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Indemnification: Public Policy or Public Enemy?

For many years there has been great debate on how insurance companies handle claims on jewelry that is separately scheduled. These policies are commonly referred to as "Personal Articles Policy's". Regardless of what they are called they are almost all written and handled in the same manner. These policies are legal and binding contracts and are separate from the homeowner's policy. They have their own terms and conditions along with their own covered and non-covered perils. Regardless of what a policy states the state law prevails (when a policy is in conflict with the applicable law of the state in which the policy is issued, than the law of the state will apply).

Note: If the insured has an "Agreed Value Policy" which is when the insurer cuts a check for the scheduled amount, than it would not apply to this article.

Personal article policies are almost always based on the insurer's replacement cost and not the insured's cost. The concept works as follows, due to the fact that insurance companies are the largest consumers of jewelry they find "replacement centers" that are willing to give them a significant price break based on volume. Almost all personal article policies that I have seen have the same concept within their contract:

First the application forms within the signature block area:

"I also understand that insurance company name has the option of repairing or replacing any lost or damaged property. In the event of a cash settlement, I will be paid no more than insurance company's name cost to replace the item."

Second is located within the actually policy explanation forms that are sent out after the policy is underwritten:

Loss Settlement: We have the option of repairing or replacing the lost or damaged property. Unless otherwise stated in this policy, covered property values will be determined at the time of loss or damage. We will pay the cost of repair or replacement, but no more than the smallest of the following amounts:

    A) the full amount of our cost to repair the property to its condition immediately prior to the loss or damage;

    B) the full amount of our cost to replace the item with one substantially identical to the item lost or damaged

    C) any special limit of liability described in this policy; or

D) the limit of liability applicable to the property.

Is this an appropriate contract for an insured to agree to? The answer is yes, if the insurer is properly handling this contract. First we must understand the basic concept of what insurance is for, Indemnification.

What is indemnification in its purest form?

The concept of indemnification is to make one whole. To make one whole means to put them back where they were immediately prior to their casualty, no better and no worse. When it comes to understand what a "word" means and how it will determine the outcome of any situation, we have to understand that the ultimate decision on any dispute is settled by the courts. The courts have their definitions of what "words" mean. The courts defer to the legal dictionaries. Black's Law Dictionary defines the "words" as:

    Indemnify: To restore the victim of a loss, in whole or part, by payment, repair, or replacement. To make good; to compensate; to make reimbursement to one of a loss already incurred by him

    Indemnity: reimbursement. An undertaking whereby one agrees to indemnify another upon the occurrence of an anticipated loss. The compensation given to make a person whole from a loss already sustained.

What constitutes indemnification and what fails to meet indemnification?

Indemnification is met when:

An insured loses a modern stainless steel and 18kt yellow gold Rolex Oyster Perpetual Datejust. The watch has a Rolex diamond dial. Purchase Price $8800.00

The insurer replaces it with a modern stainless steel and 18kt yellow gold Rolex Oyster Perpetual Datejust. The watch has a Rolex diamond dial. It is replaced through one of their "replacement centers" for $7040.00

An insured loses a 1.00ct. full cut round brilliant cut diamond, SI1 clarity, G color, with 0 proportion grade, and the diamond was sold with a GIA GTL grading report. Purchase price $6900.00

The insurer replaces it with a 1.00ct. full cut round brilliant cut diamond, SI1 clarity, G color, with 0 proportion grade, and the diamond was sold with a GIA GTL grading report. It is replaced through one of their "replacement centers" for $5750.00

An insured loses a platinum and diamond Etruscan style band ring that contains (49) full cut round brilliant diamonds with a total weight of .25ct, VS2 clarity, G-H color, 18.2 grams, and is manufactured by Eli Jewels. Purchase price $3200.00

