1. Amy Thist never saw a need to carry anything other than standard business insurance for her jewelry business, and so she purchased a “business package” policy that provided general business liability insurance along with $475,000 on her “Business Personal Property.” Amy arrived at that coverage limit by adding her jewelry inventory of $400,000 to the $75,000 that she estimated she had in furnishings, improvements, fixtures, and equipment. The premium was substantial, and an agent who didn’t ask for a lot of details was willing to sell Amy a general business insurance policy with the limit that she requested.
One day Amy experienced the kind of loss that every jeweler dreads – an armed robbery. With Amy and her employee forced to lie on the floor, the robbers took their time to fill their bags with most all of the inventory and even a lot of customers’ repairs.
Since they did not quite get everything, the loss in inventory was only $350,000, plus $50,000 in customers’ repairs and $10,000 in diamonds that were in the store on memo. The total loss was $410,000 – well within the $475,000 limit of her insurance policy. She filed a claim with her agent and her business insurance carrier, expecting to be paid that amount.
Amy received the grand sum of $2,500 for her inventory and another $2,500 to divide between her vendors and all of her customers whose property was stolen.
Amy and her agent learned of a standard clause that is in most general business insurance policies concerning jewelry. The clause stated that maximum amount to be paid for theft of jewelry was $2,500; the fact that there was a high limit on the policy was irrelevant.
2. Sid Troyne had been in the jewelry business many years, and he knew that a general business insurance policy would not work for his jewelry business, so he contacted insurance agent Willie Lowman and asked specifically if Willie could provide “Jewelers Block” insurance. Willie said that his standard markets did not offer Jewelers Block, but that he could provide such insurance using a “surplus lines” broker (a wholesale dealer in insurance products).
Willie had not insured a jewelry business before, so he sent Sid an application called a “Proposal Form” and asked Sid to complete it. Sid answered the proposal questions as best he could, but he was not familiar with some of the insurance terms, nor how some of the exposure questions related to the coverages. Sid also was not aware that Jewelers Block is often warranted insurance, which mean that accurate information is imperative.
Sid’s current inventory was $492,064, but he didn’t want to buy that much coverage and so he wrote $300,000 in the line for most recent inventory figure.
In the lines asking for “the average daily amounts” of customers’ property, consignment and repair, Sid wrote $75,000 for customers’ goods and $75,000 for memo/consignment, because that was the amount of coverage he wanted for each.
On the line for “Limit of Coverage,” Sid again entered the amount of coverage he wanted for his inventory – $300,000. Sid reasoned that this would provide up to $450,000 coverage for his inventory, customers’ property, and memo/consignment goods. He sent the form to the agent, who forwarded it to the insurance carrier, and a policy was eventually issued just as requested on the proposal form.
In December burglars attacked Troyne Jewelry. From an adjacent business, they compromised his alarm system and, with plenty of time, hauled out the safe containing at that time $420,000. The thieves also stole $80,000 in customers’ property and $60,000 in memo goods, for a total loss of $560,000.
Sid then realized it has been a mistake to underinsure, and so according to his application, or “Proposal Form,” this is the way he expected his policy to pay:
- $300,000 for his inventory
- $70,000 on his customers’ property
- $60,000 on the memo/consignment aspect of the loss.
$430,000 was way short of his $560,000 loss, but at least he had insurance and could see the proverbial “light at the end of the tunnel.” The insurance company paid a little more than half of the loss – $300,000 – exactly the limit which was indicated in the application.
“Don’t I have another $150,000 coverage for customers’ and vendors’ property?” Sid asked. “I stated in the form that I wanted $75,000 for each!”
No, Sid reported an “average daily exposure” in those two categories of $75,000 each, but the limit of $300,000 (Sid’s own number) was the total policy limit for inventory, customers’ property, and memo or consignment merchandise.
Sid had misinterpreted the questions on the application, confusing exposure questions with coverage questions – in this instance, a $150,000 error.
There was another problem … the insurance company’s first offer was to pay nothing on the loss – and had the legal right to do so. Why? By stating that his “exact physical inventory” was only $300,000 when in fact it was $492,064 – Sid made what the carrier considered to be a material misrepresentation of the exposure. Legally, that could have voided the policy.
It took a long time for the company and Sid (and his lawyer) to sort out the reasons that material facts were misstated and the carrier eventually agreed to pay the limit that Sid asked for in the application.
Where was Willie Lowman during all of this? “I didn’t fill out the application or sign it; Mr. Troyne did all of that – I just sent in what the jeweler provided. He should have known what to put down!”
An experienced Jewelers Block insurance agent might have advised Sid to: #1, provide accurate exposure figures, and #2, to insure for around $600,000, which would have been enough to cover any loss – and in particular, this loss.
Would such a policy have cost more? Probably, but an insurance policy is just a valueless piece of paper – until there is a loss. And, for most jewelers, the cost of coverage at that point is immaterial.
Would you go to an ophthalmologist or optometrist when you really need a cardiologist? Actually, a general practice physician will most often advise a patient by directing the patient to the proper specialist.
That doesn’t always happen in the insurance business. Jewelers Block insurance is a specialized form of insurance which agents who are inexperienced or unfamiliar with the jewelry industry may still attempt to write. Mistakes can be made in the process; and some mistakes can be very costly. To insure a jewelry business, seek out a professional who understands the jewelry industry and has both experience and knowledge that relates to the special type of insurance that is involved – as well as matters related to safes and alarm systems, both of which are critical to the insurance coverage.
If a man needs a suit altered, he takes it to a tailor. If a person needs medical advice, he or she would go to a doctor or an attorney. And, if the need for either is in a “specialty” area, wouldn’t that person be best served by seeking out a professional who has both knowledge and experience in that particular arena of his or her profession.
It has been said that “a lawyer who represents himself in court has a fool for a client.” Could something similar be said about a jeweler who is his own Jewelers Block insurance agent?
Amy Thist thought she didn’t need an agent – she only needed a policy. And so she bought a policy, not knowing that the very thing she most needed to insure was virtually eliminated from coverage.
Sid Troyne thought that any insurance agent could sell him a policy – not understanding that Jewelers Block is one of the most technical types of insurance; a form of insurance which requires specialty knowledge and experience.
Had Sid sought out a jewelry insurance expert, he might have been better advised about the limit of insurance he should carry so that he would have a policy that completely insured his inventory, even at its peak level, as well as his customers’ repairs and appraisals, and the merchandise he received on memo or consignment – instead of the partial policy he unwittingly bought from an inexperienced agent.
Bob Carroll of Robert G. Carroll and Associates is a Certified Insurance Counselor, and has been a specialist in insurance for the jewelry industry for almost 30 years – an independent agent representing Jewelers Mutual and other quality carriers in Arkansas, Mississippi, Oklahoma and Tennessee. He may be contacted at email@example.com.