Jewellers Block - Diversion Theft Claims

When it comes to Jewellers Blocks (JB) insurance policy, the entire underwriting is based on a high degree of duty of care by the insured, compared to other insurances. This is quite often a condition precedent to acceptance of risk. 

One of the instrumentalities for this duty of care is that, the insured or his representative should exercise close personal custody and control, over the subject matter insured. This is ordinarily a non-negotiable pre requisite for underwriting JB policy. 

Please see two clauses that can be found in JB policies, which illustrate this principle. 

Personal Conveyance Clause  

This Insurance only covers the property insured in transit when in the “close personal custody and control (CPCC)” of an individual designated in this Insurance and subject to the individual limitations if any as specified in the schedule attached.  

For the purposes of this clause, CPCC means that the property insured shall be held by, or attached to, or within sight and not more than arm’s length reach of the designated individual at all times whilst in transit, subject to the Hotel/Motel Clause. 

A negligent or voluntary relinquishment of CPCC over the property insured by the designated individual will not constitute a loss for the purposes of recovery hereunder, and will result in an immediate cessation of coverage, subject to the Hotel/Motel Clause. 

Hotel/Motel Clause  

In respect of stay risks, this Insurance only covers the property insured when in the hand or sight of the Assured and/or Assureds’ Employee(s) and/ or Representative(s) or when deposited in either bank safe deposit vault or in the safe of a Hotel or Motel and/or whilst in custody of customs.  

For the purpose of this clause coverage in respect of a safe in a Hotel/Motel room will be operative only when the room is occupied or the insured property is contained in a safe and/or vault. This insurance excludes loss of or damage to the insured property from unattended Hotel/Motel rooms.  

What is a diversion theft (DT)? 

DT is a form of coordinated social engineering attack, which plays on the psychology of individuals to create a diversion, so they lose their presence of mind. 

DT’s succeed by making the victims distracted and thereby relinquish the CPCC of the goods in their possession. 

See the following examples: 

Example 1: An insured is travelling in a private vehicle with a briefcase containing diamonds and other precious stones. A biker comes and hits the vehicle from the front and falls down. He pretends to be seriously injured and starts wailing. The insured gets out of the vehicle to attend to the biker. In the meanwhile, someone opens the vehicle, grabs the briefcase and decamps with it. The biker also gets away in the ensuing chaos. 

Example 2: Insured is in his hotel room after a jewellery exhibition, where he had displayed his pieces and had brought them back to the hotel. Now the thieves start a false fire alarm in the hotel. The hotel is evacuated. The insured locks his room and comes down the stairs to the evacuation point with everyone else. Meanwhile, the thieves open the room, with a duplicate key card they had stolen earlier from hotel housekeeping, to take away the jewellery. 

In both these examples, DT’s were employed by the criminals that resulted in the insured losing CPCC on the subject matter insured, allowing the theft to happen. 

Are Diversion Theft Claims (DTC) payable under JB policy? 

DTC’s are extremely tricky and often get denied by the insurers, for good reason. 

There can be an argument that denial of DTC is harsh, as the insured did not negligently or voluntarily relinquish control of insured items, but was tricked into doing so. 

At first glance, this may look convincing but actually not. The jewellery business is prone to DT’s, so the various scenarios are expected to be gamed out by the insured. Persons who are entrusted with carrying valuable items are expected to be trained to handle them. An ordinary business without any high value low volume assets may be excused for having untrained people, but not in the gems and jewellery business, where it becomes negligence. Meaning of negligence can be relative or contextual.

So DTC’s must be subject to rigorous scrutiny by the insurers. If the insured or his representatives fall for some ingenious DT that could not have possibly been anticipated or trained for, then a case may exist for considering the claim. Further, paying DTC’s freely can encourage collusive action by the insured or his authorised jewellery carriers which causes moral hazard.

Customers in the gems and jewellery business and brokers or other intermediaries involved in placement of policies, should be aware of these considerations and fulfil the requirements so that claims journey becomes smoother.