Southern Jewelry News

Liability Insurance: Some coverages and exclusions

16:18

April

2008

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Article Autor: Bob Carroll

The Best Policy

You’ve been accused of switching a customer’s stones and now you’re being sued.

You didn’t do it! So will your liability insurance protect you?
Leases almost always require proof of it from tenants. (Why?) Running a business without carrying it can result in bankruptcy from just one event.

It begins with the letter “L” but it’s the “C” in P & C insurance.
Liability Insurance.

There are many kinds of insurance: Life, health, auto, long-term care, even weather and “hole in one” insurance for events of chance. So what is meant by “P & C” insurance?

The “P” of course is for property, i.e. tangible “things” that can be
owned, leased, or borrowed, such as buildings, vehicles, and things inside or outside them that one can see or touch.

The “C” in P & C Insurance stands for casualty, synonymous with liability – the responsibility you have to others that is enforceable in a court of law.

Liability insurance has to do with protecting us from financial consequences from the things we do that harm others in tangible or intangible ways. There are many forms of liability insurance, but here we will deal specifically with liability as it relates to injury or harm you cause to another for which you are legally responsible, which we’ll refer to as “general liability.”

General Liability insurance seeks to protect you and/or your business from charges of having caused bodily injury or property damage to another person or business by your unintentional negligent acts – whether real or alleged. [The italicized words are key.]

First premise, if there is no bodily injury or property damage, the event does not fall under the coverage of “general liability” insurance. While bodily injury may be interpreted broadly, including even damage to the reputation of another person or business (libel, slander, personal injury), it does not cover every event.

For example if another driver cuts you off in traffic, he may have done something wrong which has offended you. But did you suffer either BI or PD as a result of his rude and possibly illegal action? No. Your vehicle was not struck; you were not injured – it is not a “liability insurance event.”

However that driver’s action may cause you to hit another vehicle, or jump the curb and plow into a jewelry store. Thus having caused property damage and possibly bodily injury, the rude driver (if known) may be held legally accountable – and his auto or personal liability coverage may be called into play. If driving on behalf of a business, that business’ liability insurance may be relevant.

A customer walks into your store and a gust of wind catches a ceiling fixture and it comes crashing to the floor, striking no one but frightening the customer. Is there BI or PD to the customer? Most likely not, unless the customer suffers psychological trauma from the horrific scare that he or she received in your store. (Is this facetious? Perhaps not; suppose the customer had a diagnosed phobia of loud noises.)

So the first premise of general liability insurance is that the claim of the accuser must encompass either BI (bodily injury), or PD (property damage), or both.

The next premise is that the event must be shown to be the result of negligence on your part. Did you do or fail to do something that caused another to suffer bodily injury or property damage? (90% of liability claims are the result of failing to exercise reasonable care or take prudent action.)

In the case of the light fixture blown down by the wind, in spite of whether it struck or traumatized somebody (BI), is there negligence on the part of you, the jeweler?

Probably yes, since it is considered to be the duty of a business owner to provide a safe environment for customers, and the light fixture should have been secured well enough that a gust of wind would not have caused it to fall (failure to do what is prudent).
A customer backs into the jeweler’s 20’ pole sign in the jeweler’s parking lot. He wants the jeweler to pay for the damage to his vehicle, reasoning that since it happened on the jeweler’s property, the jeweler must be responsible.

Is there negligence on the part of the jeweler?

Not unless the sign was erected after the customer parked his car. If the jeweler chooses to pay for the damage, it will be his own gesture of goodwill – not a liability insurance claim.

The third premise of liability insurance is that it is not meant to insure a person for an intentional act. So if you purposely cause bodily injury or property damage – no coverage; even though you may be held legally liable for the injuries or damage.
For example, if you commit “industrial espionage” and steal your competitor’s jewelry designs to use as your own, are you legally liable for damages to your competitor?
Very likely.

Covered by liability insurance? No, the act was intentional, and also “theft” – which is a crime (another exclusion).

Or a customer argues with you over your prices and your response is to punch the customer in the nose. Legally liable? No question. Covered by your liability insurance? No way.

Now here’s one you may not want to know about, but need to. A customer claims that while certain jewelry was in your care for service, you replaced the 2 carat genuine diamond with a cubic zirconium - and the customer has both the CZ and an old appraisal to prove it.

