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The Best Policy: Insurance pitfalls

What is the “real” cost of a loss?   What are some things that might cause a loss to be declined by insurance?

One day while jeweler Pearl E. Gates was showing three diamond rings to a customer, the customer suddenly grabbed all three items from the showcase top and raced out the door.  Even the magnetic lock on the door was no deterrent because the thief was savvy enough to know how to hit the emergency release button.  The wholesale value of the jewelry that was stolen was $25,000, and Pearl had a $2,500 deductible on her Jewelers Block* policy.

[“Jewelers Block” is the insurance standard for the jewelry industry.]

Fortunately Pearl’s insurance policy covered the loss and Pearl’s only tangible cost was her deductible.

Math question:  How much in sales - at retail, will have to be made by Gates Jewelry to recoup the loss of the $2,500 deductible?  [Assume “keystone” pricing (100% mark-up), and that the store operates on a 5% profit.]

I’ll stop writing for a few minutes while you work out the answer.

.  .  .  .

That’s long enough.

Using a little high school Algebra, the formula looks something like this:  5% of something = $2,500; or .05 X = $2,500.  That leads to X = $2,500 / .05 ($2,500 divided by .05).   Then double your answer to take it from wholesale to retail.

Pearl will need to sell $100,000 in jewelry just to make up the deductible!

For another situation, let’s keep the loss at $25,000 but change the event.  Pearl was going to take a package to the Post Office that contained $25,000 in diamonds - while she was out of the store for a hair appointment.  During the appointment, Pearl left her purse containing the diamonds in the salon office for what she thought was safekeeping.

The purse was stolen.

Pearl’s insurance company provides coverage for merchandise in her custody off premises, but leaving it in another office was deemed not to be in Pearl’s custody.  Uninsured loss:  $25,000.

Using the same formula as before and presuming keystone, it will require $1,000,000 in sales to make up a $25,000 uninsured loss!

A loss that costs a jeweler his or her deductible is one thing, but an uninsured loss can cripple a business for a long time.

So while loss prevention is important, declination prevention is critical.

So the purpose of this month’s column is to take a look at some of the things that a jeweler or sales associate might do that could cause a loss to fall under the “unpayable” column.

This will in no way be a complete treatment of every kind of loss that might be excluded in a Jewelers Block policy, and there are differences in companies and policies, but we will take a brief look at some common losses that could be classified as coverage exclusions in four categories:  Transporting, Shipping, Premises Daytime (when open to business), and Premises Nighttime (when closed to business).

Transporting Merchandise

Unattended Vehicle - theft from an unattended vehicle is clearly and unequivocally excluded from coverage in most policies.  It may be stated in the policy that an attended vehicle will have “you or your employee” in or on the vehicle (“near” does not equal “in or on”).  Construe “in or on” to mean at the very least, “touching.”  Example:  a person stopped to buy gas while transporting merchandise, and when he walked over to the kiosk to pay, thieves who had been following him blocked his view with their van and stole the merchandise – in less than 10 seconds!  Unattended Vehicle – the jeweler was not “in or on” the vehicle.  Even if the salesman had been one inch away, he would have only been near the vehicle, not in or on it – there is no margin for error.

Keeping merchandise “in custody” when transporting - You must keep the merchandise in your physical custody at all times for coverage to apply.  Custody may not be specifically described in the policy, so common usage and case law are what apply.  Nevertheless, when transporting jewelry merchandise it is always important to keep the property with you – and not leave it someplace out of your direct control, as described in the hair salon scenario.

Shipping Hazards

Shipping merchandise – Double-box packages – do not send jewelry in an envelope.  Be aware that mail handling equipment can damage envelopes (think, “diamond dust.”)  Also note that Priority Mail is usually not insured (Registered Mail and Express Mail may be).  When you take a package for shipping, be certain that you wait for the package to be scanned in and that you are given a receipt.  Do not leave it to be scanned later or trust the driver to scan it later in the truck.  Without shipping documentation, you will likely have no coverage.

