As a Property and Casualty Insurance Adjuster specializing in high value jewelry insurance claims, I am often called in to serve as litigation consultant and expert witness when the claims escalate due to coverage disputes. In virtually all disputed claims cases there is one common denominator: inflated appraisals issued by retail jewelers as sales tools.
What is an “inflated appraisal”?
Beyond the common perception that an inflated appraisal is one with an artificially high price, there are issues of inflated qualities and origins. These are usually the result of a retail jeweler using the “appraisal” as a sales tool. This inflated appraisal is then used to create an insurance policy and the insured pays premiums based on the information in the appraisal. What consumers often do not know is that insurance policies cover the jewelry item, not the appraisal document. If the appraisal is proven inaccurate, it changes how the insurance claim is handled. In case of loss or damage, the insurance company relies on the information about the item, not the appraised value unless a special policy is in force. When the item is lost or damaged, that is usually when the issue of an inflated appraisal surfaces. Here is an example I recently investigated:
- A retail jeweler sold a wedding set to a couple, representing it as a “custom made” set created by the jeweler.
The set was appraised for $18,000 but sold for $12,000. The rings were lost. In reviewing the appraisal documents and photographs, it was discovered that the wedding set was not a “custom made” ring but was instead a stock piece out of a wholesale jewelry catalog. The insurance company could replace the set for $11,500. The insured demanded the full appraisal value of $18,000. The policy contained strict stated value coverage that in the event of a loss the insured could accept either the insurance company replacement, or an equal amount of cash to the insurance company replacement cost. The insured invoked the Appraisal and Umpire Clause in the policy, but the insurer prevailed. In the end, the retail jeweler falsely claiming a “custom made” ring set with an inflated appraisal value was the cause of the customer’s confusion and anger. The fault of the matter was laid at the retail jeweler’s door for false representation and inflated value, with the customer having a cause of legal action against the jeweler.
This is an actual case and underscores the problem with jewelers issuing appraisals that do not accurately reflect the quality and value of the appraised item, whether a new purchase or not. The description as set forth by the appraisal is what governs the replacement. If the appraised value is inflated, that will eventually come out. If the item has been misrepresented as to quality or origin, that very often comes out also. When it does it changes how the insurance company handles the claim and lays the responsibility of the matter with the retail jeweler.
Jewelry appraisals should never be used as sales tools. They are legally binding documents that are an integral part of the insurance policy, a legal contract between the insurer and insured. When the appraisal contains false or misleading information, it creates chaos for everyone. It can also create a cause of litigation against the retail jeweler or appraiser.
Inflated appraisals may work as sales tools at the time of a sale, but they are a ticking time bomb waiting to go off in the event of an insurance claim.
Robert James, FGA, GG is President of the International School of Gemology.