Restaurant Franchise Bankruptcies Could Leave Insurers Holding the Bag

Sailormen, Inc.’s Bankruptcy Filing Highlights Trend in Fast-Food Industry

At the time of its bankruptcy filing in January 2026, Sailormen, Inc. owned $47,346 worth of shortening. That may seem like a lot of shortening, but on the petition date, Sailormen operated 136 Popeyes Chicken franchise locations. Sailormen fries a lot of chicken. Sailormen’s Chapter 11 filing is just one of several fast-food franchisees seeking relief under the Bankruptcy Code as they deal with rising costs and consumer cutbacks.

Although Sailormen initially suggested it would restructure and continue operating a more streamlined portfolio, the company has changed course, receiving bankruptcy court approval to sell 97 restaurant locations for approximately $16.6 million. Sailormen has also requested court approval to reject the leases and franchise agreements related to the remaining locations it could not sell. The sale and rejection of leases suggest Sailormen will end its operations. The $16.6 million in sale proceeds is insufficient to pay Sailormen’s reported $145 million in liabilities. As a result, Sailormen will likely propose a plan of liquidation or convert the Chapter 11 case to a Chapter 7 proceeding. The current deadline to file a Chapter 11 plan is September 12, 2026.

Sailormen’s bankruptcy filing also has implications for its liability insurers. To date, five personal-injury plaintiffs have filed motions for relief from the automatic stay to pursue and liquidate claims against Sailormen solely to pursue insurance proceeds. These motions generally involve premises-liability and slip-and-fall claims.

To the extent the Bankruptcy Court grants the claimants relief from the automatic stay to liquidate pre-bankruptcy claims, it is unlikely that Sailormen will take any action to defend the claims. Likewise, bankruptcy case law generally provides that Sailormen will not be obligated to fund its self-insured retention obligations in actual dollars. Accordingly, Sailormen’s bankruptcy filing places its insurance carriers in an unenviable position.

Sailormen is not the only franchisee to seek bankruptcy protection in the face of slumping sales. Consolidated Burger Holdings LLC sought Chapter 11 protection in April 2025. After selling or rejecting leases for 57 restaurant locations, Consolidated Burger Holdings dismissed its Chapter 11 case in July 2026.

These cases highlight an important issue for liability insurers: a franchisee’s bankruptcy may stay litigation against the insured, but it does not necessarily eliminate the underlying liability claims. Instead, the bankruptcy can create additional challenges for insurers that may ultimately be left to defend and administer claims involving an insured that is no longer able—or willing—to participate in the process.