Receiving shipped merchandise - Count the packages and look carefully for signs of tampering, including re-taping.  Only after you have inspected each package should you sign for it or them - that is the purpose of the signature. If you receive fewer packages than you sign for or later discover signs of tampering, and then that a package does not contain the merchandise, the sender will claim that the merchandise was sent and that you received it - as evidenced by your signature.  The risk of such a loss not being covered by insurance is very high.

Opening shipped packages – For personal protection of the individuals as well as to prevent accidental discard of merchandise, it is recommended that received packages be opened in the presence of two associates and that a re-examination of packing materials be a part of the process.  Opening packages under video surveillance is another recommendation.  [If there is a problem with the contents of a package, would you like to be in the shoes of the employee who opened it with no one else around?]

Daytime

Allowing a customer in before hours - The opening procedure should be that all merchandise is properly secured in showcases before the doors are unlocked and customers are allowed in.  If a person is allowed into the store early and as a result the store is robbed, coverage of the robbery may be in jeopardy.  Example:  recognizing a customer who had been in several times in the last few days and who was considering a major purchase, the manager allowed the person inside while the store was being set up.  As soon as the door was opened, several accomplices rushed in and a robbery ensued.  Merchandise was still in boxes and easy to take, so the loss was substantial.  Coverage may be declined under these circumstances.

Allowing a customer in or to remain after hours - The closing procedure should be that the door is locked after all customers have left, and then the process is begun of removing merchandise from showcases for transport to the vault or safes.  If allowing a customer to remain inside during the closing procedure leads to a robbery, coverage might be declined.

Leaving a showcase unlocked - Most insurance carriers promote keeping showcases locked except when showing merchandise.  If a theft occurs from a showcase that is not locked, there may be no coverage for the loss (note that a showcase with a key left in its opening is likely to be considered to be unlocked).

Remember that thieves practice techniques of confusion to coax a salesperson into leaving a showcase unlocked, which can sometimes be verified by video surveillance.

I recommend that each associate carry his/her own set of showcase keys and that they be kept in a pocket or on the wrist at all times - and that associates assist one another in being sure that no showcase is ever left unlocked except when removing or replacing merchandise.

Nighttime

The alarm system - You must lock the safe(s) or vault and set the alarm system before you leave; not doing so would likely void coverage for burglary.  Also, the alarm must be in working order.  If there is a problem with setting the alarm system, notify the alarm company immediately and arrange for repairs.  If repairs cannot be made before closing, call your agent or insurance company for instructions - before you go home.  [A good reason to have an insurer you can speak to 24/7.]

Notify the police, explain the situation, and request additional patrols.  Leave the lights on in the store all night.

You may be advised to hire an armed guard or have a store employee stay with the store.  Note that the person staying with the store should not  risk his or her life to protect the merchandise!  The mere fact that the store is not left completely unprotected is generally sufficient to prevent a burglary if one was to have been attempted.

Responding to an alarm call from home - Request the caller’s name, and then using your own phone information call the alarm company back to verify the call (that the call was not a hoax or pretense).  Ask to be met at the premises by a guard or police.  Remain in your locked vehicle until assistance arrives.  Then with assistance examine the premises inside and out, looking for signs also that someone might be on the roof or in an adjacent premises waiting for you and the guards to leave in order to resume their attack on the premises.

At home, video surveillance (Internet) is an additional aid to security in the event of alarm calls; however I do not recommend that you rely 100% on electronic surveillance.  Systems can be compromised or fooled - as can people.  Nevertheless, technology is not considered to be a replacement for personal examination of the premises.  If a burglary occurs, it will be important that you took reasonable and prudent steps to respond to the alarm.

Virtually every loss is unique, and as previously stated, there are differences in insurance policies and in insurance companies – so choose your carrier carefully.  These comments pertaining to coverage are intended to be of a general nature and are for information only - and should not be used to presume whether a specific instance of loss will or will not be covered by insurance.

