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As a state licensed Property and Casualty Adjuster, Texas Department of Insurance (TDI1300433) over the past 20 years I have experienced a unique view of the jewelry insurance industry. From appraisals to claims replacement to SIU investigations to Appraisal and Umpire Clause actions – I have pretty much seen it all. Throughout all of these years there are five reoccurring myths that I encounter from consumers, jewelers, and even appraisers. I thought that today we could discuss these and clarify the Top 5 Myths About Jewelry Insurance Appraisals
1. My appraisal is just my opinion, I am not responsible for any actions that may be taken as the result of my appraisal.
This is a very popular misconception from retail jewelers who issue appraisal documents without any formal training. By issuing an appraisal document and calling it an “appraisal”, “certificate of value”, or anything else, you are setting yourself out as an expert issuing an opinion. Even if you put that disclaimer on the bottom of your appraisal form: “The appraiser assumes no liability for any actions that may be taken on the basis of this appraisal,” that will not hold any weight in the event that your appraisal is challenged. And I use the word “challenged” because it is not required that you have made any blatant error or omission, all that is required is that someone else challenges the information in your appraisal and you will be liable if your appraisal is found to be lacking in any area. If you are not properly trained in the risks of issuing an appraisal document you should be aware of the potential liability you are taking on by doing so.
2. Appraisers are not supposed to get involved with insurance discussions with the client.
This is one of the most common errors and unfortunately it is taught by a couple of the appraisal organizations. In fact, the information from your appraisal document is entered into and becomes a part of a legally binding contract between an insurer and insured that is governed by state insurance laws. Your appraisal, and therefore you, are part of that legal contract. As such, you need to be aware of what your client intends to do with your insurance replacement appraisal. It is acceptable to question what insurer they will use, what kind of policy they intend on getting, and if they are aware of how that insurer will handle losses. These are questions that the insured needs to ask of their agent anyway and can affect how you prepare your appraisal document.
For instance, if your client has an insurance company with an in-house replacement service, they will be able to replace this item at a far lower cost than a retail replacement cost. To avoid your client paying higher than needed premiums, you may want to adjust your replacement value to reflect the method of replacement that the insurer will use. Also, if your client has a custom-made item from a local jeweler that can only be replaced by that specific jeweler, you will want to document that fact clearly in the Narrative of your appraisal to avoid potential problems if the item is lost and a claim filed. Knowing what type of insurance coverage your client has will help you to better formulate your appraisal document from beginning to end.
3. It is the Underwriter’s responsibility (and fault) to decide if a jewelry appraisal is accurate.
It is amazing how many times I hear jewelers and consumers blame the insurance underwriter because an inflated value or bogus information was accepted for coverage by an insurance company. It is almost as if everyone thinks the insurance companies employ top-notch jewelry appraisers as insurance underwriters. Nothing could be further from the truth. The underwriter’s job is to determine insurability, risk acceptance, and insurable interest of the policy holder. It is not their responsibility to determine the accuracy of the appraisal. That job often falls on my desk as a Property and Casualty Adjuster. A classic and very real case was a diamond sent in for damage evaluation from a chip. Upon inspection it was found the diamond was fracture filled, a fact not disclosed in the original appraisal used to bind coverage on the ring, therefore not mentioned in the insurance policy. Were we, the insurance company, on the hook to replace a natural, untreated diamond because we accepted the appraisal as such? Not at all. The physical inspection of the diamond took precedence over the appraisal document and in the end, it was the appraiser who had to accept liability for the error in their appraisal. Not the underwriter. This same applies to inflated appraisals.
This applies to inflated appraisals that cause the insured to pay inflated premiums. I hear so often that: “The insurance company has been accepting inflated premiums for the item, they should just pay the inflated value”. Everyone should be aware that insurance companies do not insure appraisals, they insure jewelry items. If an appraisal is found to be inflated causing inflated premiums, the liability and fault lies with the appraiser.
4. The most important part of my appraisal is the valuation.
A common misconception. In truth, with most common types of insurance policies, insurance companies only use your value to set policy limits and establish premiums. Insurance Adjusters who handle jewelry claims have a very established network of replacement options, usually at prices far below the retail replacement value of a jewelry item. Based on the Conditions section of the insurance policy (that appraisers need to study) the procedures regarding how a claim will be handled are carefully spelled out. In most HO3 policies (Homeowners) the insurance company has a right to replace the item at their cost, or the insured can take an equal amount in cash. That is the replacement value. The appraised value means little at this point. The insured must let the insurance company replace the item or accept an equal amount in cash. Which takes us back to inflated appraisals. If a jeweler has issued an inflated appraisal, this is when the insured is going to get really angry. Not at the insurance company but at the jeweler for issuing the inflated appraisal and creating the higher than required premiums.
5. It is the insurance company’s fault if they insure a jewelry item at an inflated value, they should pay the value they accepted to issue the policy.
Once again, insurance companies do not insure appraisals, they insure jewelry items. Inflated values are caused by the person issuing the appraisal and are the liability of the person issuing the appraisal. Underwriters are not jewelry appraisers. They accept the appraisal document submitted by the policy holder. If that document is found to be in error or inflated, that all falls back on the person issuing the appraisal. If the policy holder has paid 50% higher premiums due to an inflated appraisal, their recourse is to seek damages from the appraiser who issued the document. Even if that “appraiser” is simply a retail jeweler who issues the document as a warm and fuzzy reach-around to make their customer get an inflated value concept of their purchase.
There are two more issues that confront the insurance company that the jewelry industry does not realize, or perhaps does not want to recognize:
- There is no formal oversight or uniform standards when it comes to issuing jewelry insurance appraisals. The current estimate is that well over 90% of the appraisals out there are issued by jewelers, dealers, and other sellers without any formal training in jewelry appraisal. There is even a plethora of bogus gem labs on the market now since anyone with a website can establish themselves as a gemological lab issuing appraisals. This professional void in legal appraiser licensing requirements leaves the insurance companies with a major challenge and problem when it comes to jewelry.
- It is not the insurance company’s responsibility to determine whose appraisal is valid and whose is not. I hear many people say: “If the insurance company would require standards to be met the problem would get resolved”. Once again, if the insurance companies suddenly started having to decide which organization’s appraiser was going to be accepted and accept only those, there would not be anywhere near enough trained appraisers to meet the need. It’s the proverbial “Catch 22” where we don’t have enough trained appraisers to require standards, and no uniform standards exist by which we can establish what is a trained jewelry appraiser. So, we have what we have.
I have a unique view of these issues from working closely with the National Association of Jewelry Appraisers and having been formally trained as an appraiser with Cos Altobelli’s excellent program at the American Gem Society. I have also worked in the insurance industry for over 24 years in all phases from USAA Gem Lab, USAA Property and Casualty Department, and as a state licensed Property and Casualty Adjuster of the Texas Department of Insurance.
Based on this experience, the view of the jewelry appraisal industry from my desk is one of chaos. The insurance industry has the problem of not enough properly trained jewelry appraisers, and the appraisal industry has the problem of a highly fragmented industry with no formal oversight and no uniform standards. Put this all together and you indeed get chaos.
If we had formal, state licensing of jewelry appraisers as we do for real estate appraisers, the problem would be greatly reduced.
Unfortunately, until the state Insurance Commissioners or state governments decide to act on this situation, the problems will continue unabated.
That is my opinion. I welcome you to send in yours.
Visit the ISG website to learn more about our world-class programs in gemology and jewelry appraisal at our low tuition rates.
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