Could You Prove What Was in Your Jewelry Store Yesterday?

Owning an inventory system is not the same thing as being able to prove your inventory.

As most of you know, I wear several hats here at the USGI office. Two of the most prominent are: 1. Property and Casualty Insurance Adjuster and 2. Expert Witness, each specializing in high value jewelry claims, investigations, and litigations.

One of the biggest problems I encounter in handling cases that involve retail jewelry store loss claims is the inability of the retail jeweler to prove what was in their store. Most believe that a print out of their computerized inventory is sufficient, when that print out is simply a regurgitation of what was keystroked in and not actual proof of loss.

Today, I would like to share with you what is required to prepare you for the unfortunate event that you have a major loss at your store. This is not just as an insurance adjuster, but also as one who has experienced a major burglary loss in a store I owned several years ago and worked with the adjuster from Lloyds of London to resolve the claim.

There are three levels of information you need when filing an insurance claim:

Proof of Inventory,
Inventory on Hand,
Proof of Loss

Proof of Inventory

Owned Inventory

Many jewelers believe that their computerized inventory is sufficient for Proof of Inventory. It is not. That printout from your Jewel360, The Edge, or Bravo System only shows what someone keystroked into the system. It is not proof of how the inventory got into your store showcases or safes. For that you need a traceable chain of possession of the inventory. For instance, a 1.00 carat diamond you purchased from a dealer in New York should be supported by:

Invoice from the dealer with full details,
Payment records of checks or transfers that paid the dealer,
Complete inventory listing of the diamond
Optional but important: Copies of the GIA or other grading report of the diamond.

This information provides a complete chain of possession of the source, payment, independent grading, and inventory listing of the diamond.

This same information, to the extent possible, should be included for all inventory purchased from wholesale dealers and manufacturers.

Memo Goods

One of the biggest problems I encounter with jewelry store claims are memo documents where the writing is too light to be legible and memo documents lacking sufficient information. If you have a $20,000.00 diamond on memo from your dealer, you should first make sure that your Jewelers Block Policy offers coverage for that in your store. You should next make sure that you have a very clear and complete Memorandum document from the dealer that will provide you with the necessary information in case of a loss. Simply saying “4.00 carat diamond” on a memo line is not sufficient. The GIA or other lab report information, or other grading information should be included. Additionally, the full and complete name including contact information of the memo dealer must be included.

Over the Counter Buys (OTC)

All OTC buys that include jewelry or diamonds valued over $100.00 should be fully documented as to the description, person from whom the item was purchased, the purchase price, and where it is listed in the inventory. If you make an OTC purchase in cash and just put it in your safe with no documentation, it is not insurable because no record of it exists. If you make this kind of purchase without documentation, you accept the risk in the event of a loss with virtually all insurance providers. If the adjuster cannot confirm the purchase with the person you purchased from, the claim is usually denied.

Inventory on Hand

The next step is being able to prove the Inventory on Hand the day of the loss. That is the established time line in order to prove what was actually stolen or robbed. There are three areas to fully document Inventory on Hand:

Photograph and Video the store fixtures, equipment, computer systems, artworks, decorations, everything sitting physically inside the store including inventory in the showcases. Do this weekly. Additionally, take close-up photographs of jewelry in the showcases on a weekly basis. Photographs that make the individual jewelry items identifiable.
Take weekly inventory of all merchandise with written verification of the “on hand” inventory in showcases and Make sure the store’s point of purchase inventory system matches the “on hand” inventory taken, and that supporting documentation in the form of invoices and memorandum match the inventory.
Double check your IRS Tax Filing records for beginning of year and end of year inventories that should support your on-hand inventory. This is reconciled by taking your beginning of year inventory, adding the verified inventory purchases, subtracting inventory sales, and producing an Inventory on Hand as of the day of the loss. While this may seem convoluted, it is one of the major steps insurers will take when investigating your insurance loss claim.
If the IRS reporting does not equal your Inventory on Hand after all factors are considered, this can create problems with your claim.

Make sure that you keep all records off premises of your store. When a major fire occurs, for instance, if your insurance policy and all inventory records are lost in that fire it can jeopardize your claim.

Proof of Loss

This is a crucial step in successfully filing an insurance claim. Some policies will cover “Mysterious Disappearance” up to a certain coverage level, but all too often this kind of loss is not covered. You must prove that a loss occurred, even if it may seem obvious such as with a fire. For this you should maintain proper security systems including cloud-based cameras, UL Certified alarm systems, and secure the premises against break-in and burglary. Here are the steps to take in the event of a loss:

Call the police and report the crime. Most major insurers will require a proper local police report on any reported theft. From a snatch and grab to a major break in, make sure you call your police department and file a loss report that you can provide to your insurer.
Do not clean, organize, or straighten up your store from the crime scene until it is fully documented. With the exception of boarding up windows or securing damaged entry doors, nothing inside should be altered in order to allow for a proper insurance investigation.
Secure the scene and photograph everything. Although the police may have taken photographs during their investigation, take your own photographs of everything in your store. These can be used for comparison with your regular inventory photographs to help prove your loss.
Call your insurance company and file a Loss Claim Report. This initial report will be your first information and description of the loss that will be sent to an adjuster who will investigate and handle the claim.
Immediately gather all of your information in your Proof of Inventory file, make sure that all of the information is organized for presentation to the adjuster for their claim investigation. This will help speed up and maximize the settlement of the claim.
Review your Jewelers Block Policy to understand what coverage you have (this should have already been done), and how the claim will be handled.

The Three Mistakes Jewelers Make

The three mistakes I see jewelers make most often are:

Lack of organization in their inventory record keeping, and
Not keeping inventory records off-site from the jewelry store, and
Not reading and understanding their Jewelers Block Policy before a loss occurs.

Losses will happen to every jewelry store to one degree or another. When it happens is not the time to panic if you get prepared and stay prepared. I have heard so many home town retail jewelers say: “I wish I had done that sooner” when it comes to proper inventory records and understanding how their insurance policy operated after a loss.

It is the insurance company’s job to make you whole…to put you back where you were five minutes before the loss.

It is your job to prove exactly where you were five minutes before the loss.

I hope this has helped you do that and that you never need to use it.

Robert James RGA, FGA, GG, ASG
United States Gemological Institute
Global Claims Associates
Property and Casualty Adjuster, Texas Department of Insurance #1300433