What is the “real” cost of a loss? What are some things that might cause a loss to be declined by insurance?
One day while jeweler Pearl E. Gates was showing three diamond rings to a customer, the customer suddenly grabbed all three items from the showcase top and raced out the door. Even the magnetic lock on the door was no deterrent because the thief was savvy enough to know how to hit the emergency release button. The wholesale value of the jewelry that was stolen was $25,000, and Pearl had a $2,500 deductible on her Jewelers Block* policy.
[“Jewelers Block” is the insurance standard for the jewelry industry.]
Fortunately Pearl’s insurance policy covered the loss and Pearl’s only tangible cost was her deductible.
Math question: How much in sales - at retail, will have to be made by Gates Jewelry to recoup the loss of the $2,500 deductible? [Assume “keystone” pricing (100% mark-up), and that the store operates on a 5% profit.]
I’ll stop writing for a few minutes while you work out the answer.
. . . .
That’s long enough.
Using a little high school Algebra, the formula looks something like this: 5% of something = $2,500; or .05 X = $2,500. That leads to X = $2,500 / .05 ($2,500 divided by .05). Then double your answer to take it from wholesale to retail.
Pearl will need to sell $100,000 in jewelry just to make up the deductible!
For another situation, let’s keep the loss at $25,000 but change the event. Pearl was going to take a package to the Post Office that contained $25,000 in diamonds - while she was out of the store for a hair appointment. During the appointment, Pearl left her purse containing the diamonds in the salon office for what she thought was safekeeping.
The purse was stolen.
Pearl’s insurance company provides coverage for merchandise in her custody off premises, but leaving it in another office was deemed not to be in Pearl’s custody. Uninsured loss: $25,000.
Using the same formula as before and presuming keystone, it will require $1,000,000 in sales to make up a $25,000 uninsured loss!
A loss that costs a jeweler his or her deductible is one thing, but an uninsured loss can cripple a business for a long time.
So while loss prevention is important, declination prevention is critical.
So the purpose of this month’s column is to take a look at some of the things that a jeweler or sales associate might do that could cause a loss to fall under the “unpayable” column.
This will in no way be a complete treatment of every kind of loss that might be excluded in a Jewelers Block policy, and there are differences in companies and policies, but we will take a brief look at some common losses that could be classified as coverage exclusions in four categories: Transporting, Shipping, Premises Daytime (when open to business), and Premises Nighttime (when closed to business).
Unattended Vehicle - theft from an unattended vehicle is clearly and unequivocally excluded from coverage in most policies. It may be stated in the policy that an attended vehicle will have “you or your employee” in or on the vehicle (“near” does not equal “in or on”). Construe “in or on” to mean at the very least, “touching.” Example: a person stopped to buy gas while transporting merchandise, and when he walked over to the kiosk to pay, thieves who had been following him blocked his view with their van and stole the merchandise – in less than 10 seconds! Unattended Vehicle – the jeweler was not “in or on” the vehicle. Even if the salesman had been one inch away, he would have only been near the vehicle, not in or on it – there is no margin for error.
Keeping merchandise “in custody” when transporting - You must keep the merchandise in your physical custody at all times for coverage to apply. Custody may not be specifically described in the policy, so common usage and case law are what apply. Nevertheless, when transporting jewelry merchandise it is always important to keep the property with you – and not leave it someplace out of your direct control, as described in the hair salon scenario.
Shipping merchandise – Double-box packages – do not send jewelry in an envelope. Be aware that mail handling equipment can damage envelopes (think, “diamond dust.”) Also note that Priority Mail is usually not insured (Registered Mail and Express Mail may be). When you take a package for shipping, be certain that you wait for the package to be scanned in and that you are given a receipt. Do not leave it to be scanned later or trust the driver to scan it later in the truck. Without shipping documentation, you will likely have no coverage.
