Franchising carries unique risks that standard insurance policies often fail to cover. Two of the most important protections for franchisors are Errors & Omissions (E&O) and Directors & Officers (D&O) insurance.
This article provides a high-level overview of what these coverages do, why they matter for franchisors, and the key features you should look for when purchasing them.
What is Errors & Omissions (E&O) Insurance?
E&O, also called Professional Liability Insurance, protects franchisors against claims that their services, advice, or support caused financial harm.
For franchisors, this can include:
Franchise advice and guidance – marketing, operations, or financial direction that leads to loss.
Training and support – errors in training or manuals that create problems for franchisees.
Franchise Disclosure Document (FDD) mistakes – omissions or misstatements that spark disputes.
Franchise agreement disputes – claims the franchisor failed to meet obligations.
Bodily injury & property damage from advice – e.g., errors in operating manuals causing harm.
Telemarketing liability (TCPA) – exposures from marketing on behalf of franchisees.
Regulatory actions – investigations or fines from agencies such as the FTC.
Franchisor tip: Look for endorsements that extend E&O to franchise-specific risks, such as the Franchise Insurance Services Professional Liability Endorsement.
What is Directors & Officers (D&O) Insurance?
D&O protects the personal assets of executives, board members, and senior leaders when sued for decisions made in their role.
For franchisors, common triggers include:
Franchisee litigation – franchisees suing over management decisions.
FDD misrepresentation – directors personally named in lawsuits.|
Financial mismanagement – accusations of poor oversight.
Contractual liability gaps – disputes tied to agreements.
Franchisor tip: A D&O policy with a broad franchisee exclusion provides little to no real protection. Make sure this exclusion is removed or modified.
Why Franchisors Need Both E&O and D&O
Most franchisor claims don’t fit neatly into one category. In fact, about 75% of franchisor claims fall in the grey area between E&O and D&O
If E&O and D&O are placed with different carriers, each insurer may deny responsibility under their Other Insurance Clause, leaving the franchisor to pay defense costs while carriers argue — a scenario known as “denial wars.”
Solution: Always place both coverages with the same carrier. This avoids disputes and ensures smoother claims handling.
Key Features to Look For
When purchasing E&O and D&O as a franchisor, make sure your program addresses the following:
Franchisee exclusions removed from D&O
TCPA coverage included in E&O
Regulatory coverage (e.g., FTC actions)
Bodily injury & property damage coverage within E&O
Contractual liability addressed in E&O
Franchise-specific endorsements added
Consolidation of policies to eliminate gaps
Future-proofing for acquisitions with a subsidiary clause
Real-World Example
A multi-brand franchisor with seven home service brands once had:
- Fragmented E&O policies across brands
- D&O with a broad franchisee exclusion
- No TCPA or regulatory coverage
- Different carriers for E&O and D&O
The result was coverage gaps, inefficiencies, and high exposure to denial wars.
By restructuring and aligning E&O and D&O with the same carrier, they:
- Eliminated denial wars (different carriers not taking ownership of the claim)
- Added missing coverages (TCPA, BI/PD, regulatory)
- Extended protection automatically to acquisitions
Strengthened protection at a comparable cost
Practical Takeaways for Franchisors
Purchase both E&O and D&O — not one or the other.
Use the same carrier for both. This prevents denial disputes.
Scrutinize exclusions. Especially franchisee, TCPA, and regulatory carve-outs.
Add endorsements tailored to franchisors. Generic forms don’t cut it.
Consolidate policies. Avoid fragmentation across entities or brands.
Work with a specialized broker. Franchising risks are too nuanced for generic programs.
Bottom Line
E&O and D&O together form the backbone of a franchisor’s insurance program. When structured properly, they protect the brand, shield leadership from personal liability, and support future growth.
When structured poorly, they leave gaps that result in uncovered claims and wasted premiums.
The smartest franchisors treat insurance as a strategic asset — not just an expense.
Disclaimer
This article is provided for educational purposes only and is not a sample of your coverage. Every insurance policy is different. The availability, scope, and limitations of coverage depend on the specific terms of your policy, your franchise agreement, and applicable law. You must review your actual policy language and contractual obligations carefully and consult with a qualified insurance professional before making coverage decisions.