Having spent the past 50 years in the jewelry industry, with the last twenty-one of those years also as part of the Property and Casualty insurance industry, I have a unique perspective of the enormous disconnect between the two industries. On one hand is the insurance industry that operates based on insurance laws, with government appointed Insurance Commissioners overseeing the operations of the industry to ensure compliance with the law. On the other hand, is the jewelry appraisal industry that operates in a legal void of any government regulation or oversight. The result is that most in the jewelry appraisal industry do not understand how the insurance industry operates, which results in misunderstandings and conflicts when the two industries intersect. Today I thought I would take a few minutes and answer some of the misconceptions that the jewelry industry has about the insurance industry regarding jewelry appraisals. The hope is to bridge the knowledge gap to improve the jewelry industry’s understanding of what insurance really is and does. Here we go…
Misconception: The insurance industry will do anything they can to not pay or pay as little as possible when I or my clients have a claim.
Truth: Your insurance policy is a legally binding contract between you and the insurance company. How a claim is paid, how much is paid, and under what conditions payment is made is laid out in the insurance policy. The insurance company, by law, must comply with all aspects of the insurance policy. Most often, insureds do not actually read the policy and do not understand how a claim will be handled. They have their own concept of what they WANT to happen, and when that does not parallel the actual claims process, they feel the insurance company is just trying to low-ball the claim. This is not true. The insurance company’s job is to put you back where you were 5 minutes before the loss happened, based on the conditions and limitations of the policy. Nothing more, nothing less. How that is done is in your policy and you must understand your policy to understand the process. In the five years I was with the Property and Casualty division of USAA Insurance, not once was I ever told to save money or cut costs. I was always told to be fair to the member and put them back like they were before the loss.
Misconception: If the insurance industry would require higher standards for jewelry appraisers, more appraisers would get properly trained.
Truth: First, if the insurance industry suddenly required a legal standard for jewelry appraiser training and credentials they would immediately eliminate 95% of the appraisals they receive. Simply stated, there is not enough properly trained appraisers in the industry to fulfill the insurance industry requirements. Second, the insurance industry has no legal authority to require appraisal standards of this type, as exists for real estate appraisers, for instance. Education and licensing requirements for appraisers is a government established authority for real estate appraisers. Nothing like this exists for the jewelry appraisal industry so any ability to enforce any kind of standards does not exist.
Misconception: The insurance company has been taking premiums for an appraised value. When there is a loss they should just pay the value on the appraisal.
Truth: An insurance policy does not cover an appraisal; it covers an insurable item. In the case of jewelry, the actual jewelry item is what is insured, not the appraisal. In the event that a diamond is broken, for instance, if the damage inspection finds the diamond is actually HPHT treated and not natural color, the insurance policy will replace an HPHT treated diamond and not a natural untreated diamond as listed on the appraisal. Why? Because the appraisal was proven to be in error. The insurance company issued the policy on the erroneous appraisal and the damage inspection of the actual diamond supersedes the information in the appraisal. This includes major lab reports submitted with an appraisal. It is the appraiser who bears legal responsibility for any errors in the appraisal or major lab report. The labs are not responsible for any errors they make that get included in a jewelry appraisal. The main point here is that the appraisal information is not what is insured, the actual diamond is insured. Any deviation in accuracy between the written document and actual diamond negates the appraisal document.
Misconception: If the insurance company pays less than the appraised value, they should refund the premium payments if they pay less than the appraised value on a claim.
Truth: Inflated premiums are not the legal fault of the insurance company; they are the fault of the person who issued the appraisal. In the example above, had the person issuing the appraisal properly disclosed the status of the diamond as HPHT treated, and valued it properly, the client would have paid the correct premiums for the coverage. In this example, the client has a legal right to file an action against the appraiser for having paid inflated insurance premiums due to their error. It is not the insurance company’s responsibility to verify the accuracy of the appraisal.
Misconception: The insurance underwriters should review the appraisals for errors before they issue a policy.
Truth: Insurance underwriters are not jewelry appraisers. They cannot be held responsible to find appraiser errors. Beyond that, they must handle thousands of policy applications. So even if they did have the knowledge and experience to understand a jewelry appraisal, there is no time to review each and every one. They rely on the accuracy of the person doing the appraisal. If errors are found during the claims process in either the quality or the value of an item, that is up to the insurance adjuster to deal with. Which we do.
Misconception: The insurance company will replace a diamond from their sources, even if that diamond is not the same quality as I sold to my client.