Receiving shipped merchandise - Count the packages and look carefully for signs of tampering, including re-taping. Only after you have inspected each package should you sign for it or them - that is the purpose of the signature. If you receive fewer packages than you sign for or later discover signs of tampering, and then that a package does not contain the merchandise, the sender will claim that the merchandise was sent and that you received it - as evidenced by your signature. The risk of such a loss not being covered by insurance is very high.
Opening shipped packages – For personal protection of the individuals as well as to prevent accidental discard of merchandise, it is recommended that received packages be opened in the presence of two associates and that a re-examination of packing materials be a part of the process. Opening packages under video surveillance is another recommendation. [If there is a problem with the contents of a package, would you like to be in the shoes of the employee who opened it with no one else around?]
Allowing a customer in before hours - The opening procedure should be that all merchandise is properly secured in showcases before the doors are unlocked and customers are allowed in. If a person is allowed into the store early and as a result the store is robbed, coverage of the robbery may be in jeopardy. Example: recognizing a customer who had been in several times in the last few days and who was considering a major purchase, the manager allowed the person inside while the store was being set up. As soon as the door was opened, several accomplices rushed in and a robbery ensued. Merchandise was still in boxes and easy to take, so the loss was substantial. Coverage may be declined under these circumstances.
Allowing a customer in or to remain after hours - The closing procedure should be that the door is locked after all customers have left, and then the process is begun of removing merchandise from showcases for transport to the vault or safes. If allowing a customer to remain inside during the closing procedure leads to a robbery, coverage might be declined.
Leaving a showcase unlocked - Most insurance carriers promote keeping showcases locked except when showing merchandise. If a theft occurs from a showcase that is not locked, there may be no coverage for the loss (note that a showcase with a key left in its opening is likely to be considered to be unlocked).
Remember that thieves practice techniques of confusion to coax a salesperson into leaving a showcase unlocked, which can sometimes be verified by video surveillance.
I recommend that each associate carry his/her own set of showcase keys and that they be kept in a pocket or on the wrist at all times - and that associates assist one another in being sure that no showcase is ever left unlocked except when removing or replacing merchandise.
The alarm system - You must lock the safe(s) or vault and set the alarm system before you leave; not doing so would likely void coverage for burglary. Also, the alarm must be in working order. If there is a problem with setting the alarm system, notify the alarm company immediately and arrange for repairs. If repairs cannot be made before closing, call your agent or insurance company for instructions - before you go home. [A good reason to have an insurer you can speak to 24/7.]
Notify the police, explain the situation, and request additional patrols. Leave the lights on in the store all night.
You may be advised to hire an armed guard or have a store employee stay with the store. Note that the person staying with the store should not risk his or her life to protect the merchandise! The mere fact that the store is not left completely unprotected is generally sufficient to prevent a burglary if one was to have been attempted.
Responding to an alarm call from home - Request the caller’s name, and then using your own phone information call the alarm company back to verify the call (that the call was not a hoax or pretense). Ask to be met at the premises by a guard or police. Remain in your locked vehicle until assistance arrives. Then with assistance examine the premises inside and out, looking for signs also that someone might be on the roof or in an adjacent premises waiting for you and the guards to leave in order to resume their attack on the premises.
At home, video surveillance (Internet) is an additional aid to security in the event of alarm calls; however I do not recommend that you rely 100% on electronic surveillance. Systems can be compromised or fooled - as can people. Nevertheless, technology is not considered to be a replacement for personal examination of the premises. If a burglary occurs, it will be important that you took reasonable and prudent steps to respond to the alarm.
Virtually every loss is unique, and as previously stated, there are differences in insurance policies and in insurance companies – so choose your carrier carefully. These comments pertaining to coverage are intended to be of a general nature and are for information only - and should not be used to presume whether a specific instance of loss will or will not be covered by insurance.
Use these comments as guidelines, and discuss any loss situation with your Jewelers Block insurance advisor.
Bob Carroll is a Certified Insurance Counselor and owner of Robert G. Carroll and Associates – an independent agency that has been serving the jewelry industry for nearly 30 years. Bob represents Jewelers Mutual and other carriers in Arkansas, Oklahoma, Mississippi, and