirements are being fulfilled is something that isn’t being done at this moment. Only a real-time digital experience can offer complete certainty and best in class risk mitigation.
Reach out to us today to discuss how we can offer a real-time insurance verification platform for your franchise system.