A memo agreement is a common arrangement in the jewelry trade. A vendor sends pieces to a retailer on a try-before-you-buy basis. The retailer holds them, shows them, and either buys, returns, or exchanges them within an agreed window. It’s a practical way to move inventory and close sales without either party overcommitting.
What a memo agreement doesn’t necessarily do is spell out who is actually insuring those goods while they sit in the retailer’s case. The agreement transfers possession, but does not automatically transfer or clarify insurable responsibility. That distinction seems technical until a piece is lost, and two parties who each assumed the other was covered discover that neither policy responds the way they expected.
Possession and Ownership Create Two Different Interests
Insurance policies are built around a concept called insurable interest: the idea that a party can only insure something if they would suffer a genuine financial loss should that property be damaged or destroyed. The NAIC’s glossary of insurance terms reflects the standard industry definitions carriers rely on when they write and interpret policy language, and insurable interest sits at the foundation of nearly every property policy in circulation.
In a memo arrangement, both parties can genuinely hold an insurable interest in the same piece at the same time, just in different ways. The vendor retains ownership and would lose the value of the piece if it were never returned or paid for. The retailer holds custody and could be held financially responsible for a piece entrusted to their care, whether or not they hold legal title to it. Neither interest cancels out the other. What can go wrong is that neither party has actually purchased a policy structured to respond to their specific interest in that specific scenario.
Where Standard and Specialty Policies Come In
This is where bailee and customers’ goods coverage comes in. When a business holds property that belongs to someone else, whether at a job site, in a warehouse, or on a jewelry counter, standard property coverage written around the business’s own inventory typically does not extend to that third party’s goods without a specific endorsement or a policy designed for the purpose. For jewelers, that coverage is usually addressed within a jewelers block policy that explicitly extends to memo, consignment, and customers’ goods. Read more about that in our complete guide to jewelers block insurance. The takeaway is that the extension must be explicit. A policy that covers your owned inventory does not automatically cover someone else’s inventory sitting in the same case.
What a Memo Agreement Should Say About Risk of Loss
A well-drafted memo agreement addresses risk of loss directly, not as an afterthought buried below the pricing and return terms. At minimum, it should specify:
- When responsibility for loss or damage transfers from vendor to retailer, and whether that responsibility reverts on return shipment or only once the goods are physically back in the vendor’s hands
- Whether the retailer is required to carry insurance covering memo goods specifically, and at what valuation
- Whether the vendor’s own policy follows the goods while they’re on memo, or whether coverage lapses the moment the pieces leave the vendor’s premises
- Security, storage, and transit requirements the retailer must meet for coverage or liability to apply
- What documentation each party needs at the time of loss to support a claim
Many memo agreements address none of this. They cover price, quantity, and the return window, and leave risk of loss implied rather than stated. That silence doesn’t resolve the question. It just postpones it to the worst possible moment: after something has already gone wrong.
A Scenario: A Piece Goes Missing While on Memo
Consider a retailer who receives several pieces on memo for a client viewing. A thief steals one from the store overnight. The retailer assumes the vendor’s policy covers it, because the vendor still owns the piece and carries jewelers coverage of their own. The vendor assumes the opposite: that once the goods were in the retailer’s care, the retailer’s jewelers block policy, covering inventory in the store, took over.
Both assumptions are reasonable. Neither may be correct. The vendor’s policy may exclude goods that have left their premises on memo, treating that risk as the retailer’s to insure. The retailer’s policy may only cover owned inventory, and treat consigned or memo pieces as outside its definition of covered property unless there is a customer’s goods extension. The result is a loss that falls into the space between two policies.
This is not a failure of either policy. Both may be performing exactly as written. It’s a failure of the memo agreement to specify, in advance, which policy was supposed to respond, and a failure to confirm that the intended policy actually included the coverage the agreement assumed.
What to Review Before Your Next Memo Placement
- Read the risk-of-loss language in every memo agreement you sign or issue, not just the pricing and duration terms
- Confirm with your broker, in writing, that your jewelers block policy explicitly extends to memo, consignment, and customers’ goods, not just inventory you own
- Ask vendors for documentation that their policy follows goods while in your possession, rather than assuming it does
- If the memo agreements you receive don’t address the risk of loss, raise it before you accept the goods.
Memo arrangements are a normal, useful part of how the jewelry trade does business. The risk isn’t in using them. It’s in assuming that possession, insurance, and responsibility all line up automatically when a piece changes hands. They don’t, unless someone has confirmed that they do.
Review Your Memo and Consignment Coverage With Meslee
Meslee works with jewelry retailers and vendors to make sure the coverage behind every memo, consignment, and trade show arrangement matches what the paperwork assumes. If you’re not certain your current policy responds to goods you hold but don’t own, reach out. We’ll be happy to discuss your situation.
Contact our team at meslee.com to schedule a coverage review.