Use these comments as guidelines, and discuss any loss situation with your Jewelers Block insurance advisor.

Bob Carroll is a Certified Insurance Counselor and owner of Robert G. Carroll and Associates – an independent agency that has been serving the jewelry industry for nearly 30 years.  Bob represents Jewelers Mutual and other carriers in Arkansas, Oklahoma, Mississippi, and Tennessee.  He can be reached directly at This email address is being protected from spambots. You need JavaScript enabled to view it..

The Best Policy: The watch shop burglary

The customer walked into Jim Cellar's Fine Jewelry with a watch that had not run in years. The bracelet was missing and the brand name was indistinguishable. The customer said that he would just like an estimate on what it would take to get it running again. Jim took the watch in without a discussion about the value except that the customer mentioned that it had belonged to a deceased relative.

“Shopping” insurance: When should you do it? What should you look for? Is the price the only thing to consider?

Rhoda Lyte had an insurance policy for her retail jewelry store that excluded coverage for all property that was in showcases.

Her policy may have been intended as burglary (night time) coverage alone, but Rhoda wasn't aware of that, and she had not asked for just "burglary" coverage. If she had had an armed robbery, only merchandise that happened to be lying on top of tables or showcases would have been insured.

The Best Policy On safes and vaults: What is a “relocking device?”

The old safe had a massive appearance which was in stark contrast to the man about to attack it. Wearing coveralls and eye-protection, there were few tools at his side - no computer, no sophisticated drills or saws, in fact nothing that plugged into the wall; just a few simple hand tools that might have been purchased at a local store.

The Best Policy Would your business survive?

Carroll-May"Friendly fire." A friendly fire is the one in your fireplace, in your patio grill, or gently flaming from the end of the torch at your jeweler's bench. But friendly fires can sometimes become not-so-friendly - and quite suddenly. This photo was taken on a weekday at 1 pm, just a few blocks from a fire station - and yet before the first firefighter arrived on the scene.

Safes and Vaults: Some facts and myths

Let's begin by being sure that we are talking the same language - the words vault and safe are not interchangeable.

A safe is a box-like container designed to protect its contents from fire, burglary, or both. A safe is manufactured in a safe factory and sold as a complete unit. Thus most safes (floor safes being the exception) are capable of being moved from one location to another, though possibly with difficulty because of size and weight.

By contrast, a vault is a room that is designed to protect its contents from fire, burglary, or both; whether it may be moved from one place to another is discussed later.

A safe is like a refrigerator or freezer in your home; a vault is more like the walk-in cooler at a grocery store or florist.

FACT or MYTH? A safe is a safe; except for size, they're all the same.

MYTH. Underwriters Laboratories is an independent testing facility that tests and rates safes and vaults, as they do thousands of other products used in the United States.

Fire safes are designed and built with the primary purpose of keeping whatever is inside below 3500 F (the flash point of paper) for a period of time. Through prototype testing, fire resistive safes are generally rated as 1 hour, 2 hours, or 4 hours. Note that no manufacturer makes the claim of producing a fireproof safe. A very hot fire will eventually increase the inside temperature of any container and destroy the container itself.

Burglary safes are designed to protect the contents from thieves, though some also provide fire protection.

Underwriters Laboratories subjects burglary safes to simulated burglary conditions conducted by UL technicians in a controlled and measured environment. So that safes may be compared one with another, the tools are prescribed and thus limited - even though real burglars are not restricted in the tools they use to attack safes in jewelry stores.

Many of the UL tests utilize common hand tools which people often have in their garages or tool chests; i.e., hammers, chisels, wedges, small electric hand drills, etc. Real burglars on the other hand attack safes with high pressure drills with diamond bits, concrete saws, and hydraulic devices (like the "Jaws of Life" equipment associated with fire rescue), and even magnesium burning bars which create such intense heat that special fire-protective equipment must be worn.