Truth: If the policy states that the insurance company can replace the diamond from their sources, they can and usually will do so. Remember, they insured the actual diamond and not any perceived provenance or value of the diamond due to coming from your store. If there is provenance regarding custom designs or special proprietary issues surrounding the diamond, you should have put this into the appraisal document to control the claims process. Same with diamond quality. If the accurate quality of the original diamond was not properly set forth in the appraisal, then that leeway in quality is left up to the insurance company. For instance, if you use split grades on the reported diamond grade, i.e. SI2-I1 clarity and G-I color grade. The insurance company has the legal right to replace this diamond with the lowest of the variables, an I1/I grade diamond, and be within the legal parameters of the insurance policy. You, as the appraiser or jeweler, put that variable into your appraisal and left your client exposed. The same applies to a damage evaluation. If a diamond you sold as a VS2/G is chipped and sent in for a damage evaluation and found to be a SI2/J, then the physical inspection supersedes your appraisal grades. The legal recourse for the loss is between you and the client. The physical inspection of the diamond takes precedence over your appraisal.
Misconception: As the appraiser it is not my responsibility or duty to understand an insurance policy or to counsel my client on insurance in any way. In fact, I am legally not allowed to do so.
Truth: For the most part, this is not true. It is a fact that anyone who is involved in the application, underwriting, or claims handling of an insurance policy must be licensed by their state’s Department of Insurance. However, the jewelry appraiser is an integral part of the insurance process and must know the insurance policy. For instance, if your client has USAA with their own in-house replacement service, the method by which the claim will be handled will be different. So, any specific provenance of the item that would require a specific designer only be used for replacement would have to be carefully documented. Same will apply to the type of policy and appraisal updates. A stated value policy would be handled differently by the insurance company than an actual cash value policy. Understanding these will impact the frequency of update reviews you and the client will want to do on their coverage.
Misconception: My appraisal is just my opinion. I am not responsible for any insurance action someone wants to take based on that opinion.
Truth: This is the most egregious of the misconceptions of insurance by appraisers and jewelers: that your appraisal is just your opinion, and no one can hold you liable for errors. In fact, you are legally liable for any errors and omissions in your appraisal document that impacts an insured getting indemnified in the event of a loss. Whether it be a formal appraisal document following USPAP standards, or simply a statement on your store’s letterhead submitted to the insurance company, you are legally liable for all errors. That includes a grading error by a major lab report that you include as part of your sales presentation. If that lab is in error in any way and that goes into an insurance policy, the error is yours to answer for and potentially pay for.
As I hope everyone will realize, simply being a GIA Graduate Gemologist or operating a jewelry store for 30 years does not make anyone a qualified jewelry insurance appraiser. The misconceptions of how insurance works by appraisers and clients creates the vast majority of problems I have experienced in my 21 years as an insurance adjuster. Here is an example as a final point.
At USAA I helped handle major jewelry loss claims. When they occurred, the claim went to a “Claims Committee” to review the claim and how it was to be handled. The high value Claims Committee was composed of USAA’s top adjusters and a Claims Manager. Usually someone from the Litigation Department was there to ensure we were following all legal aspects of the policy. In this instance we had a claim close to one million dollars in front of us. The jewelry appraisal on the policy was from one of the most well-known jewelry appraisers in the country. We requested a conference call interview with this appraiser to clarify a couple of questions we had on the appraisal.
So let me set the stage. We were all in this large conference room at the USAA office in San Antonio, all top-level insurance and legal professionals sitting around this table with a speaker phone in the middle of the table. We get the appraiser on the speaker phone and all of the niceties were done. Then the Claims Manager stated that we had a few questions about his appraisal as pertaining to the claim. The next thing the appraiser said was this: “OK, let me explain to you how you need to handle this claim.”
We had to mute the phone we were all laughing so hard. As famous as this guy was, he had absolutely no clue how the insurance claims process worked, particularly on this level. Great appraiser, no insurance understanding. We actually had to stop him and let him know we had very specific questions and did not need his guidance on how to handle that claim.
If you are doing jewelry appraisals with no proper training, I invite you to join us (International School of Gemology) for our Registered Gemologist Appraiser program, the only one in the world where you get the education and training you need from a licensed, experienced insurance adjuster who specializes in jewelry insurance claims.
Then, join the National Association of Jewelry Appraisers to get advanced training that will provide you with a solid network of continuing education and support now and into the future.
In every case I have seen of a client not getting proper insurance coverage for a jewelry item loss, it was because of the misconceptions and resultant errors about insurance by the jeweler or appraiser.
Do not be one of those jewelers or appraisers.