The insurer replaces it with a platinum and diamond Etruscan style band ring that contains (49) full cut round brilliant diamonds with a total weight of .25ct, VS2 clarity, G-H color, 18.2 grams, and is manufactured by Eli Jewels.
It is replaced through one of their "replacement centers" for $2535.00

An insured loses a sterling silver Tiffany charm bracelet with a heart shaped disc. Purchase price $185.00

The insurer replaces it with a sterling silver Tiffany charm bracelet with a heart shaped disc. It is replaced through Tiffany's for $185.00

An insured loses an 18" strand of individually knotted cultured Akoya pearls. Mikimoto, AA quality, 6.5-7.0mm. (78) pearls. Purchase price $3200.00

The insurer replaces an 18" strand of individually knotted cultured Akoya pearls. Mikimoto, AA quality, 6.5-7.0mm. (78) pearls. It is replaced through one of their "replacement centers" for $2550.00

An insured loses an 18kt yellow gold custom designed ring manufactured by ABC Jewelers, Style #1234. The ring contains (1) 1.00ct. round blue sapphire (heated), SI1 clarity, P2B zone 65 with a 15% black Mask, Cut 7. (10) full cut round brilliant diamonds total weight 1.00ct, VS2 clarity, G-H color. Purchase Price $6850.00

The insurer replaces an 18kt yellow gold custom designed ring manufactured by ABC Jewelers, Style #1234. The ring contains (1) 1.00ct. round blue sapphire (heated), SI1 clarity, P2B zone 65 with a 15% black Mask, Cut 7. (10) full cut round brilliant diamonds total weight 1.00ct, VS2 clarity, G-H color. It is replaced through ABC Jewelers for $5000.00

An insured loses a 3.32ct. pear shaped, mixed cut emerald, Colombian origin. SI2 clarity, B2G zone 30 over G zone 35, with a 5% black mask, cut 7. Cleaned and enhanced with the ExCelT process. Purchase Price $6580.00

The insurer replaces a 3.32ct. pear shaped, mixed cut emerald, Colombian origin. SI2 clarity, B2G zone 30 over G zone 35, with a 5% black mask, cut 7. Cleaned and enhanced with the ExCelT process. It is replaced through one of their "replacement centers" for $4490.00

Indemnification is NOT met when:

An insured loses a modern stainless steel and 18kt yellow gold Rolex Oyster Perpetual Datejust. The watch has a Rolex diamond dial. Purchase Price $8800.00

The insurer replaces it with a modern stainless steel and 18kt yellow gold Rolex Oyster Perpetual Datejust. The watch has an aftermarket diamond dial. It is replaced through one of their "replacement centers" for $5440.00

Reason Indemnification Not Met: While the aftermarket dial looks the same and has the same carat weight in diamonds, it is not Rolex, and does not have the same value.

An insured loses a 1.00ct. full cut round brilliant cut diamond, SI1 clarity, G color, with 0 proportion grade, and the diamond was sold with a GIA GTL grading report. Purchase price $6900.00

The insurer replaces it with a 1.00ct. full cut round brilliant cut diamond, SI1 clarity, G color, with 0 proportion grade, and the diamond was sold with a European Gemological Laboratories grading report.
It is replaced through one of their "replacement centers" for $5350.00

Reason Indemnification Not Met: Any gemstone with a grading report must have the exact same report, to guarantee that the exact same set of grading standards were implemented.

An insured loses a platinum and diamond Etruscan style band ring that contains (49) full cut round brilliant diamonds with a total weight of .25ct, VS2 clarity, G-H color, 18.2 grams, and is manufactured by Eli Jewels. Purchase price $3200.00

The insurer replaces it with a platinum and diamond Etruscan style band ring that contains (49) full cut round brilliant diamonds with a total weight of .25ct, VS2 clarity, G-H color, 18.2 grams, and is manufactured by American Jewelry Co. It is replaced through one of their "replacement centers" for $2035.00

Reason Indemnification Not Met: While the ring has all of the exact same attributes along with looking similar, it lacks the provenance and value of the maker.