Because of this inherent "unfairness" of the system, UL tests and the ratings that are developed are useful only in comparing safes - not in determining how long it would take a real burglar to penetrate a safe. And just as no fire safe is fireproof; no burglary safe can be considered to be burglarproof. Given enough time and the appropriate tools, any safe can be compromised.

FACT or MYTH? UL safe ratings are in code to make them difficult to understand.

MYTH. Underwriters Laboratories gives us an easy to understand rating system which clearly describes the test involved in achieving the rating. To understand UL ratings, you just need to know a few abbreviations.

TL stands for the word tools. In most cases, these are the common hand tools mentioned above.

TR stands for the word torch - an oxyacetylene welder's torch.

TX is used to indicate a test using explosives. (Myth-Busters fans may remember an episode in which a safe was sealed and filled with water and then detonated from the inside. The door was blown off and the safe was destroyed - as was everything inside.) UL technicians would have conducted the test a bit differently.

The numbers in the rating system define the minutes of the test - 15 or 30 for tool and torch tests, 60 for the rarely administered explosives test.

Thus a TL-30 safe (the most common rating) passed a 30-minute test by UL technicians using prescribed common hand tools - at least its testing prototype did. The safe was not subjected to a welder's torch or any type of heat attack. A TRTL-15 safe passed only a 15-minute test, however technicians also were permitted to attempt to burn (torch) their way into the safe.

Typical ratings are: TL-15, TL-30, TRTL-15, and TRTL-30. Now you know what each of those ratings means in terms of the UL test.

The goal of these UL tests is to create an opening of a certain size, attacking only the door of the safe and the framing around it.

Why not the sides, top, and bottom of the safe, you ask?

There is an important higher level: the "X 6" test (pronounced "eks-six" not times six - it is not a math test). "X 6" signifies that the entire safe was fair ground for UL testing rather than just the front. Thus a safe that carries the rating "TRTL 30X6" may be considered to provide a much greater level of security than, say, a TL-15 rated safe.

INSURANCE CONSIDERATIONS: Insurers have long relied on the UL testing of safes as indicators of relative protection. While safe dealers may be able to provide an "idea" of the values that an insurance carrier will allow in a particular rating of safe, you should know that insurance underwriters independently make such determinations. Therefore it is important to have a discussion with your own insurance carrier before purchasing a safe - or vault.

If planning a new store, bring your insurance agent in early to help you with decisions about safes, vaults, and other elements of security.

FACT or MYTH? A "vintage" safe with 10" thick walls and "stair stepped" door framing, and mounted on huge steel castors, is probably an excellent security safe.

MYTH. Unless there is a steel compartment inside, what is stated above most likely describes a fire safe rather than a burglary safe. No burglary safe today is manufactured with wheels on it; and over time, the cement in the walls of such a safe may have compacted to the point that even adequate fire protection would be questionable. Without a device known as a relocking system, many fire safes can be opened by a burglar in less than 10 seconds!

What about gun safes for jewelry security? An insurance carrier may or may not approve a gun safe for jewelry security, but as just stated - check first. Many gun safes are unrated, which means untested; and some carry a UL rating of "RSC," which stands for "Residential Security Container" - a designation also applied to wall safes and other containers intended primarily for home use. An RSC test would be equivalent to "TL-5" if there were such a rating; i.e., common hand tools, only the door and facing, 5 minute test.

FACT or MYTH? A vault is inherently more secure than a safe.

MYTH. Vaults are more convenient than safes, not necessarily more secure. "I don't need a safe - my store is in an old 1920s bank building, and I have the original vault to use," may not be an encouraging phrase to an insurance carrier. And like safes, vaults may be built for different purposes. For many types of business, fire is the greatest concern, so there are fire vaults which are intended to protect important records. A fur vault is designed more for fire and moisture considerations than for theft (fur inventories are not as "portable" as jewelry). And banks in the 19th and early 20th century were more concerned with robbery ("Stick ‘em up, and put the money in the saddle bags!") than with burglary.

