Watch Your Language
Descriptions of gemstones, such as those in lab grading reports, can
change depending on the grader. Be careful in your appraisals that your
words don't imply a warranty of these subjective opinions. Such "guarantees"
could come back to haunt you
by Al Gilbertson
The legal world has laws or codes that, while seemingly unrelated to
appraisals, do have an impact on the daily work of appraisers (Professional
Jeweler,August 1998, p. 122). Most jewelers are unaware an appraisal
given out at the time they make a sale (whether by an independent appraiser
or on the store's letterhead) can be construed by courts as a "warranty"
of the description, quality and sometimes value of what is sold.
A recent court case involved a customer who paid $444,500 for a 14.05-ct.
D internally flawless diamond ring with a grading report from the GIA Gem
Trade Laboratory. The jeweler wrote an insurance report saying the diamond
was D internally flawless and valued at $444,500. Three years later the
customer tried to sell the diamond. The new buyer made the sale contingent
upon recertification of the diamond. The Gem Trade Lab, in a new report,
called the diamond E internally flawless. Based on an express warranty provision
of the Uniform Commercial Code, the customer sued the jeweler for the value
difference between a D and E internally flawless 14.05-ct. diamond. She
said the jeweler warranted the diamond to be D color and because it was
now an E color, there was a breach of warranty. The Florida Supreme Court
Further, the court decided the UCC express warranty provision applies
only to the seller and does not include third parties &150 the lab in this
case. Because the lab report was used as part of the sale and the customer
relied on it, the court viewed it as part of the "basis of the bargain"
(a legal term) and as a warranty by the jeweler. The court continued: "There
were no representations made at the time of the sale to dissuade plaintiff
from relying on the accompanying report. I further find the report to state
facts and not mere opinions. Certainly to an unsophisticated buyer a diamond's
rating of color and clarity appear to be objective enough to be relied upon."
The court said the diamond must have always been E color (ignoring the
first report), therefore, it was a breach of warranty on the sale date.
It isn't just lab reports jewelers should worry about. Any gemstone grading
you do in an insurance report can be misread as a warranty in the same way.
In another court case, a jeweler was careful to state that his valuation
was only an opinion, but the judge ruled his diamond description was still
written as fact and fell under warranty law.
A jeweler can turn around and sue the lab. But just because a consumer
wins a case against a jeweler doesn't mean a jeweler will win against a
lab. To successfully sue a lab, a jeweler has to prove the grading was not
only incorrect, but that the lab was negligent. Negligence means the lab
failed to use reasonable care in grading. This is an uphill battle because
grading, even when done with rigorous care, is subjective in nature.
A jeweler/appraiser or independent appraiser can avoid this kind of legal
predicament in several ways. Cover letters on point-of-sale reports can
help. A cover letter explaining gemstone descriptions could read: "The
specific descriptions of each gemstone in the jewelry appraised here are
based on the gemstone characteristics of weight, cut, clarity and color.
The grading of cut, clarity and color is a subjective process, even when
performed by competent gemological laboratories. Two labs grading the same
gemstone can come to different opinions. Even the same lab can grade a stone
twice and arrive at different opinions. You should understand that the descriptions
and identifications made here, along with the valuations, are opinions only
and are not intended to be an express or implied warranty or guarantee."
(Before using this wording, discuss it with an attorney.)
Even this type of cover letter won't protect you if your sales associate
blows it, however. If the associate tells the customer a diamond is of a
certain quality but doesn't say it's based on a lab's opinion, the verbal
sales pitch amounts to an express warranty too.
Appraisal courses have not taught this subject carefully. Lack of information
about what constitutes a warranty and specific warnings about the possible
consequences of the language an appraiser uses are perhaps most obvious
in the Gemological Institute of America's "Insurance Replacement Appraisal"
course. While referring frequently to civil liability if an item is overvalued
or misgraded, the course never specifically covers the UCC's express warranty
provision (see box) and how it can trip up an appraiser.
The GIA course and the Jewelers Vigilance Committee Appraisal Guidelines,
which GIA notes in its course, encourage the preparer of any report to add
a certification statement such as: "I certify to the best of my knowledge
and belief the statements in this document are true and correct, including
representation of quality and quantity."
GIA also encourages the statement: "Every effort has been made to
grade the gemstones described in this document as accurately as possible,
within normal, reasonable and acceptable gemological ranges. Opinions of
quality and grade may vary upon re-examination or examination by another
Though the second paragraph is meant to protect the jeweler by correctly
pointing out that grading is subjective, it may not be enough in the eyes
of a court to undo the damage done by the first "certifying" statement.
Certifying that a representation of quality like a lab report is true
would probably appear to the court as an express warranty. (Webster's
Collegiate Dictionarydefines certify as "to make known or establish
[a fact] or to guarantee the quality or worth of.")
A better approach may be using a clause from the government's Uniform
Standards of Professional Appraisal Practice: "I certify that, to the
best of my knowledge and belief, the reported analyses, opinions and conclusions
are limited only by the reported assumptions and limited conditions, and
are my personal, unbiased professional analyses, opinions and conclusions
[USPAP Standards Rule 8-3]. This statement, though virtually untested in
court at press time, may better protect you from legal action. But once
again, consult with your attorney on specific wording.
Al Gilbertson owns Gem Profiles, an independent appraisal service
in the Pacific Northwest. A member of the American Gem Society and the International
Society of Appraisers, he was also a member of the Jewelers Vigilance Committee's
Appraisal Task Force, the Gemological Advisory Committee of the AGS Gem
Lab and the AGS Appraisal Committee. He is a fellow of the AGS Jewelers
Education Foundation, director of research for the Diamond Profile Laboratory
and editorial adviser toThe Guide,published by Gemworld International.
Talking in Code
Here is the exact wording of the express warranty provision of the Uniform
Commercial Code (UCC § 2-313):
"(1) Express warranties by the seller are created as follows:
(a)Any affirmation of the fact or promise made by the seller to the
buyer which relates to the goods and becomes part of the basis of the bargain
creates an express warranty that the goods shall conform to the affirmation
(b)Any description of the goods which is made part of the basis of the
bargain creates an express warranty that the goods shall conform to the
(c)Any sample or model which is part of the basis of the bargain creates
an express warranty that the whole of the goods shall conform to the sample
(2)It is not necessary to the creation of an express warranty that the
seller use formal words such as "warrant" or "guarantee"
or that he have a specific intention to make a warranty, but an affirmation
merely of the value of the goods or a statement purporting to be merely
the seller's opinion or commendation of the goods does not create a warranty."
Copyright © 1998 by Bond Communications.