Understanding your insurance policy can be tricky — especially when it’s filled with legal terms and technical language. This guide breaks down the most important coverage features and legal terms in plain English, so you can quickly grasp what’s included, what’s excluded, and where risks might be hiding.

Each definition below explains a key concept that appears in Errors & Omissions (E&O) insurance policies — all of which are crucial for protecting you and your brand from lawsuits, claims, and business mistakes.

Use this as a quick reference whenever you're reviewing a policy, comparing quotes, or trying to make sense of what you're covered for (and what you're not).


Breach of FDD/Agreement
This means you're covered if someone claims you broke the Franchise Disclosure Document or Franchise Agreement. It’s critical protection for franchisors.

Bodily Injury/Property Damage Carve-Outs
These are exceptions in the policy that allow coverage for Bodily Injury or Property Damage, even when those things are usually excluded. This is important if you're sued for an error that caused physical harm or damage by a franchisee.

Consent to Settle
This means the insurer needs your OK before settling a claim. Some policies include a “hammer clause,” which reduces what the insurer will pay if you say no to a reasonable settlement.

Contractual Liability
This means you’re covered even if the claim involves a contract. Some policies only cover you if you would have been liable even without a contract.

Definition of Franchisor Services
This outlines what the insurer considers your official duties as a franchisor — like franchise sales, training, site help, and FDD prep. A broad definition gives you better protection. WIthout it, you may not have coverage. 

Defense Costs
These are the legal fees and court costs the insurer pays to defend you. Some policies pay these costs separately (better), while others subtract them from your coverage limit.

Extended Reporting Period (ERP)
This gives you extra time to report claims after your policy ends. It's useful if something bad happened during the policy, but you didn’t know about it until later.

Failure to Procure Insurance
This covers claims that say you didn’t get the right insurance — for yourself or someone else — when you were supposed to. It’s a common risk in franchising.

Failure to Provide Services
This covers claims where someone says you didn’t do what you promised as part of your professional services. It’s often included under “wrongful acts.”

Fraud Allegations
This covers defense costs when someone accuses you of fraud — until a court proves you actually committed it. If you're found guilty, the policy usually stops paying.

Franchisee Exclusion
This is a rule that says your insurance won’t cover claims from franchisees. It’s important to check if this exists, because it could leave a big gap in coverage.

FTC Violations
This refers to claims that say you broke Federal Trade Commission rules, especially those tied to franchise sales. Most policies are silent or exclude this unless it’s tied to negligence.

Guarantees/Financial Outcomes
This excludes claims that say you promised someone success, profits, or results — and they didn’t happen. It's a standard exclusion. A good policy will cover negligence up to the point of adjudication. If you're found guilty, then no coverage would apply. 

Intellectual Property
This covers claims where someone says you used their trademark, copyright, or brand without permission. Some policies exclude this unless it was unintentional.

Mismanagement/Oversight
This covers you if someone says you ran things poorly — like not enforcing brand standards or failing to support franchisees. It's often part of the broader “wrongful acts” definition.

Negligent Misrepresentation
This covers situations where you gave someone incorrect information by mistake, and they relied on it. It’s a common source of franchise-related lawsuits.

Negligent Non-Disclosure
This applies when you leave out important information someone needed to make a decision — not on purpose, but by accident. Coverage helps protect you if you're accused of hiding facts.

Other Insurance Clause
This explains how your policy works with other insurance policies. Usually, it says your policy is secondary unless the other insurance doesn’t apply. If your E&O and D&O are with two separate carriers, they may end up in what we call “Denial War” during a claim. 

Pollution Exclusion
Most policies exclude claims involving pollution, like chemical spills or fumes. A carve-out (exception) might cover it in certain professional settings.

Prior-Acts Coverage
This protects you for things that happened before your current policy started, as long as you didn’t know about them. It only works if your retroactive date allows it.

Regulatory Violations
This covers claims that say you broke a rule or law due to negligence. It usually includes mistakes tied to licensing or disclosure.

Reporting Period
This is how long you have to tell the insurance company about a claim. If you miss the deadline, the claim might not be covered.

Retention
This is like a deductible — it's the amount you have to pay before the insurance kicks in. It usually applies per claim.

Retroactive Date
This is the earliest date a claim can be made for something that happened in the past. If a problem started before this date, the policy won’t cover it.

TCPA / FCRA / FDCPA
These are federal laws about calling, texting, credit reporting, and collections. Coverage matters if you're sued for telemarketing or mishandling consumer data.

Territory Disputes
This relates to lawsuits where a franchisee says you gave away their protected area or promised them exclusivity and didn’t deliver. Coverage for these disputes is often excluded unless specifically added.

Third-Party Claims
These are claims from people outside your company — like a customer, vendor, or franchisee — who say you caused them harm. Coverage for this is important in franchising.

Vicarious Liability
This covers situations where you're blamed for something a franchisee or someone else did. It’s often excluded, but important if you want protection from being dragged into lawsuits.

Wrongful Acts
This refers to mistakes like bad advice, poor judgment, or miscommunication in how you run your business. It’s a broad category and the core of most E&O and D&O policies.

Disclaimer:
This guide is for general informational purposes only. It does not provide insurance coverage, and it does not guarantee how any claim will be handled. Every claim is reviewed based on the specific facts, policy language, and circumstances involved. Always refer to your actual insurance policy or speak with your broker for guidance on your coverage.