Rooms which are intended to serve as vaults are sometimes built of cement blocks, which are brittle and can be chipped through fairly easily. So whether such a wall provides significant security would depend on how much steel rebar might have been used in construction. A block wall with a fire-rated door that looks like a vault door is more correctly defined as a "stockroom." Whether or not it is appropriate for jewelry inventory would depend on other factors, such as the level of inventory, the general environment (town or city), the alarm protection - and the underwriter.

Underwriters Laboratories defines four levels of vaults: Class M, Class I (or 1), Class II (2), and Class III (3). The actual UL testing is most often applied today to modular vaults; i.e., vaults which are purchased as prefabricated panels for on-site assembly.

Prototypes of Class M modular vault panels are subjected to 15 minutes of attack in the UL testing facility; Class I, to 30 minutes of attack; Class II, to one hour; and Class III, 2 hours. So in referring back to the "Fact or Myth" question - a TRTL 30 X 6 safe would be held to provide a greater level of security than a Class M or Class I vault; on the other hand, there is likely to be far more capacity for storage in the vault; hence, more convenient.

[Convenience is not to be taken lightly. Because of the ease of daily loading and unloading, a vault can save hundreds of hours of employee time, as well as shop-wear on merchandise. Most jewelers who once experience working with a vault would never return to using only a safe or safes.]

For poured on site vaults, the American Society for Testing and Materials (ASTM) is an independent testing facility familiar to the construction industry which defines vaults by construction and materials rather than actual testing. There is an equivalency however, because ASTM refers to the UL rating system.

By ASTM standards, a poured on site vault of Class M level must have walls that are 9" thick that includes two layers of a 4" steel grid that are off-set to one another. A Class I on-site vault will have 12" walls with 3 layers of grid; Class II will have 18" walls with 4 grids; and Class III, 27" walls with 5 grids.

In every instance of comparison that the author has experienced, modular vs. contractor-poured, modular vaults prove significantly less expensive when the same level of protection is compared. Another advantage of modular over on-site poured is the wall thickness - a factor which infringes dramatically on floor space that could be put to other use.

For example: a 10' X 10' vault creates 100 sq. ft. of area in which a jeweler can wheel carts of merchandise each day. A Class III poured-on-site vault will require an additional 110 sq. ft of "footprint" for the walls alone; a Class II vault of the same size will require 69 sq. ft. of additional floor space.

Modular vault panels range from 4" to 13" in thickness, Classes M through III (3), which cuts the amount of floor space required by more than half. Also since panels are manufactured to order, vault design is not restricted to the typical rectangular shape; the vault can be configured to fit the design of the store.

FACT or MYTH? A modular vault is portable and can be moved to another site in the future.

Both FACT and MYTH. A modular vault, even if attached to the floor or building, can be de-constructed in the same manner that it was constructed and taken to another site. Whether that is cost-effective at the time is another question. One jeweler, faced with the logistics of keeping a current store open and operating while a new location was being built, ultimately determined that it was more expedient to abandon and build new than attempt to move the original vault.

And one more FACT or MYTH: A vault costs more than a safe.

That depends on your frame of reference. In pure cost, a vault is a more costly investment. But in terms of dollars and useable space, a vault narrows the gap and almost always surpasses a safe in cost per cubic foot. Add to that the convenience factor, which also has dollar value - a vault will save money in the long run.

For more information about safes and vaults as applied to your unique situation, remember to rely on your jewelers insurance professional, or the loss-control department of your insurance company.

 

Bob Carroll is a Certified Insurance Counselor and independent insurance agent who has served the jewelry industry for more than 25 years, representing Jewelers Mutual Insurance Company and other carriers in Arkansas, Oklahoma, Mississippi, and Tennessee. He can be reached directly at This email address is being protected from spambots. You need JavaScript enabled to view it., or www.robertgcarroll.com.

 

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