Columnists Bob Carroll The Best Policy: “Proving” a loss

The Best Policy: “Proving” a loss

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You have a Jewelers Block loss. What is the claims process; and what do you need to do or provide?

Larry Leadfoot had a wreck in his car and ended up doing substantial damage to it.  Larry thought it was unreasonable that his auto insurance company insisted he obtain an estimate on the cost of repairs or provide a paid invoice in order for them to pay the claim.  Larry knew how much it would cost to fix his car (though I’m not sure how) – he believed they should take his word on the matter.  After all, he’d been their customer for many years!

Larry may also believe in the Tooth Fairy.

Auto insurance requires estimates of repair; if the vehicle was towed, a towing receipt is required.  If the car was totaled – the vehicle title must be provided.

Medical insurance requires copies of the charges – physician’s and surgeon’s bills (and often various other medical professionals), clinic or hospital charges, etc.

Even a life insurance policy requires the submission of a certified death certificate.

Agents who write homeowner’s insurance encourage their customers to keep receipts and lists of property because after a fire, tornado, or hurricane, those records help lead to a fair and timely settlement.

The fact that insurance policies that insure jewelry require documentation in order to “prove” a loss, should come as no surprise.  Where tens or possibly hundreds of thousands of dollars may be involved, how reasonable would it be for a jeweler to demand payment solely on the basis of a personal estimate of the loss?

Documentation is a fact of life when it comes to insurance – every kind of insurance.  Insurance companies are regulated by individual states, and for Larry’s carrier to pay his claim without adequate “proof” would be more than just irresponsible; it would be illegal.

So what does it take to accurately “prove” a loss under Jewelers Block insurance?

It is important to understand that the “burden of proof” in an insurance claim automatically is the responsibility of the insured. That means it is up to the jeweler to provide information to the insurance company that verifies that the loss occurred and what the damages (costs) were.

It is then the role of the insurer to examine the facts in light of the coverages stated in the policy and pay the claim under those guidelines (referred to as “adjusting” the claim in insurance-ese).

But a jeweler who knows what is expected will be better prepared to meet his or her obligations concerning a loss – which can speed up the process and help assure the fairest settlement possible.

Step one: What is the subject of the loss? Does it pertain to property that is covered by the policy?

There’s been a theft of a diamond ring in a jewelry store, and the jeweler has a form of Jewelers Block insurance (the standard for the jewelry industry).  Who owned the ring?  Did the store own it (as inventory), or did it belong to a customer (repair or appraisal), or a vendor (memo)?

Jewelers Block typically insures jewelry (as defined in the policy) that belongs to the business, to customers of the business, or for which the business is legally liable (e.g., memorandum merchandise).  A Jewelers Block policy may also insure general business contents, but that is not recommended.

If the ring belonged to the jeweler personally, it may not be covered under the Jewelers Block.  Customers’ property is usually defined as property that belongs to someone who is not in the jewelry business.    A jewelers’ personal jewelry should always be insured under a personal jewelry insurance policy.

The first step then is to identify the property that was lost, stolen, or damaged, and who owned it, thus documenting a) that the item existed and b) who owned it.

The basis for the existence of inventory property is the jeweler’s own inventory records together with invoices of purchase.  It is very important for a jewelry business (just as any business that sells goods) to take a physical inventory at least once a year (also an IRS requirement).  The ring that was stolen should appear on that list as proof that the jeweler had it – or there will be an invoice proving its purchase after the date that the inventory was taken.

Vendors’ property is generally proven by the memorandum document itself which sets out the receiver’s ultimate liability for the property.

The best proof of a customer’s item is the job envelope or the “log book” (physical or computerized) that establishes when and from whom the item was received – and hopefully a description and estimate of value.

[Note:  It may be important to note here that some insurance companies insure customer’s jewelry only on an excess basis, which means they only cover above the customer’s own insurance.  That is an important thing to know about your own policy.]

Step two: Was the event covered? What happened to cause the loss?

We’ve said that it was a theft, and most theft is covered under Jewelers Block insurance – but there are some forms of theft that are not.  For example, robbery, burglary, grab-and-run, switch, and sneak-theft are forms of theft which, generally speaking, would be covered Jewelers Block losses.  However credit card and check scams, voluntary parting, and employee fidelity are types of theft that are almost always excluded.

