a 501(c)3 Non-Profit Education Organization 9 February 2018
Appraisers -v- Gem Labs...a Legal Imbalance!
How the major gem labs avoid legal responsibility for errors while appraisers can not!
The following is a true story:
In 2007 the GIA issued Diamond Grading Report #16175691, dated May 30, 2007, on a 4.80 carat E/VVS2 emerald cut diamond. The certificate did not mention any treatments being involved with this diamond. You can click on the image at left to see the full GIA Diamond Grading Report #16175691.
Earlier today, I went to the GIA Report Check website, and entered the same GIA Diamond Grading Report #16175691 and got the report you see below.
Same GIA Diamond Grading Report #16175691.
Same Date: May 30, 2007.
The problem, the GIA Diamond Grading Report has been altered by the GIA to now reflect that this diamond has been treated to change its color. The full certificate reports this diamond as HPHT treated. Same GIA Diamond Grading Report, same date, same everything. One GIA Diamond Grading Report number, but two very different outcomes.
The GIA admits....these were both issued by the GIA. You can click on the image below to see the full page, or go to the GIA Report Check and enter: 16175691 and confirm this for yourself. Below is the rest of this story.
The diamond in question was originally graded in 2007 and issued the grading report seen at top. In 2013 the diamond was sold and sent to the GIA for a report update. While the original report did not show any HPHT treatment in 2007, in 2013 the GIA reported the diamond as HPHT treated, and called for the original report to be returned, and then issued the updated certificate you see immediately above.
The problem, of course, the diamond was already sold based on the original 2007 GIA Diamond Grading Report as natural color.
When the buyer got the report of HPHT treatment report in 2013, they filed litigation against the seller for fraud.
The seller sold the diamond in good faith, based on the original GIA Grading Report.
The buyer and seller incurred over $100,000.00 in legal costs based on the GIA error.
The GIA issued a letter acknowledging that the error was the fault of the GIA, but they refused to take legal responsibility for the error, refused to appear in litigation procedings to answer for the error, and walked away from the entire litigation process without incurring any costs in time or money, beyond the above referenced letter and report replacement.
This raises two serious questions about the difference in legal responsibility taken by the major gem labs compared to local jewelry appraisers:
Question #1: How could the GIA make such a heinous error and not be held legally and financially responsible for the losses incurred as a result of its admitted error?
Question #2: If a local jewelry appraiser made this same error on an insurance replacement appraisal, wouldn't the appraiser be held legally responsible for the losses and legal costs?
The answers may amaze you.
The GIA Absolution from Errors
On the back of a GIA Diamond Grading Report I found this statement below, behind which the GIA deflected any responsibility for the losses or legal costs for their admitted error. Read the following carefully, direct from the GIA Diamond Grading Report fine print:
“GIA and its employees and agents shall not be liable for any loss, damage or expense resulting from any error in or omission from this report or from the issuance of or use of this report or any inscription, even if the loss, damage or expense was caused by or resulted from the negligence or other fault of GIA or any of its employees…”
In other words…….
If we make an error that causes damage….we are not responsible.
If we omit a fact that causes damage….we are not responsible.
If our employees are found to be negligent in doing their work…..we are not responsible.
This type of disclaimer is not limited to the GIA but is also found in some form with every major lab world-wide. This is the state of our diamond grading lab industry. On this basis are virtually all of the diamonds and colored gemstones of the world markets being sold to consumers.
Therefore, the answer to Question #1 is that the GIA puts this very fine print on the back of their grading reports, and if you use a GIA Diamond Grading Report you agree to hold them harmless in the event they make the above costly error, even if their employee did it on purpose. Seriously, this is what this says.
Jewelry Appraisers Errors and Omissions
The answer to Question #2 is quite simple: If a jewelry appraiser makes a material omission or error in a jewelry appraisal document that causes a client to suffer a loss, the appraiser can be held legally liable for the loss and ensuing costs of litigation. A simple overview of this is available from Jewelers Mutual Insurance Company's document: Jewelry Appraisal Liability Insurance.
This, of course, brings us to a third and most important question:
Question #3: How can the GIA (and other major labs) with their multi-million dollar business issuing diamond grading reports not be held to the same legal standard as the local jewelry appraiser?
A Very Disconcerting Answer
The sad truth to this situation is that the GIA and other major labs operate without legal standards or oversight because there is no government or legal statute to govern the multi-million dollar diamond grading report lab business. The GIA and all other labs operate in a legal void. While local, home-town jewelry appraisers are held to all sorts of legal standards by the IRS and others, the major labs operate in a void outside of any type of oversight or standards. As a result, the GIA can make the kind of errors you see above that cause hundreds of thousands of dollars in litigation costs, and simply say: Too bad, and not our problem.
At the same time, if a local, home-town jewelry appraiser made this kind of error, they would potentially be held liable for the loss and all litigation costs.
The Conclusion and Solution
The major lab reports offer no protection for buyer or seller in todays diamond or gemstone market. No major lab will make their graders available in court to defend their documents as a matter of operation proceedure. Virtually all have disclaimers absolving themselves of any fault for errors they produce, along with avoiding all legal costs their errors may create.
The staff graders of these major labs are no better or worse than properly trained, local home-town jewelry appraisers. Perhaps the available grading tools are more expensive, but the ability to grade a diamond from a lab grader to a properly trained local appraiser offers little difference in abilities.
Since the local, home-town jewelry appraiser is held to a higher standard, and must maintain a higher level of training, the industry should be relying on the work of the local, home-town jewelry appraiser for diamond grading. While issues such as created -v- natural diamonds continue to be an issue, it is still a fact that no major lab can offer a 100% accurate separation of the two anyway.
While this is not a panacea for the problem, the fact that local appraisers are legally liable for the accuracy of their work, and for appearing in court to defend their work, it follows that the local, home-town jewelry appraiser is a more trustworthy source for grading and appraisal than a far-off lab with no liability for errors or omissions.
It is time for professional, home-town jewelers to get the training and expertise to do your own diamond grading and learn how to present the proper grading to your customer.
After all, that is how the industry operated for decades. It worked then, it will work now. The result will be far better for consumers and the industry.
Robert James FGA, GG
President, Insurance Institute of Jewelry Appraisal Inc.
President, Jewelry Adjuster, Independent Insurance Adjusting Firm
Texas Department of Insurance Property and Casualty Adjuster #1300433
About the Insurance Institute of Jewelry Appraisal Inc.
The Insurance Institute of Jewelry Appraisal Inc. is a 501(c)3 Non-Profit Education Organization dedicated to your success in the gemology and jewelry appraisal profession. We are supported in the insurance industry by the Jewelry Adjuster, a member of the National Association of Independent Insurance Adjusters. Our program is recognized by the National Association of Jewelry Appraisers, the Diamond Council of America and others.
To visit the IIJA Website, please click the link below.
https://instituteofappraisal.com/
©2018 Insurance Institute of Appraisal Inc. ALL RIGHTS RESERVED. We encourage sharing and caring throughout the industry as long as all copyrights are left intact.
IIJA
Insurance Institute of Jewelry Appraisal Inc.
PO Box 1727
Helotes, TX 78023
