I consigned my AP Royal Oak to a well-known dealer in Los Angeles. Two weeks later, the dealer’s shop was shuttered, and creditors seized the inventory. The dealer filed Chapter 7. I called my insurer. They said: “You voluntarily handed the watch to him. This is a civil dispute/credit risk, not a theft. Coverage denied.”
Key Takeaways
- “Voluntary Parting” Exclusion: Most personal policies exclude loss if you voluntarily gave the item to someone (consignment), and they stole it or lost it financially.
- UCC-1 Filing is Mandatory: To protect your rights in bankruptcy, you must file a UCC-1 Financing Statement when consigning. This tells the bankruptcy court “This watch belongs to me, not the dealer.”
- Dealer’s Insurance (Block Policy): You must verify the dealer has a “Jewelers Block” policy that covers “Goods of Others.” Ask for a Certificate of Insurance (COI).
- Consignment Agreement: The contract must explicitly state who is responsible for insurance. Never assume.
The “Why” (The Trap)
The trap is “Change of Custody.”
When you consign, you transfer custody.
If the dealer sells it and keeps the money (Ponzi scheme), that is “Conversion,” which is excluded by almost all property insurance.
If the dealer is robbed, their insurance should pay. But if they were underinsured (common), you are an unsecured creditor at the back of the line.
The Investigation (My Analysis of Coverage)
I looked at how to consign safely.
Hodinkee Insurance
- The Clause: They generally cover the watch while at a dealer for service.
- The Consignment Gap: If it is there for sale, coverage might be restricted. You must notify them.
The UCC-1 Solution
- What it is: A legal public notice.
- Cost: ~
20−20−50. - Effect: If the dealer goes bankrupt, the bank cannot seize your watch to pay the dealer’s debts. You get your watch back.
Contract Language
- Required: “Dealer assumes full responsibility for loss or damage…”
- Red Flag: “Dealer is not responsible for…”
[IMAGE: Photo of a “Consignment Agreement” document with the Insurance Liability section circled in red]
Comparison Table
| Scenario | Your Personal Insurance | Dealer’s Insurance | UCC-1 Filing |
| Shop Burglary | Maybe (if notified) | Yes (Primary) | N/A |
| Dealer Fraud/Theft | Denied (Conversion) | Denied (Criminal Act) | N/A (Civil Suit) |
| Dealer Bankruptcy | Denied | N/A | Protects Asset |
Step-by-Step Action Plan
- Ask for the COI: Before handing over the watch, email: “Please send a copy of your insurance certificate showing coverage for consigned goods.”
- File UCC-1: If the watch is >$10k, file the form with the Secretary of State where the dealer is located.
- Read Your Policy: Check your “Exclusions” for “Voluntary Parting” or “Entrustment.”
- Use Escrow: For high-value deals, use a trusted escrow service rather than leaving the watch on a shelf for months.
FAQ
Does this apply to shipping?
Shipping to a dealer is covered (see Shipping article). Once they receive it and put it in the case, “Entrustment” begins.
What about selling to a friend?
Same risk. If you give it to him to “try out” and he runs, it’s Voluntary Parting.
Are big dealers like eBay/The RealReal safer?
Yes, they have corporate insurance policies that generally cover consignment inventory, but still read the T&Cs.