The Art of Insurance
by Jamie K. Baker
Art collectors and exhibitors face insurance issues when newly-discovered artworks by famous artists are found to be fakes. Likewise, insurance is a significant issue when ownership of Nazi-era stolen art is questioned or an art heist occurs. The FBI estimates that art crime is responsible for $6 billion in losses annually worldwide. D. Steinberg, The $25 Billion Art Move, (Wall Street Journal, June 24, 2011).
These stories make the headlines, yet title disputes, art destroyed in transit and commercial entrustment issues are more often at the core of art insurance claims.
Individual collectors, galleries, museums, universities, corporations and auction houses all have different insurance needs. For the private collector with artworks valued above $200,000, fine art insurance offers greater protection than a standard homeowner’s policy, including worldwide coverage and coverage for breakage.
For all categories of insureds, one issue that arises particularly with a theft or loss claim is the proper valuation of the artwork. Appraisal is integral in obtaining proper coverage. It is advisable to insure an art collection based not on a fixed figure, but instead at market value which can increase over time. In the event of theft or loss, insurance benefits will be calculated on the amount for which the artwork could have been sold on the date of loss, rather than the historical (likely lower) purchase price.
Insurers and collectors may alternatively agree to submit the issue of valuation to an appraiser at the time of loss. It should be noted that third party expert opinions on art valuation, and even authorship, are not foolproof. For example, in Hahn v. Duveen, 234 N.Y.S. 185 (N.Y. Sup. Ct. 1929), the experts disagreed whether Leonardo DaVinci painted the defendant’s painting.
In fact, experts seem to uniformly agree that for insurance purposes, art valuation can be a significant challenge. Industry consensus on value may change with time and trends. The insured should give special attention to a policy’s valuation clause to avoid uncertainty when a loss occurs.
Different insureds may also have different needs resulting from the different risks implicated. For galleries and museums, art insurance needs may involve a combination of property, general liability and title insurance protections. For these institutions, art losses can implicate very different and unusual risks, particularly regarding works on loan or in transit. For auction and consignment houses, special issues of entrustment may also arise if a loss occurs to artwork onsite, which typically belongs to sellers.
Another consideration regarding art insurance is the important difference between provenance and legal title of an artwork. Insurance issues may arise where a party has full legal title to a piece of art, but asserts a claim based on misrepresentation as to the artwork’s provenance. According to ARIS, a New York title insurer which first introduced fine art title insurance to art collectors, “provenance relates to the location and prior possessors of an artwork from its creation to the present, whereas legal title relates more broadly to the past and present full right, interest and ownership of the work, which may or may not overlap with physical possession of the art.”
The Dallas Morning News recently reported that the Kimbell Art Museum in Fort Worth had discovered one of its Renaissance era sculptures was associated with a repository for artwork purchased or stolen by Nazis. The Kimbell’s director explained their policy of returning works of art if it is learned they were improperly sold or looted in continental Europe during the Nazi era. Luckily, this particular sculpture did not need to be returned because the museum’s documentation showed it had good ownership.
Authenticity, authorship and attribution are generally not covered by title insurance. Nonetheless, some experts advocate in favor of making title insurance mandatory for all art sold in auction houses and displayed in museums that might be Holocaust-looted. T.M. Cooley, 9 Journal of Practical and Clinical Law 223 (2007).
Today, there are only a handful of lawyers in the United States practicing in this niche market. Texas lawyers interested in this fascinating area of insurance law will find it an open field.
Jamie K. Baker, Of Counsel at Thompson Coe, is an art collector and practices insurance law. She is a Dallas Bar Association member and an advisory board member of Texas Accountants and Lawyers for the Arts. She may be reached at email@example.com.