1. Insurance Terms & Definitions/
  2. Insurance Terms Starting With G

Grantor of Franchise

What is a Grantor of Franchise?

Grantor of Franchise is a specific insurance designation, often formally established through ISO form CG 20 29, that adds a franchisor as an "Additional Insured" on a franchisee’s liability policy. The definition of this term focuses on providing the franchisor with a legal defense and indemnification for claims arising from the franchisee's operations. In an insurance context, the meaning of "Grantor of Franchise" may refer to the limited scope of coverage that protects the franchisor only in their capacity as the entity that granted the license to the operator.

Grantor of Franchise in More Detail

The Grantor of Franchise endorsement is the primary mechanism for “downward” risk transfer in a franchise system. While many businesses use general “Additional Insured” forms, the meaning of the Grantor of Franchise designation is unique because it is tailored to the specific legal relationship between a brand owner and an independent operator. The definition of this status is designed to ensure that if a third party sues both the franchisee (for an operational error) and the franchisor (for owning the brand), the franchisee’s insurance policy is the first to respond.

Technically, the use of this term may refer to the specific protections—and limitations—found in ISO form CG 20 29. While it provides a robust defense for Vicarious Liability (where the franchisor is blamed for the franchisee’s mistake), it often excludes “direct negligence” by the franchisor. For example, if a franchisor is sued for a flaw in a mandated kitchen layout that caused an injury, the “Grantor of Franchise” status might not trigger coverage because the liability didn’t stem from the granting of the franchise, but from the franchisor’s own design error.

For Founder Shield clients, the Grantor of Franchise endorsement is a non-negotiable component of a healthy FDD. Without it, a franchisor is unprotected against the daily operational risks of their franchisees, potentially forcing their own corporate towers to pay for local accidents. It is the “glue” that ensures the insurance follows the brand, no matter who is running the cash register.

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