Yes, You Can Be Held Legally Liable for Bad Lab Reports

It seems like more and more jewelers are selling diamonds with reports from so-called lenient labs; some retailers have even adopted this as a business model. Yet, doing this might land you on shaky legal ground, according to Jewelers Vigilance Committee (JVC) president and CEO Cecilia Gardner. One of the things that surprised attendees at the annual Rapaport certification conference at the JCK Las Vegas show was Gardner’s contention that retailers bear legal liability for everything they sell—including the grades on any reports. 

“If a jeweler provides a third-party assessment for the product they sell, they are taking on that liability,” she told me after the conference. “If they are providing it, it becomes their representation.”

“This is derived from the fact that a jeweler is considered a person with special knowledge,” she adds. “They have a higher threshold of liability.”

Which brings up the issue of what a misrepresentation would be as far as diamond grading. The JVC has mediated cases involving inflated grades, but Gardner is unaware of many court cases on this topic, and the issue can be a little murky.

“Nobody in the law has determined that there is an accurate baseline for color and clarity,” she says. “There is an industry standard, and that is GIA. We don’t know whether or not a court would adopt that.” 

The other industry standard is the so-called one-grade tolerance, a bit of received trade wisdom that says it’s okay if labs disagree with each other by one grade, but no more than that. “Beyond a one-grade difference you get into an argument that [the discrepancy] has been purposely done,” Gardner says. “When you get three or four grade differences, you get evidence of a clear intent to deceive.”

So, she says, in a possible court case where “a particular lab differs from another on the same stone by two grades or more, the court would have to determine which grade is accurate. They would likely call in a third lab to make the determination as to which is the inaccurate grading report and what are the consequences of that inaccuracy.”

As Gardner notes, GIA has generally set the pace for grading in this business, having invented the standard color and clarity scale in the 1940s. But what happens if a lab decides to use another grading method? If a lab wants to judge color and clarity by its own method—for instance, one lab grades color faceup—that is its right. But at some point, if the lab is using a different method, you could argue that it is grading to a different standard, especially if that method generally results in higher grades than the GIA scale. And if that’s the case, perhaps the lab shouldn’t be using the GIA-derived color and clarity terminology (G VS1, etc.), and instead develop its own scale, which could be a number grade, a star system, two thumbs up, what have you. That way we wouldn’t have the apples-to-oranges comparisons that many say we have now. The well-respected AGS lab introduced its own scale when it launched, and its cut grades ended up changing the industry. Maybe this is something trade organizations could insist on: Labs that use GIA nomenclature must use GIA standards. Otherwise, they should use a different terminology.

In the meantime, I agree with Saville Stern, moderator of the Rapaport conference: Jewelers must take responsibility for what they sell. You wouldn’t have this issue of variable lab standards if there weren’t demand for reports with looser grades. So even if the unpopular lab of the moment disappeared tomorrow, another might take its place. Our industry has gotten itself into this mess.

So how do we get out of it? Some better jewelers who are uneasy about selling lenient certs—but feel they have to in order to compete—will admit to customers that certain reports use looser standards. Yet, while this may ease their conscience, it could increase their legal liability, since they are acknowledging that the grading on the reports they are carrying may not be accurate. Again, these things haven’t been tested in court. But that is the risk they face.

In the end, it comes down to: If you are stocking a diamond with a report, and you feel its grading or representations are not accurate or inflated, you probably shouldn’t use it, for the sake of everyone’s reputation and mental health. I know a lot of jewelers have been struggling with this issue. But if you are looking for a rule of thumb here, that is clearly the most ethical, safe, and legally sound way to go.  

JCK News Director