Legal Defects in Major Lab Reports

Editorial: Legal Defect in Major Lab Reports

What you are not being told about lab grading reports

They are the most misrepresented products in the international jewelry industry. The products: Major lab grading and identification reports. Touted by labs around the world as expert identifications and grading evaluations of diamonds and colored gemstones. Pushed on consumers as certifications of quality with terms like “GIA Certified” being thrown around as if these pieces of paper carry legal weight regarding quality representations.

In truth, lab reports carry no legal weight, and offer zero protection to any seller, appraiser or insurance provider who uses them. A smoke and mirrors game being played on consumers whose true nature only comes to light when these weightless documents are offered in a courtroom to support the claimed grading or identification by a seller.

Having been involved both as defendant and expert witness for many legal cases involving major lab reports, time and again it has been demonstrated that major lab reports carry no legal weight. No “certification” power or authority. Here is a legal case on point:

Direct Shopping Network -v- Robert James, Colored Stone Magazine, et al.

In the case of DSN -v- Robert James and Colored Stone Magazine, Direct Shopping Network, along with their supplier Andegem, claimed that they were not responsible for errors made during their misrepresentation of Tibet andesine as being natural and untreated. These claims were based on identification reports they received from such labs as the American Gem Trade Association Gem Trade Lab, the GIA and others.  A plethora of AGTA GTC reports were submitted to the court in support of this contention, along with reports from the GIA and AIGS. One of the AGTA GTC reports submitted for evidence that was dismissed as hearsay evidence can be seen here: AGTA GTC.

The lab reports from the AGTA, GIA, AIGS and others were thrown out of evidence due to the documents being “hearsay” evidence.

What is “Hearsay Evidence”?

Hearsay evidence refers to a statement or document, offered by a third person in litigation, that is not supported by the appearance of the original person who made the statement or produced the document. Here is a case law example of a ruling on hearsay from Duhaime’s Encyclopedia of Law:

In US v Caraballo, Justice Marcus wrote:

“Hearsay is generally defined as a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.”

The matter is further explained by the Cornell Law School Legal Information Institute:

“Hearsay Rule

The rule prohibiting hearsay (out of court statements offered as proof of that statement) from being admitted as evidence because of the inability of the other party to cross-examine the maker of the statement.”

The end result of case law, along with the Federal Rules of Evidence Article VIII, adopted by the United States Supreme Court on November 20, 1972  (see Cornel Law School Federal Rules of Evidence), means that any litigation involving a lab report of any kind, from any lab in the world, requires that the person who performed the actual grading, identification and/or evaluation be presented in court to offer first-hand testimony of their findings, and be available for discovery, deposition and cross examination by the opposing attorneys.

The obvious problem here is that the major labs have demonstrated their unwillingness to make their lab personnel available for litigation, such as was the case in Heritage Auctioneers & Galleries -v- Susanne Hilou.

Heritage Auctioneers & Galleries -v- Susanne Hilou.

In this case the GIA admitted to a serious error in a GIA Diamond Grading Report that caused a massive litigation to ensue. The GIA refused to appear or testify in the case and refused to take any legal responsibility for the error made on the GIA Diamond Grading Report.

The lack of any kind of governing grading standards in the lab reports was further demonstrated in the case of The Diamond Consotrium -v- Cummings Manookian, PLC.

The Diamond Consortium -v- Cummings Manookian, PLC.,  

Most recently, in the case of The Diamond Consortium -v- Cummings Manookian, PLC.,  the plaintiff attempted to make a case that the GIA Diamond Grading Reports carry legal weight in the industry as the “industry standard” for diamond grading. Once again, however, not only were no GIA diamond graders produced for testimony, but the attorneys for Cummings Manookian, PLC, could produce no published, legally binding GIA diamond grading standards as evidence.

The GIA Diamond Grading Reports, just as all reports from the major labs, are simply hearsay evidence unless the GIA and other labs are willing to make any grader from any lab available for any legal issue at any time. Case law has demonstrated a marked unwillingness of the major labs to do so, creating a latent defect in the lab reports.

“Inherent Vice” or “Latent Defect” of the Major Gem Lab Reports

It is what the insurance industry calls: “Inherent Vice” or “Latent Defect”. To understand the concept of “Latent Defect” we look to insurance case law:

Acme Galvanizing Co., Inc. v. Fireman’s Fund Insurance Co., 221 Cal. App. 3d 170, 270 Cal. Rptr. 405 (1990).

“A latent defect is one which is both not readily observable and not discoverable to any but the most searching examination.”

Further, regarding a definition of inhere vise we turn to the Merlin Law Group, where inherent vice is defined as:

Generally, “inherent vice” implies that no external or extraneous peril caused the loss; rather, the loss or damage results from the internal composition of the property, or some aspect of the property that brings about its own destruction.

Clearly, the fact that major lab reports have been ruled as “hearsay” evidence and disallowed as evidence in a court of law demonstrates a “hidden internal composition” of the lab reports that is “not readily discoverable” by the general public, and “brings about its own destruction” in a court room.

Conclusion

Through case law and the historical actions by the major labs, it is clear to this state licensed P&C Insurance Adjuster (TDI #1300433)  that these gemstone grading and identification documents are being misrepresented to consumers. Representations that these major lab reports establish legal standards, through claims such as “GIA Certified” by which colored gemstones and diamonds are sold, are false and misleading in my opinion.

The only solution is for every lab, everywhere in the world, to make their gemological grading staff be available for discovery, deposition and litigation for any report issued. This would include labs in any country to be available anywhere their lab reports are used. This requires any lab located in places like Bangkok, Thailand to be available for litigation in the United States, for their reports to be valid in the United States.

Obviously, this is not going to happen, which causes grading reports from any of the major labs to contain the same inherent vice. The same latent defect.

The Safe Alternative to Major Lab Reports

The “Hearsay Evidence Rule”…does not exist for home town, independent retail jewelers who grade their own diamonds. Consumers can buy diamonds graded by professionally trained home town, independent retail jewelers with confidence that the grading done can be supported in a court of law.

This “Hearsay Evidence Rule” does not exist for properly trained, independent jewelry appraisers who grade and value jewelry and gemstones. Consumers can get quality evaluations from their local appraisers that will stand in court, if required, if the appraiser carries proper training credentials and is a member of the National Association of Jewelry Appraisers.

Perhaps that should tell everyone something about who we should trust for diamond grading and gem identification, as well as jewelry evaluation and appraisal.

Clearly, it is time for the major grading labs to be exposed for the inherent vice and latent defects they bring to the jewelry industry around the world.

Robert James FGA, GG
President, Insurance Institute of Jewelry Appraisal Inc.
Texas Department of Insurance Property and Casualty Adjuster License #1300433
Member: National Association of Independent Insurance Adjusters