An insured loses a sterling silver Tiffany charm bracelet with a heart shaped disc. Purchase price $185.00

The insurer replaces it with a sterling silver charm bracelet with a heart shaped disc. It is replaced through one of their "replacement centers" for $85.00

Reason Indemnification Not Met: Although it is made by the same company that makes the bracelet for Tiffany's, and it is the same, it lacks the Tiffany "Mark" and therefore it lacks the provenance and value.

An insured loses an 18" strand of individually knotted cultured Akoya pearls. Mikimoto, AA quality, 6.5-7.0mm. (78) pearls. Purchase price $3200.00

The insurer replaces an 18" strand of individually knotted cultured Akoya pearls. AA quality, 6.5-7.0mm. (78) pearls. It is replaced through one of their "replacement centers" for $1650.00

Reason Indemnification Not Met: Even though the pearls are the exact same in every way the clasp lacks the Mikimoto mark, therefore it lacks it's associated provenance and value.

An insured loses an 18kt yellow gold custom designed ring manufactured by ABC Jewelers, Style #1234. The ring contains (1) 1.00ct. round blue sapphire (heated), SI1 clarity, P2B zone 65 with a 15% black Mask, Cut 7. (10) full cut round brilliant diamonds total weight 1.00ct, VS2 clarity, G-H color. Purchase Price $6850.00

The insurer replaces an 18kt yellow gold ring. The ring contains (1) 1.00ct. round blue sapphire (heated), SI1 clarity, P2B zone 65 with a 15% black Mask, Cut 7. (10) full cut round brilliant diamonds total weight 1.00ct, VS2 clarity, G-H color. It is replaced through XYZ Jewelers for $3500.00

Reason Indemnification Not Met: Even though they copied the ring exactly, and used the same quality gemstones it lacks provenance. Along with this it is a violation of copyright law, for artistic property. ABC Jewelers can sue the insurer along with XYZ Jewelers. Not being made by the same artist it does not have the same value.

An insured loses a 3.32ct. pear shaped, mixed cut emerald, Colombian origin. SI2 clarity, B2G zone 30 over G zone 35, with a 5% black mask, cut 7. Cleaned and enhanced with the ExCelT process. Purchase Price $6580.00

The insurer replaces a 3.32ct. pear shaped, mixed cut emerald, Colombian origin. SI2 clarity, B2G zone 30 over G zone 35, with a 5% black mask, cut 7. enhanced with the opticon. It is replaced through one of their "replacement centers" for $3850.00

Reason Indemnification Not Met: The emerald may be of the same quality, but it is not enhance the same, therefore making it different. First it is not cleaned out before enhancement, second it does not come with the lifetime warranty the original process comes with, and does not have the same value.

What is important to understand is that the cost to the insurer is irrelevant as long as true indemnification can be met. In other words if the insurer can replace the item with the exact same in every way from manufacture, trademark, weights, qualities, enhancements, and grading reports, than they have met indemnification regardless of what their cost is. If one of the value components is not the same than indemnification has not been met.

Who is Responsible for What:

The Insured: Hire a trained, qualified Gemologist/ Appraiser. Keep the original appraisal. Go through the questions of coverage with their insurance agent. Get appraisal updates at least every two years. In the case of a loss have the original appraiser do an indemnification verification report.

The Appraiser: Use due diligence in appraising the subject property. Full narrative appraisals with photographs and appropriate laboratory work. Non inflated value conclusions. The majority of insurance appraisals issued today are done by the seller and should include manufacture information along with style numbers.

The Insurer: Appraisal Review, to ensure that the appraisal is properly executed and contains all critical information. Remind clients to get updates. Understand indemnification along with copyright law. Qualify their replacement centers to guarantee that they understand not only appraising, but also copyright. Most importantly to make sure that their clients are truly indemnified.

By: Charles M. Ellias GG ISA CAPP 2001



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