You know that you are innocent and that no one who works for you switched the stones. You also realize that there are other possibilities with regard to when the stone may have been switched – or that the claim may simply be bogus, an attempt to extort money. You are sued by the customer. Will this fall under your liability insurance coverage? Does it matter that you know that you did not commit the alleged act?

Is the customer claiming you were negligent?

No, the customer is likely claiming that you deliberately switched the stones – not that you did it by “accident.” Now we’re back to theft, i.e., stealing the genuine stone, which as previously noted, is not covered by liability insurance – even if the claim is eventually proven to be groundless.

The dilemma is that you must either pay or defend. You choose to defend because you’re in the right and believe you can prove it. Depending on the nature of the case and your locale, attorneys’ fees run between $100 and $400 per hour. There is no guarantee that you will win, or if you do prevail, that you will be able to recoup the costs of your defense.

Regardless of the outcome, the accusation is bound to cost you time, money, and emotional stress. And again, because the accusation is an issue of deliberate theft, and not negligence, the probability is that you have no insurance coverage.
Can this be a problem for jewelers? Absolutely; hence the importance of having only trained personnel accept customers’ jewelry for repair or appraisal, and for carefully examining take-ins for value and authenticity.

There are other liability exposures which are typically not covered by a jeweler’s general liability insurance policy (often incorporated with property and other insurance coverages, such as in a Business Owner’s Policy).

For example, ear piercing and body piercing are not covered under general liability but may be separately available.

Appraisal liability is also excluded under a general liability policy, but available to add or purchase separately. [A jewelry appraiser was asked to appraise a large quantity of emeralds to be used as collateral for a loan. When the loan went into default, the bank discovered that the stones were less valuable than listed – and sued the appraiser.]

Hiring and firing practices and other employee-employer relations (e.g., discrimination and harassment) are also not covered in general liability insurance. Likewise ADA violations (Americans with Disabilities Act) and similar acts of law are excluded. However coverage may be available in a special liability format referred to as “Employment Practices Liability Insurance,” (EPLI). (Note that ADA coverage may or may not be included in the EPLI policy.)

Employers Liability is also not covered under general liability, but is often provided as a separate limit in workers compensation insurance.

What to do if an incident occurs

First, if a person is injured on your property, offer immediate assistance. Most liability insurance policies provide a limited amount of “goodwill” coverage called Medical Payments insurance that is offered without regard to fault or true liability.

Second, do not admit guilt or responsibility. Things are not always as they first appear, and you may invite trouble or hinder your own defense should matters escalate.

Third, contact your insurance agent or insurance company immediately. Don’t plan on trying to “handle it on your own” first. Your carrier needs to be brought in on the ground floor of the issue in order to make determinations of coverage, establish strategy, etc. Recognize also that the policy gives the insurer the right to determine whether to settle or defend an issue, with or without your consent – a decision an insurer is in a position to make on the basis of financial sense rather than emotional attachment.

Also any legal expenses you incur or settlements you make prior to reporting a loss are not covered by your general liability insurance. You can’t just present your bills for reimbursement as you might for medical insurance.

Reporting a claim to your insurance carrier long after you became aware of an event, or after you have exhausted your own resources in personally defending it, not only hinders your insurance company’s ability to act in your behalf but may even give them the right to deny coverage on the basis of the loss not being promptly reported. It is in the policy.

In fact, if an incident occurs which you suspect may become an insurance liability issue, you would be well advised to report it to your carrier.

[Note that this article is not intended to be a complete “list” of exclusions nor of coverages related to general liability. There is no substitute for reading the policy itself to know what is and is not covered under general liability insurance.]
PS – Question from the top of the article: Why does a lease agreement typically require that tenant carry significant liability insurance?

Answer: A tenant has the capacity to negligently cause the destruction of the property, (e.g., the jeweler/tenant left the oven on in the shop overnight or installed a device that had faulty wiring, and a fire ensued, damaging the premises and adjacent properties).
And if you are a landlord, you should regularly require evidence of liability insurance (a “Certificate of Insurance”) from your tenant(s).

Bob Carroll, Robert G. Carroll and Associates, is a Certified Insurance Counselor who has worked with the jewelry industry for over 25 years, representing Jewelers Mutual and other carriers in Arkansas, Oklahoma, Mississippi, and Tennessee. “Insurance isn’t just what we do; it’s all we do.” [bob@robertgcarroll.com]