The Future of Diamonds and Lawsuits

It has happened once again, and once again neither the jewelry industry nor consumers will be informed of the situation by the media or industry organizations. (except us, of course).

Here is the scenario playing out once again in the United States court system:

  1. A major diamond grading lab (not the GIA this time) touts itself as the industry leader in diamond grading. Years of promotion as being the industry authority on diamond grading, encouraging diamond dealers to use their grading reports as a guarantee of quality grading for their customers.
  2. Dealer uses the major lab grading report to sell a major diamond.
  3. A few years later, the diamond is sent to another highly touted lab and the original lab report is found to contain a confirmed, heinous error that caused the dealer to totally misrepresent the diamond to the customer.
  4. Customer files litigation against the dealer for fraud and misrepresentation.
  5. Original grading lab who made the error hides behind their small print disclaimer that states they take no responsibility for errors or negligence on their part.
  6. Original grading lab who made the error, refuses to take responsibility for the error leaving the dealer and customer to fight it out in court with hundreds of thousands of dollars in litigation costs.

How many times is this scenario going to play out before the industry realizes that the major diamond grading lab reports are nothing but sales tools with no legal standing to protect dealer or customer in case of errors?

Even more important: How long will this industry and the world governments allow these multi-million dollar diamond grading labs to operate with no oversight, no governance, and no responsibility for the massive legal costs they create whenever they make mistakes?

As a Property and Casualty Insurance Adjuster (Texas Department of Insurance License #1300433), I am appalled at the diamond grading lab industry and how they operate. I am more appalled at the fact that the diamond industry, all the way to Antwerp, Surat and Ramat Gan, continues to support the diamond grading lab industry when this very industry is slowly eroding consumer confidence in the diamond industry as a whole.

The International Convolution

What makes this matter even worse is when the major grading lab is located outside of the customer’s country of residence. Due to the general inability (both jurisdictional and cost) to bring legal actions outside of the country of residence of the customer, lab reports from foreign based labs are even more worthless than reports from labs located inside the resident country.

For instance, If a dealer or customer buys a gemstone with a grading report from a lab in Thailand, that lab has no office, no representative of record, to be legally responsible for the report in the United States. This means the Thai lab can do or say anything they want, sell higher grades to big dealers, and when the issue is discovered by a consumer in the United States, there is nothing legally that can be done.

This is a very real scenario  and a reason that all consumers who rely on any gemological lab report should choose a report only from a lab located within your own country. Otherwise, the internationally based labs can say anything they want and totally get away with it, even if you find they have lied on the report on purpose!

This is just a fact: Outside the national borders of the location of the lab, consumers have no legal recourse whatsoever with that lab. Unless, of course, they are willing to go to the lab’s country of operation and spend massive amounts of time and money on local litigation. Even if the lab is located inside the country, little recourse is available.

Solutions

The solutions to this enormously damaging and legally expensive fiasco are simple:

  • Stop using labs located outside of your country of residence. Gemological grading labs of all types are affected by this. If you must use a lab to assist with grading, use one within your nation’s borders. Otherwise you have nothing in your hands but worthless paper.
  • Diamond grading labs need to be forced to take responsibility for errors and omissions created by mistakes they make…just like every other business in the world, and
  • The diamond industry needs to go back to operating as professionals and know your product, and stop abdicating your professional responsibility to these spurious diamond grading labs.
  • Above all: Use a properly trained and equipped local, home-town jewelry appraiser who can demonstrate the proper quality of your diamond and be available if any issue arises.

Conclusion

I have agreed to serve as expert witness in, yet another case exactly as described above.

Once again, we have a consumer who made a major diamond purchase decision, based on a major diamond grading report, but finds grievous errors in that grading report.

Once again, we have a consumer as a victim of a major diamond grading lab who touted their grading expertise, but abandons all responsibility when an error occurs.

Once again, we have a consumer needing lawyers, courts and litigation to get the attention of the diamond industry.

Once again, we have a long-time diamond customer who is lost forever to the industry as they will never buy a diamond again, because the diamond industry refused to respond professionally to the error.

To the diamond industry in New York, Antwerp, Ramat Gan, Surat: How long do you think this situation is going to exist until the legal industry gets full wind of the truth about diamond grading labs, and decides to bring a massive, class-action litigation against the diamond industry? An international class-action, I might add, with cooperation of legal offices in many countries working together!

All of these lawsuits are getting major attention from the legal industry.

They are also getting attention from the insurance industry.

When will they get your attention?

Robert James FGA, GG
President, IIJA