Whether you’re a franchise owner or operate a factory-line type business, you probably realize that accidents happen on the job site. When you have the right insurance coverage, it shows employees, franchisees, and customers that you take responsibility for what happens in your place of business.
You never want to get into a situation where you don’t have insurance coverage in case of work accidents or anything else that poses a significant risk to your business. You expose yourself to vicarious liability, which is being held liable for negligent actions with whom you have a special relationship.
Think about getting a limited liability insurance policy, workers’ compensation, and other coverage that applies to your business. Insurance can help you protect your business in case of a lawsuit. Here are some things to think about to help prevent vicarious liability.
A Couple of Examples Why You Need to Verify Multiple Insurance Types
Having a Food Services Business
You might have a restaurant chain with hundreds of drivers that deliver meals to customers, drop-off equipment to restaurants, and others for promotional purposes. If one of the drivers gets into an accident in the work vehicle, you’re held accountable for the incident. It’s best to have insurance on the work truck.
You put both the franchisee and franchisor at risk. It doesn’t matter if they’re a third-party or independent contractor. Since both represent your brand, you would be the one that has to take responsibility for the incident.
Working In Residential Construction
If you have a team working inside a customer’s home, many things could make for a vicarious liability case. One, the workers may get injured; two, the customers may get into an accident; three, the structures could get damaged from a job.
You must have general liability, workers’ compensation, and property damage coverage for jobs that require structural changes to a residential or commercial building. Tracking certificates of insurance (COIs) becomes imperative when someone files a claim one day or month after the completed project.
When the franchisee doesn’t have full operations coverage, or the franchise owner can’t verify COIs, it puts them between a rock and a hard place. It’s a risky situation because they may have to pay physical damages in a customer’s home (from the building, customer’s injuries, and worker’s injuries). Not to mention, a client’s complaint would hurt the company’s reputation, and they can lose prospective customers.
Franchisors should have great software to automate the process, from COI collection and verifying insurance policy renewals to protect their brand. They need to mitigate the risks by knowing what their franchisees sell and following up on their insurance coverage to ensure it doesn’t lapse.
4 Ways How Franchisors Can Reduce Vicarious Liability
1. Be Clear on the Moving Parts in Your Business Model
While you may be solely focused on selling franchise rights, and every franchisee has to worry about their property, you’re mistaken. Remember that the franchisee’s risks are yours, depending on the product and service.
It doesn’t matter if you’re an in-home care provider, a restaurant service, or hire independent contractors to handle various jobs. It’s still important to understand the risks and know some reliable methods to mend any problems.
You shouldn’t use negligence as an excuse for not knowing the risks of your business model.
2. Give Franchisees Guidance
Think of franchisees as an extension of your brand. If there are weak links, try to find solutions instead of leaving it all up to them. Of course, you don’t want to be controlling, but providing guidance can create better long-term synergy.
Additionally, you’ll know what practices they’re implementing to prevent any risks that would place your brand in a tight spot.
3. Write Down Your Insurance Requirements
One of the most important things to do when dealing with your franchisees is to make sure everyone knows the insurance requirements. Have a set of Franchise Disclosure Documents (FDD) that everyone understands.
Make sure that it also fits within your unique franchise because you may run into generic ones that can provide you with a base of drawing up your own, but they don’t suit your business. Also, it’s an ideal time to discuss the insurance coverage your franchisees have for their buildings.
If you have a sub-consultant that makes a mistake in delivering your project or services, you may be vicariously liable in the claim. Remember, your portion of covering the damages depends on the sub-consultant’s insurance limits and specific details of the loss.
It’s wise to know about any sub-consultants’ insurance coverage before taking on other projects or giving your franchisee the rights to open up a brand under your umbrella. Afterall, if they’re underinsured, how will they handle any risks in case of errors and accidents? Cover the bases from general liability to workers’ compensation, so you’re not hit with the bulk of the bill when paying for damages.
4. Have a System in Place to Monitor Insurance Compliance
Writing everything down on paper is not enough to see if franchisees follow the instructions. You need to monitor things to ensure that everything is up to par. It may be a good idea to hire an agent who can go to different franchisees from time to time to help fine-tune everything.
They can check the insurance statements, how drivers carry out tasks, and how workers handle different jobs in the building. When you have regular checkups on your brand, you can catch mistakes before they become problematic in your business.
Insurance agents can check for COIs to know right off the bat if they’re compliant with FDD requirements. Make sure they have the franchisor down as “Additional Insured.” Sometimes, they may reduce their insurance limits or miss coverage.
Be clear on whether or not they follow all protocols to the tee.
Additionally, you can weed out the franchisees who don’t follow the agreement. You can send them notices to ensure they stay on point with how you want to represent your brand. You want to save money from dealing with expensive claims. More importantly, you want to keep your brand reputation clean with your clientele.
Next, think about how to automate insurance compliance.
How COI Tracking Software Helps
If you’re a company with multiple franchisees under your belt, it’s hard to track every little detail by yourself. Help manage your risk quicker by using tracking software to help you keep things intact. It’ll make your everyday job easier to handle.
Automate to Save Time
Using COI tracking software saves you time to focus on more aspects of your business. When you have COI software to help you in the renewal process, it sends clients notifications ahead of the expiration date. Also, you can move to different places to ensure everything is good with various clients.
Be More Proactive
When you know when COIs expire, you’ll be less stressed to get things done before things happen. Also, you can save time and money to use toward other resources. It’ll keep everything in working order for the long term.
Visually Dynamic Dashboards
The advantage of using tracking software is automated data with a clean look. Having reliable software can give your brand more appeal and help you better present your numbers to other businesses or investors.
Having 24/7 access to COI tracking software can help you keep an eye on franchises and how they make sure things stay compliant.
When you have a reliable method of letting franchisees know the ins and outs of insurance verification, it’ll help your brand prevent vicarious liability cases.