Dealing with Damaged Jewelry:
Don't Pay for Nature's Mistakes
Unlike a total loss, damaged jewelry is still there, holding clues that
can benefit the insurer. Take advantage of this!
Overpayment on claims for damaged jewelry is more the rule than the exception. The policyholder may take the jewelry in for cleaning and be told by the jeweler that it is damaged. The adjuster may just take a jeweler's word for assessment of the damage and cost of repair. This scenario can be unnecessarily expensive.
We recommend two steps in dealing with damaged jewelry:
The first step is to determine your exposure. For scheduled jewelry, this is the insured value. For unscheduled jewelry, it is the applicable replacement cost. As with auto damage, the adjuster should compare the repair cost to the replacement cost. With jewelry, most repair costs will be significantly below the limit of liability.
The second step is to have the damaged jewelry examined by an independent expert, a jeweler trained in gemological skills, who has a gem lab and who is trained in appraising for insurance. This important step is often overlooked by insurers.
Why is examination by an independent lab important?
It can save you money.
Recently JCRS handled salvage diamonds from insurers on damage claims already settled. Here's how the numbers came out:
| Sample Damage Claims | |||
|---|---|---|---|
| Liability |
Paid |
Replacement Cost |
Overpayment |
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Notice in particular the last example. The insurer paid out the full limit of liability — but a lab exam revealed that there was no damage to the stone. The diamond was an "indented natural." It had grown that way and was not subsequently chipped. The insurer should have paid nothing at all!
In the other examples, the insurer accepted the replacement amount charged by the jeweler. The replacement was based on the appraisal and other documents on file. The damaged stone was not independently examined.
Because so many appraisals lack descriptive details, having a damaged stone examined in a gem lab will almost always yield valuable information. The exam may reveal that a stone has been subjected to treatments, such as fracture-filling, that make it vulnerable to breakage. Such treatments should have been revealed on the appraisal (but often are not).
Sometimes a gem lab exam can determine the cause of the damage. Faulty workmanship or inherent vice in the stone are not covered by insurance. (However, it is rare to be able to tell for sure that these situations were the cause of the damage.)
Ask the gem lab to give a complete description of the jewelry on an ACORD 18 form. The adjuster can then use the lab's ACORD 18 report to check the accuracy of the appraisal on file. Such a complete description of the jewelry, including details often left off an appraisal, is important in pricing a replacement/repair.
It is the carrier's responsibility to make the insured "whole." When a loss is total, you must rely on the appraisal and other documents on file, but with a partial loss, the damaged stone can be easily inspected. A lab inspection may reveal that the quality of the piece was greatly exaggerated. The carrier is responsible for repair or replacement of the actual stone, not the stone the customer may have thought he bought. It is worth the comparatively small inspection fee to be sure of the gem's qualities.
A lab report showing exaggerated valuation may even prove useful to the policyholder. If he is still making payments on the jewelry, the customer can use the lab report to request adjustments on future payments. This is a value-add for the policyholder, and the fear of accusations of fraud may lead to better appraisals in the future.
If a lab exam uncovers a major discrepancy between the insured value and the quality of the piece, it may be advisable to send the gem to the GIA for a second independent analysis. The Gemological Institute of America is regarded as the ultimate authority in determining gem qualities (as discussed in the March 2002 issue of IM News). In the event of a dispute, the impartial GIA report should eliminate the need for a referee between experts. It is well worth the price to avoid paying out a greatly inflated value.
The gem lab should also be able to aid in estimating the salvage value of a damaged stone and offering other options. For example, in one recent case a jeweler offered an insurer $1,000 for a damaged stone. A lab suggested that it was possible to recut the stone and produce a gem that could sell for $4,000. The cost of recutting the stone was $400, and the insurer must bear that cost. In recutting a stone, there is always a chance that the stone will break. If that happens, the owner (in this case the insurer) is out both the stone and the cutting fee. The insurer can weigh the options. Simply selling the stone for salvage carries no risk but brings lower profit. In the case cited, the stone was successfully recut and subsequently sold, much to the insurer's advantage.
FOR AGENTS & UNDERWRITING
For jewelry of substantial value, it's best to have an ACORD form 78/79 appraisal. ACORD 78/79 gives a complete description of the jewelry, including any treatments, inherent vices or flaws in workmanship that might lead to future breakdown for which the insurer would not be liable. The description is guaranteed to be accurate because it is based on a gem lab inspection by a trained gemologist who takes full responsibility for his work. The ACORD 78/79 also guards against inflated valuations, since the valuation is based on what the jewelry sells for at that jeweler/appraiser's store. This appraisal recognizes the insurer as a party to the appraisal.
For items of lesser value, for which insurers would not require an appraisal, we recommend the new ACORD 805. This is not an appraisal but a Jewelry Sales Receipt for Insurance Purposes. The descriptive content however is the same as in ACORD 78/79, but it is intended to be used by jewelers who do not meet the higher education and training requirements set forth in the ACORD 78/79 appraisal standards.
FOR CLAIMS
With any damaged item that could lead to substantial claim payment, it is best to have the piece examined by a professional gemologist in a gem lab.
For a lab inspection, give the entire item to the lab. Do not give the lab any details about the policyholder or how the damage occurred. Ask for a complete description of the gem on an ACORD 18 form. Ask the lab to estimate the cost of repair, to help you determine whether to repair the item or replace it. Do not indicate that you will hire this lab to do the repair. Also ask for an estimate of the salvage value of the damaged stone.
Use the information from the lab's ACORD 18 report to determine the accuracy of the appraisal on file.
If the cost of repair is so high that you choose to replace the item, use the information on the ACORD 18 form to price a replacement. Shop around for the lowest bid.
©2000-2024, JCRS Inland Marine Solutions, Inc. All Rights Reserved. www.jcrs.com
Subscribe to Jewelry Insurance Issues