[These examples are not intended to comprise a complete list of either coverages or exclusions of Jewelers Block insurance – for that information, look to your individual policy.]

Statements by the insured and any witnesses help convey to the insurance company the events of the loss; and such statements may be oral, written, or taken under oath, depending on the circumstances.  A police report is another statement which may be required as a tool in establishing or verifying the event.

Step three: Establishing the amount of loss. What is the value of the ring, and is that value both above the policy deductible and below the limit of the policy?

For an inventory item, the value is usually the figure that is assigned to it in the inventory list as its wholesale cost – or on the invoice if purchased more recently.  Note that it is possible that an inventory value and original invoice could differ; as would be the case if the jeweler had updated inventory values to reflect more current market conditions.

For example, if the ring had been purchased for inventory three years ago and, recognizing that the costs of both the gold and the stones in the ring are much higher now, the jeweler had updated his inventory records – and the adjusted numbers had been reported to the insurer, then under some Jewelers Block policies the adjusted inventory value for the ring would prevail over its original cost.

A vendor (memo) item is fairly straight-forward, as the memorandum form itself usually establishes a current wholesale value for the item.

With customers’ property, the most useful tools in satisfying a claim are the job envelope (if available) and the jeweler’s log-in record.  A description of the piece, and the customer’s own stated value (even though only an estimate) – or a recent appraisal, are important aids to an insurance adjuster who wants to treat your customer fairly without undue advantage being taken of the insurance company. The absence of these things does not necessarily mean that an item will not be covered, but adjusting the loss fairly and accurately will simply be more difficult, and may take longer.

To restate a previous comment – if the Jewelers Block is one of those policies that cover customers’ property only on an excess basis, the insurer may require the customer to first file a personal claim.  The author recommends buying insurance that provides primary coverage to customers’ property – a factor which must also be considered by the jeweler when setting policy limits.

Step four: Proof of Loss form

Often the final step of the claims process involves a “Proof of Loss” form which signifies agreement to the amount that is owed by the insurance company to the insured jeweler.  The Proof of Loss form may be completed by the insurance company for the insured’s signature prior to payment – or may be provided in blank for the insured to complete, depending on the carrier and the circumstances.

These four steps are by necessity only a generalization of the process – and possibly an oversimplification by using the example of a single item – yet not unrealistic.  Clearly a large loss would be more complex, but it would likely follow the same general procedure.

In closing, here are the first things that a jeweler should do in the event of a loss:

  1. Secure the remaining property and call the appropriate authorities.  In the event of a robbery, lock the doors and call the police immediately.  Note that the police report may be required by the insurer.
  2. Notify the insurance carrier promptly, either directly or through an agent or company representative.  “Promptly” is a relative term, but turning in a loss two weeks after it occurred hinders investigation of a loss and may lead to its declination.  (This is a fact that is just as important if not more so in liability claims.)
  3. Cooperate with your insurance company in matters related to the documentation and valuation of the loss; and realize that “proving” a loss is legally the insured’s responsibility, not the carrier’s.  Many simple insurance losses can be handled solely by the exchange of relative documentation by mail, fax, or e-mail.  Larger or more complex losses may require the services of a professional insurance adjuster, a person who is usually assigned and paid by the insurance company.

Do not automatically assume that any loss will result in a confrontation between you and your insurance carrier.  The vast majority of insurance claims proceed to settlement with few or no problems – especially where there are good records.  Typically, an insurer and insured each cooperating in good faith toward the common goal of fair compensation, lead to satisfactory results for both.

But a key element in an insurance claim is the same as it is in business in general:  good inventory records help a jeweler know when to reorder merchandise, see what is selling and what is not, and be alert to missing items and entry errors – and can also generate sales!

If you need assistance, look to these resources:  your insurance agent and company, who may be able to provide useful materials; jewelry industry conventions and trade shows, which often have point-of-sale systems on demonstration; and your CPA or business financial advisor, for more general assistance.

Bob Carroll of Robert G. Carroll and Associates is a Certified Insurance Counselor who has provided insurance and loss prevention services to the jewelry industry for almost 30 years, representing Jewelers Mutual and other quality carriers in Arkansas, Oklahoma, Mississippi, and Tennessee.  “Jewelers’ insurance isn’t just what we do; it’s all we do.”  Contact Bob by e-mail at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

 
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