Could there be an unexpected coverage gap - just when the crime occurs?
Retail jeweler to insurance agent: We’re going to have a trunk show next week and a salesman will be bringing in about $300,000 worth of merchandise. Do I need to do anything about my coverage?
Agent: Is the merchandise being memoed to you, or is the salesman going to come in and conduct the sale with you?
Jeweler: It won’t be on memo; the salesman is bringing his line in and will stay to help us with the sale.
Insurance agent: No problem – you’re not responsible for it; since the salesman is keeping the line in his custody, the vendor’s policy should cover the merchandise [True statement].
Lyte House Jewelry’s owner Rhoda Lyte had planned a special sales event with one of her key suppliers.
The plan was for salesman Dusty Rhodes to bring his entire line to the store; and he would remain throughout the week to help Rhoda and her staff conduct the sale. No additional insurance for the sale was purchased because Dusty was fully covered for the line he carried, by the policy of the wholesale/manufacturing company that owned the line.
Dusty’s company’s insurer had advised that a salesman’s line would be insured when it is in the salesman’s custody – or overnight under appropriate store protection of a trusted retail customer. And so Dusty arrived in town on Monday afternoon and Rhoda permitted him to store the line in her vault – which also would be used to secure the line overnight during the term of the sale.
But Rhoda’s advertising campaign the week prior had created some unintended interest in her store. The newspaper article announcing the large amount of jewelry that would be on display at Lyte House was of very special interest to a gang of professional jewelry thieves.
And so, on Tuesday the sale began.
On Wednesday, during a lull after a busy morning and noon hour, Dusty was invited to join a couple of employees in the break room for a plate of Rhoda’s world famous lasagna.
The crooks who had been watching the store decided that with fewer people on the floor, this would be their moment of opportunity. With one of their gang already inside posing as a browsing customer, two others suddenly burst through the front door loudly ordering, “everybody on the floor.” Then using heavy tools to smash showcases, and with fearless precision that indicated they “had done this before,” they quickly scooped the merchandise into their bags – and then fled as rapidly as they had appeared.
Hearing the commotion, Dusty looked up at the video monitor in the break room and could see what was going on out front - but there was nothing he could do. Although no guns were brandished, to rush into the midst of the crime in progress could endanger himself and also others. When he could at last safely get to the show room, he discovered that his entire line had been stolen.
The trunk show was unofficially over.
Both Rhoda and Dusty have Jewelers Block insurance – Rhoda in the form of a store policy, and Dusty through his wholesale employer. Which policy will cover the merchandise that was stolen in this robbery?
Let’s look at Rhoda’s policy first. A Jewelers Block policy states that it covers three classifications of jewelry-type property – paraphrased below:
- Inventory of stock for sale belonging to the insured (the store) that consists of jewelry and other inventory that is usual to the business (would include purses, gift merchandise, etc.).
- Jewelry property that belongs to customers which is in the store’s custody for repair, appraisal, or just about any other reason.
- Jewelry property that is on memorandum or consignment to the insured jewelry store.
So where did the trunk show line fit among these three classifications? Was the jewelry that was stolen inventory, customers’ property, or memo merchandise? The answer of course is “none of the above.” Rhoda’s own inventory that was also stolen in the crime would be covered by her policy, but the trunk show line did not meet the definition of covered property.
The insurance agent’s advice above would have been correct. Since the property was not memoed to the store, the store had no legal liability for the property; therefore the store policy did not insure it.
So let’s look at the coverage from the perspective of the vendor’s insurance policy.
The vendor has Jewelers Block coverage with the same definition of covered property, and the merchandise for the trunk show clearly fits the first category, inventory of stock that belongs to the insured (the vendor, in this case). The vendor’s policy also extends coverage while it is in the custody of specified traveling jewelry salespersons – and Dusty Rhodes was one of those who was named in the policy for off-premises coverage.
So far, so good; right? ... or not? Key question: was the property in the salesperson’s custody at the time of the loss?
Since the word custody is not specifically defined in the Jewelers Block policy, it reverts to common usage and case law (the way it has been defined in courts of law under similar circumstances). Nevertheless, most would agree that custody generally includes the ability to hold or exercise a degree of control over something.
To a traveling jewelry salesperson, custody is often a critical element in the coverage. The line may be said to be in the salesperson’s custody as he or she is driving with it, while carrying it into a jewelry store for showing, and while it is being shown – certainly any time that the salesperson is touching or very near it. And most salespersons know that leaving it in an unattended vehicle, for any reason, is a no-no – a line in a vehicle is not insured unless the salesperson is in or on the vehicle (unless an endorsement is added to specifically provide the coverage).
In this case, it may be submitted that when Dusty was in the showroom helping with the sale, the goods were in his custody - even though the jewelry was in showcases. It could be said that by his presence nearby, Dusty still exercised control over the merchandise.
But Dusty was in the break room at the time of the robbery! In fact, he could only view the crime on the store’s surveillance monitor. Could the merchandise be in his custody while he was in another room eating lunch? An insurance company might say that it could not.
Coverage Problem? Perhaps.
What about when the line is left in the store overnight? Is the line not insured by the vendor’s policy then; and would this not be the same thing?
Jewelers Block is not a standard insurance form, and so they do differ from carrier to carrier. But the vendor’s policy might have a provision that merchandise would continue to be insured if left in a retail jewelry store for the purpose of safekeeping (e.g., overnight).
But such an insurer might hold that this property was not in a retailer’s custody for safekeeping, but for a highly publicized sale; and that rather than being cased up and stored in an obscure place in the store with the doors locked and the alarm set, this property was on display in showcases – with the public invited in.
So, still a potential coverage problem. Rhoda’s policy would deny coverage because of the legal liability issue, and Dusty’s company’s policy may deny it under the “in custody” clause of the policy.
- The traveling salesperson keeps the line in his or her custody at all times – i.e., does not leave the room! (Perhaps an unrealistic expectation).
- The retailer and the vendor agree in advance on who will be responsible for insurance coverage of the line during the show. Then that person (the vendor in this case) should discuss the coverage issues with the appropriate insurance carrier - keeping in mind that it may not be possible for the line to be attended by the salesperson 100% of the time.
These are good reasons for a jeweler to be certain of his or her insurance carrier and to work with an agent who is familiar with the jewelry industry and the various ways that jewelry is bought and sold. When in doubt – ask an experienced jewelry insurance agent or underwriter.