We've been robbed: Tips for handling jewelers block claims
Inaccuracies in the policy application can result in uncovered losses in some states.
One of the more interesting areas of claims handling involves jewelers block claims. Jewelers block coverage protects a number of assets including jewelry and the precious or semi-precious stones in the jewels and even some precious metals and other high-value items.
Unlike many first-party policies, the jewelers block policy almost always incorporates a lengthy application, and the answers in the application normally become a warranty when the policy is issued.
A full review of the application is always needed to determine if there are any misrepresentations. In many jurisdictions those misrepresentations, if material to the underwriting, may cause the insurer to have grounds to deny the claim or rescind the policy. The key issue for the adjuster is to identify any errors in the application for review by the insurer. I also suggest that every first-party adjuster have a coverage attorney who they can consult on issues like this.
My father’s favorite story about application review related to a question in the application about the number of security guards on premises during business hours. The insured answered “one”. When later asked why there were no guards at the store at the time of the loss, the insured stated that they had accidentally forgotten to write the “N” at the start of one, to make “none”.
The insured will normally be asked to identify the date and amount of their last full physical inventory in the application. This is often crucial information in determining the amount of a loss. Frequently, the only way to calculate a loss is to “roll forward” from the last inventory, deducting sales, adding purchases and removing what remains after the loss. You may also consider requesting additional documents, such as financial statements or tax returns to validate the last inventory.
When obtaining documents from the insured to support purchases, values and the like, always do a complete review. Altered invoices with respect to date or amount are not uncommon.
Gathering the facts
There will always be the need to obtain a statement from the owners of the business, to address both the circumstances of the loss and also the operations of the business.
It is also good to obtain statements from the employees on duty at the time of the incident to confirm the facts. Sometimes the issue may be as simple as how many showcases were broken into or what type of merchandise was in each case.
If the store maintains video surveillance, be sure to view and obtain a copy of the footage of the incident and some time before and after. It should help confirm the events, and may also be helpful for future loss control. There are occasions when the authorities obtain the video before your arrival. They are usually happy to provide a copy if asked nicely, and with the insured’s permission.
There are occasional circumstances in which an event, say a robbery, has occurred, but the insured has some involvement in the planning or takes advantage of the opportunity to increase the loss amount. The reminder here is to not solely rely on the video for all information.
Always obtain a copy of the police report, and always contact the responding officer or investigating detective to discuss the loss and see if you can share information. If nothing else, you want the police to be on notice of your client’s interest if there is an arrest or recovery.
Determining the claim value
The calculation of an inventory loss can be quite complex. In some instances, you may need to retain a forensic accountant to assist. However, if the insured’s recordkeeping is clear and there are no suspicions of fraud, an adjuster may well be able to accurately calculate the loss.
The typical jewelers block policy requires the insured to maintain a perpetual inventory of their merchandise, allowing for a determination at any time of what merchandise is in their custody. The policy also expects that the insured can identify the cost of an item. The normal basis of valuation is the cost of the item, not the replacement cost. There can be a big swing between initial cost and replacement cost depending on how long the insured has held the item and fluctuating material costs (e.g., gold price).
Many insureds take in goods on memorandum from suppliers. As an example, a diamond wholesaler gives the insured loose stones to attempt to sell and mount in engagement rings for their customers. The insured can return the items or pay the wholesaler the price on the memorandum when they sell the stones. This is a difficult portion of any claim to verify. In sizable claims, it makes sense to interview the supplier to attempt to confirm the transaction, including seeing if the paperwork held by the insured matches the paperwork with the supplier. It would be easy for an insured to increase their claim by adding a few memoranda created after the loss.
Many insureds also take in customers’ items. After a loss, resolving customer claims can be time-consuming. Hopefully, the insured maintains records that identify those customers whose goods were taken. They might even have a description of the items, and if you are very lucky, an agreed value. Often the policyholder has very limited records and it becomes necessary to work with the insured to confirm losses and negotiate settlements with customers, perhaps by replacement of the item at the insured’s cost, rather than a cash payment.
Another common coverage in the jewelers block policy is for traveling salespersons or just employees taking goods off-premises. Confirming what was stolen in these instances can be tricky. A good investigative tool is to interview the customers seen by the employee prior to the loss. If you are lucky, the insured may have documentation of what was taken off-premises; don’t forget to determine if any items were sold prior to the loss.
The off-premises loss is a reminder that the jewelers block policy may have some unique conditions or endorsements, so be sure to read the whole policy before commencing your investigation. For example, the policy may exclude losses from unattended vehicles or unaccompanied baggage.
The insured is always required to have some form of an alarm system, which can sometimes be quite elaborate. The operation of the system can become a key issue in the investigation. Let’s say a burglary is alleged to have occurred in which merchandise left out of the safe is claimed to have been stolen. However, the alarm never activated. I have often consulted with an alarm expert to assist in determining whether the alarm malfunctioned. Sometimes the answer is as simple as a motion detector that wasn’t properly working. Alarm experts can do neat things like pull records from the control panel to confirm all recent activity.
You might also find yourself in need of a safe expert someday. You may want to know how a safe was penetrated or whether a safe door was locked prior to the loss.
Since these investigations can be complex, don’t be afraid to meet with the insured more than once to confirm facts and tighten up your loss calculation. Many times I have discovered the need for a second statement from an insured to clarify details; it often isn’t possible to anticipate every question at the first meeting. There is also typically an examination under oath clause in the policy that can be utilized if needed.
The same objective exists in handling these claims as in all other property lines – reach a proper adjustment based on the policy terms and conditions.
Peter Schifrin is the president of SGD, Inc. and the president-elect of the National Association of Independent Insurance Adjusters. Contact him at Pschifrin@sgdinc.com.
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