A Video About The Jewelers Block Conditions
The jewelers block policy is an inland marine policy that covers against the risk of loss of highly valuable movables, jewelry, gold and gemstones. Since most gemstones and valuable metals are fungibles – there is no way to identify one diamond from another without a laser engraved serial number, theft and fraud is fairly easy. As a general condition a jeweler’s block policy will contain, as a material condition precedent and subsequent, an “iron safe clause” that requires the insured to maintain records sufficient to establish the exact amount of loss.
The records clause is often referred to as the “iron safe” clause because the original version of the clause required that the records be kept in a “fire proof iron safe.”
Commonly, jewelers maintain a perpetual inventory on index cards, in loose leaf books, in ledger books or on computer data base software and then take a physical inventory annually to reconcile the perpetual inventory. Problems generally arise when the perpetual inventory is not reconciled on a regular schedule and the jeweler fails to reconcile errors in recording purchases or sales, expected shrinkage or undiscovered thefts.
When an insured fails to reconcile the perpetual inventory regularly, errors in entry and shoplifting losses will continue to be carried on the books of the insured as if the gemstones still exist in the inventory although they were sold or were stolen. The insured will inadvertently present an inflated loss to the insurer or will be carrying an inflated inventory on his books. At the time of loss, it will be impossible to determine exactly what was taken since the records are unreliable.
A New Jersey court found no support in the record for the trial court’s conclusion that plaintiffs “substantially complied with the requirements of the policy” because the case before it was not simply a case where policyholders maintained an inventory list which was sloppy or deficient in some respect not material to the claim. Rather, plaintiffs maintained no records at all that could be fairly described as an “itemized inventory” or “detailed listing of travelers stock.” Therefore, plaintiffs could recover under the policy for the alleged theft at the trade show only if the court completely disregarded the record-keeping requirements of the policy or found them to be unenforceable. Therefore, the court in Sherwood Prods. v. Conn. Indem., 820 A.2d 685, 359 N.J. Super. 510 (N.J. Super., 2002)
The plain language of the dishonest entrustment exclusion, confirms that the exclusion applies to the present case: The loss of plaintiff’s jewelry resulted from theft or an act of dishonest character on the part of the persons to whom the jewelry was entrusted. It is irrelevant to whom or for what purpose the jewelry was actually or intended to be entrusted. Entrustment is to be determined by the state of mind of the insured rather than that of the recipient.
A New York court found that a claim is outside the ambit of coverage on the basis of the policies’ exclusionary clause for “unexplained loss, mysterious disappearance or loss or shortage disclosed on taking inventory.” [Chadwick v. Aetna Ins. Co., 9 N.C.App. 446, 176 S.E.2d 352); Maurice Goldman & Sons, Inc. v. Hanover Ins. Co., 578 N.Y.S.2d 551, 179 A.D.2d 388 (N.Y. App. Div., 1992)]
Lack of Protective Safeguards
Security has always been an important aspect of underwriting a jewelers block policy. Failure to have any of the devices promised in operational order simply causes the policy to be void during the lack of such protection.
Lloyd’s added interesting exclusions to the 1995 O(L) policy that should be carefully studied. For example, having the combination to the safe or alarm written down anywhere in the store can cause a claim to be denied. This and other new exclusions deal with adding protection to the merchandise and give the insured more incentive to protect his, her, or its property.
In Phoenix Insurance Company v. Ross Jewelers, Inc., U.S.C.A., 5th Cir., 362 F.2d 985 (1966), the court found that the provision of a standard ‘jewelers’ block policy’ that the assured would maintain the protective devices described in the proposal was a promissory warranty as well as a condition.” [Great Am. Ins. Co. v. Lang, 416 S.W.2d 541 (Tex. Ct. App. 1967)]
The reason Jewelers Block policies have many warranties and conditions precedent is the fact that they present a very high risk of a major loss by robbery or burglary and a serious exposure to fraud by an insured who is willing to manipulate the business records. See the story “The Great Jewel Robbery” in my book, the Insurance Fraud Costs Everyone other books, like Zalma on Insurance Claims here.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.
He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.
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