The COI That Caused a $900,000 Surprise
A franchise system's compliance manager spent fifteen minutes reviewing each incoming COI from franchisees. She checked the coverage types listed, the expiration date, and scanned the description of operations for the franchisor's name. When a products liability claim was filed against a franchisee location - and the plaintiff named the franchisor as well - the franchisor tendered its defense to the franchisee's GL carrier.
The carrier came back with a denial. The products and completed operations aggregate on the franchisee's policy had been eroded by two prior claims, leaving only $50,000 remaining. The COI on file showed "$2 million aggregate" - as of the policy effective date. It did not reflect the aggregate erosion. The franchisor incurred $900,000 in defense and settlement costs that should have been the franchisee's carrier's obligation.
The certificate of insurance had been current, complete, and filed. It was just insufficient to prove what the compliance manager assumed it proved.
What a COI Proves - and Doesn't Prove
A certificate of insurance is a summary document. It is issued by a broker or insurer as a convenience to a third party (the certificate holder) to confirm that an insurance policy exists and provide basic information about it. Understanding what a COI does and does not prove is foundational to franchise compliance.
What a COI proves:
- A policy existed and was in force as of the certificate date
- The named insured identified on the certificate held the described coverages
- The policy limits were as stated at issuance
- The coverage types listed were part of the policy at issuance
What a COI does not prove:
- That the policy is still in force today (coverage may have been cancelled or lapsed)
- That aggregate limits have not been eroded by prior claims
- That the policy does not contain exclusions relevant to the franchisee's operations
- That additional insured endorsements have been properly attached to the policy
- That the policy would actually respond to a specific type of claim
This is why the ACORD 25 includes a disclaimer: "This certificate is issued as a matter of information only and confers no rights upon the certificate holder." The certificate is informational. The policy is operative. And in a claim, only the policy matters.
How to Read an ACORD 25 Certificate for Franchise Compliance
The ACORD 25 is the standard form for certificates of liability insurance. Here is how to read the key fields for franchise compliance purposes.
Insured (Box A)
The named insured must match the franchisee entity identified in the franchise agreement. Common discrepancies:
- DBA names in place of legal entity names
- Individual names instead of the franchisee LLC or corporation
- Parent company names instead of the franchisee operating entity
- Missing or incorrect addresses
Any discrepancy between the COI named insured and the franchise agreement franchisee identification should be flagged and resolved before the COI is accepted.
Insurer(s) (Box B)
The insurer name and NAIC number are listed here. Some franchise agreements require minimum carrier ratings (AM Best A-/VII is common). Verify the carrier meets any rating requirements and is admitted in the franchisee's state of operation if the franchise agreement specifies admitted coverage.
Commercial General Liability (Box C)
| ACORD 25 Field | What to Verify Against FA |
|---|---|
| Policy type (occurrence vs. claims-made) | FA typically requires occurrence; verify |
| Each occurrence | Must meet FA per-occurrence minimum |
| General aggregate | Must meet FA aggregate minimum |
| Products-completed operations aggregate | Separate aggregate required; verify limit |
| Personal & advertising injury | Note limit; compare to FA if specified |
| Damage to rented premises | Not always specified in FAs but note |
Automobile Liability (Box D)
Confirm: (1) the policy covers owned, non-owned, and hired auto if required; (2) the combined single limit meets the franchise agreement minimum; (3) the franchisee's operations are consistent with automobile use (delivery, service calls, employee vehicles).
Workers' Compensation (Box E)
Confirm that "statutory" workers' compensation is indicated and that the employer's liability limits in each of the three categories meet the franchise agreement minimums.
Umbrella/Excess Liability (Box F)
Umbrella and excess policies are frequently where franchisees fall short. Verify:
- The umbrella is an occurrence form (not claims-made)
- Per-occurrence and aggregate limits meet the franchise agreement minimum
- The umbrella follows form over the underlying GL, auto, and WC
Description of Operations (Box G)
This is the most important field for franchise compliance purposes. It is where the broker notes additional insured status, waivers of subrogation, cancellation notice provisions, and any other special conditions.
What this field should show for a typical franchise agreement requirement:
- "[Franchisor Name] is named as additional insured on a primary and non-contributory basis per CG 20 10 and CG 20 37"
- "Waiver of subrogation applies in favor of [Franchisor Name]"
- "30 days' notice of cancellation applies to certificate holder"
What it often shows instead:
- "Additional insured as required by written contract" (insufficient)
- No waiver of subrogation language
- No endorsement form references
Collection vs. Verification: Understanding the Difference
Many franchise systems have a COI "compliance" process that is actually a COI collection process. The distinction is important.
COI collection confirms that a certificate has been submitted and is on file. It verifies that a franchisee responded to a request. It does not verify that the COI satisfies the franchise agreement requirements.
COI verification confirms that every data point on the submitted certificate satisfies the applicable requirements in the franchise agreement - coverage types, limits, endorsements, named insured, additional insured status, and policy period.
The failure mode of collection-only programs is the one described in the opening scenario: certificates on file, compliance dashboard showing green, but actual compliance rates of 60-70% when measured against the franchise agreement terms.
Building a Franchise-Wide COI Compliance Program
An effective program operates at four levels:
1. Requirements standardization. Ensure every franchisee has a clear, written summary of their insurance requirements - translated from the franchise agreement into plain language and specific enough for a broker to produce a compliant COI without guessing.
2. Structured submission. Create a defined submission process - a portal, a dedicated email address, or a broker-direct submission system - so that all COIs enter a trackable workflow rather than arriving in a general inbox.
3. Contract-anchored verification. Every submitted COI should be compared against the actual requirements in that franchisee's franchise agreement. This requires access to the agreement and a systematic comparison process.
4. Exception management. Deficiencies should trigger a documented workflow: notice to franchisee, deadline to cure, escalation if not cured, re-verification when corrected COI is submitted.
Bramble automates the verification step - the one that manual programs consistently shortcut. It reads the franchise agreement, extracts the applicable requirements, compares the submitted COI field by field, and flags deficiencies with the specific agreement language that is not satisfied. For franchise systems with 50 to 500 locations, that means consistent, auditable verification at a cost structure that manual review cannot match.
Learn how Bramble builds franchise-wide COI compliance programs.