Insuring a jewelry store: Determining the type of insurance to buy - and how much
The type of insurance
Jeweler Rhoda Lyte opened her new jewelry store and for insurance, called on a friend who sold property and casualty insurance. About the only information the agent needed in order to put the policy in force was the name and address of the store, the building construction, and the limit of coverage Rhoda wished to carry. Rhoda explained to the agent that she needed $250,000 - figuring $50,000 for her fixtures and general contents and $200,000 for her jewelry inventory.
Rhoda was pleased with the policy. For an affordable premium, she had all of her contents covered at replacement cost for a broad range of perils ("all risk") with a modest $500 deductible, plus $1,000,000 general liability, and even loss of earnings insurance.
Then subsequent to the coverage being placed in force, burglars compromised Rhoda's alarm system, broke into the store through the roof, and with the alarm system down, wheeled the safe out the back door.
Rhoda's loss was all of her $200,000 inventory, $30,000 of customer's property that was in her custody, $10,000 in diamonds that were on memo to the store from a vendor, and $5,000 for her safe - totaling $245,000. Under Rhoda's lease, the costs of repairing the roof and the back door were the landlord's responsibility and were claimed on the building insurance policy. Rhoda was just thankful that her policy limit of $250,000 would be enough to cover her part of the loss.
When Rhoda received her settlement check, the amount was $7,000. "When do I get the rest of it?" was her question to the agent.
"There isn't any more - this is all the company is paying for the loss."
It was then that Rhoda learned of a limitation clause which is standard in general business insurance policies. The clause stated in clear language that where theft of jewelry was concerned, the company would be liable for no more than $2,500. Rhoda had received that amount plus $5,000 for her stolen safe - the only property stolen that was not "jewelry," less her $500 deductible.
"What about my customers' property - and the diamonds that I had on memo? Doesn't the policy give me special coverage for other people's property?" The policy did have some coverage for property of others, but the jewelry limitation superseded all other aspects of the policy. $2,500 was all that would be paid for jewelry, regardless of whom it belonged to.
Rhoda was not only out of business, but left in significant debt to her customers, her vendor - and her bank. She had purchased the wrong kind of insurance.
The agent explained that he had sold this type of policy to dozens of businesses, and the jewelry question had just never come up before - he didn't know the jewelry limitation clause was there.
The limit of coverage
Alexander Wright opened a jewelry store similar to the one that Rhoda Lyte owned. But unlike Rhoda, Alexander knew to ask for a Jewelers Block policy; he had been told that a standard business insurance policy would not meet the needs of a jewelry business.
Alexander's agent had not written Jewelers Block insurance before, but he had obtained an application from another insurance broker and he gave it to Alex to complete. There were questions about Alex's safe, and the store's alarm system - which Alex answered to the best of his ability.
An inventory figure was requested on the form and Alex entered $200,000 - the amount of inventory he expected to have on opening day. A limit of coverage blank was also on the form, and $200,000 was entered there also since that was what the inventory would be.
There was a question about customers' property; to be certain that customers would be well protected, Alex entered $75,000 - the most that was expected to ever be in the repair box at one time. A figure of $15,000 was entered in answer to a question about memo and consignment merchandise -- enough to cover bringing in a few diamonds to show to a customer.
After being in business for several months, Alex had a robbery. With Alex and his assistant tied up on the floor and the doors locked, the gunmen were committed to take all that they could. And so they took the merchandise out of all of the showcases, cleaned out the safe, and took the repair box.
Alex's inventory had increased a bit since opening day, to $215,000 - all of which had been stolen in the robbery. The customer's property totaled $25,000 (thankfully there were separate records with customers' own estimates of value), and $10,000 in memo diamonds were stolen. The total loss was $250,000.
The insurance policy paid $199,000 for the loss - the policy limit of $200,000 less $1,000 deductible. The figures for customers' property and memo merchandise that Alex had thought he was asking separate coverage for, were average exposure questions. By not understanding the form fully, Alex had requested $200,000 as a total limit for inventory, customers' goods, and memo merchandise.
So two instances of jewelers not getting what they thought they were buying by way of insurance. One might be tempted to conclude that, no matter what a jeweler does, insurance companies never pay off fairly. But the lessons to be learned are from Rhoda's and Alex's own different mistakes - which are not uncommon among jewelers starting out in business.
Rhoda's mistake was in assuming that a jewelry business could be insured the same as most businesses, and that all she needed was a standard package policy, which almost any agent could write.
Alex knew what kind of insurance he needed, but he didn't know where to go for it. The agent he went to gave Alex the responsibility of completing the Jewelers Block application rather than completing it himself with Alex's input. The application is complex, and Alex misinterpreted some of the questions and provided incorrect information - the most critical being the limit of coverage.
So let's take one more crack at this situation and see if we can end on a happier note.
Jules Galore was planning to open a jewelry store for the first time. But having been in the jewelry business for a number of years, he had several friends in the industry to whom he could go for ideas and advice. One of the things he already knew was that he would need special insurance, and he asked his contacts who they recommended he talk to about insurance.
As a result, Jules was able to find someone who had experience in insuring jewelers and was familiar with both the policy and the application. Rather than send Jules a complicated form to complete, the agent met with the jeweler to complete the application for him. Additionally, the agent was able to give Jules valuable advice concerning his safe and his alarm system - to help Jules be certain that minimum insurance standards were being met.
A Jewelers Block policy was put in force with a solid carrier, with an appropriate limit of coverage for inventory, customers' property, and memo merchandise. And when Jules had a loss, because the policy had been written correctly, the insurance company could pay it and Jules could continue in business.
Rhoda's lesson: for a jewelry business, standard insurance won't fill the bill.
Alex's lesson: the right type of insurance still may not be good enough if it isn't correctly written.
Jules' lesson: the right kind of insurance, combined with a good carrier and an insurance agent who is experienced in writing jewelers' insurance and capable of being a part of the "management team" of the business, can make the critical difference when there is a loss.
P.S. Congratulations to all of the staff of Southern Jewelry/Mid-America Jewelry News for 20 years of producing a journal for the jewelry trade that is always relevant, eye-opening, and a pleasure to read. I'm honored to have been a part of your team for all of that time and it is indeed a pleasure to see how you have grown and where you are today.