Combatting the growing threat of jewelry fraud
Over $1 billion in jewelry “disappears” annually, which represents 70% of all stolen personal property.
Picture this: A person walks into an agent’s office wearing a luxury watch that belongs to a friend, appraisal in hand, and walks out with a personal articles policy after paying a premium of just 1 to 2% of the value of the watch. Three months later, they submit a claim alleging that the watch was lost while swimming in the ocean, or stolen in a robbery or missing after the house was cleaned. With little investment and, unfortunately, very little risk of criminal penalty, this person can quickly make a profit of tens of thousands of dollars or more.
This happens every day in metro Atlanta and throughout the United States, as jewelry fraud is growing in staggering numbers. The U.S. Department of Justice reports that over $1 billion in jewelry “disappears” annually, which represents 70% of all stolen personal property, according to a leading jewelry insurance underwriter.
Your typical homeowner’s or renter’s policy provides a specified limit for the loss of jewelry, watches and similar items of value. These policies often will not provide coverage for lost items or damage such as a chipped stone or broken clasp. However, separate stand-alone policies, including inland marine and personal articles policies, are available that provide enhanced coverage for jewelry on a per-item basis, often with fairly low premiums. Unfortunately, with low premiums and ease of access, jewelry policies are quickly becoming a target for insurance fraud.
Methods of jewelry fraud can include misrepresentation at application, like our scenario above involving securing a policy for a non-owned item; intentionally inaccurate statements regarding the quality of the item, such as a falsified or incomplete appraisal misidentifying the specific attributes or quality of the item; insuring a knockoff or counterfeit as a brand name and other exaggerations of ownership and value.
Insurance companies have special investigative units established to root out such fraud. The responsibility of these claims adjusters and investigators is to obtain a complete understanding of the circumstances under which the claim is being made. They look for inconsistent documentation, large discrepancies between valuation and selling price, no purchase receipt or an unverifiable receipt and patterns of frequent or suspicious claims.
Certainly, it is a red flag if only the insured jewelry is stolen or missing, while the uninsured jewelry is left behind. Losses under new policies should be scrutinized. Legitimate purchasers should be able to produce a sales receipt or proof of purchase along with an appraisal from a reputable jeweler and qualified gemologist. With no federal or state regulatory agencies that attest to the qualifications of a jeweler or an appraiser, reputation matters. High-value, brand-name jewelry should also come with a certificate of authenticity from an authorized dealer.
Of course, insurance fraud is both a criminal and civil matter. Insurance carriers face challenges when local authorities fail to prosecute fraudulent jewelry claims, despite that insurance fraud is a felony (O.C.G.A. § 33-1-9), because if one person is successful and not prosecuted, others are encouraged to do the same crime.
The best way for insurance carriers to challenge a questionable jewelry claim is to utilize all the resources the policy provides for investigation. This includes the requirement that the insured comply with the duties pursuant to the policy and cooperate completely with the production of records and documents and sitting for an examination under oath when requested.
Requests for the production of financial records and proof of purchase have been deemed relevant to a claims investigation. See, e.g., Love v. State Farm Florida Ins. Co., 629 F. Supp. 3d 1310, 1320 (N.D. Ga. 2022), aff’d, 22-13514, 2023 WL 2028230 (11th Cir. Feb. 16, 2023) (internal citations omitted). Multiple requests should be made for claim-related documents in the event the insured is noncompliant.
Additionally, an examination under oath, unlike a recorded statement, can be useful as impeachment evidence should the matter go to trial. An examination under oath also provides insurance carriers with broader access to information than a deposition. For example, an insured may not invoke legal privileges, even the Fifth Amendment right against self-incrimination. Harary v. Allstate Ins. Co., 988 F. Supp. 93, 103 (E.D.N.Y. 1997), aff’d, 162 F.3d 1147 (2d Cir. 1998) (an insured may not use her Fifth Amendment privilege as a sword against her fire insurer); Pervis v. State Farm Fire and Cas. Co., 901 F.2d 944 (11th Cir. 1998) (holding that the Fifth Amendment privilege against self-incrimination did not excuse the insured from fulfilling his contractual obligation to answer questions that were material to the insurer’s investigation during examination under oath).
Therefore, although an insurance carrier may accept only an appraisal at the time of policy purchase, the insurance carrier can insist on a proof of purchase and other ownership documentation before paying a claim. Of course, the best method to mitigate fraud risk is to adopt stricter underwriting guidelines, train agency and underwriting staff to recognize questionable applications and modify coverage to ensure that the policy itself does not make it an easy target for fraud.
While it is impossible to eliminate all fraud, insurance carriers can make headway into preventing jewelry fraud with some easy steps, whether at the front end when the application is secured, or after a claim is submitted with a more thorough investigation that utilizes all of the tools and defenses provided by the policy.
Melissa A. Segel is a partner with Swift, Currie, McGhee & Hiers. She represents insurance carriers and businesses in commercial litigation and insurance coverage matters, with an emphasis on defending against bad faith and fraudulent claims. Opinions are the author’s own.