Art Law

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Risky Business - Fine Art And Insurance

In art collecting, as in most endeavors, the greater the risk, the greater the reward. Managing that risk often rivals having a discerning eye for quality pieces. That point is made by a case recently handled by Flaster Greenberg Shareholder Chris Merrick, which would paint a proverbial thousand words of any art collector’s worst nightmare. 

In that case, a carefully curated work of art by American figurative artist Alex Katz, which was worth $1.4 million dollars, was damaged beyond repair. The paint on the faces of the figures in the painting had been smeared and partially wiped off in spots. The faces of the subjects were disfigured, and the work of art was ruined. 

Worse yet, the owner of the art had no idea how, when, or where the damage took place.  The artwork had been crated at the owner’s vacation home in his absence, transported to an auction house warehouse, and then transported to Paris for auction.  The damage was discovered at the time the painting was unboxed in Paris, and an art appraiser deemed the painting a total loss. 

Careful investigation by Chris revealed that the painting had been damaged in the home of the collector; likely by a cleaning professional who made the disastrous decision to spray it with cleaning fluid in an effort to clean it. Because of Chris’s work, our transportation client was protected from liability for the loss. 

Fortunately for the owner, an “all risk” fine arts insurance policy was in place and covered the loss.  An “all risk” fine arts insurance policy is the standard coverage for fine art insurance.  Such policies cover all risks, most commonly fire, water, theft, and accidental damage, except those risks that are expressly excluded by the policy.  If such “all risk” fine art insurance coverage had not been in place, his investment would otherwise have been lost. 

Introduction

Art collectors must protect their investments and associated risks by securing the right kind and amount of insurance.  One common place for loss or damage is during transportation and storage.  We can assist with identifying the right service providers, and making custom-tailored contractual arrangements, designed to drastically reduce that risk in the first place.

It is critical to be proactive and prepared in the event of a loss that will precipitate an insurance claim by keeping a careful inventory of your art collection, as well as careful documentation of the provenance of every piece in the collection.  Serious collectors must take the steps necessary to ensure that every piece in their collection is regularly appraised and insured for the appraised value. They must also ensure that their fine art is fully insured every step of the way during transportation of the art.

Of course, an investment in fine art is also an important component in your wealth and estate planning, and proper fine art insurance coverage, in concert with a fine art estate plan, protects this investment for future generations.

The attorneys in the Flaster Greenberg Art Law group are passionate about helping you protect your investments in fine art. 

Our experienced attorneys can assist you with:

  • Understanding your fine art insurance policy, and explaining what exactly it covers.
  • Making sure you have the right insurance coverage to protect your fine art investments.
  • Determining whether your damaged, lost, or stolen fine art should be covered by your insurance policy, or that of another individual or entity, and helping you do what is necessary to prove and receive payment for your loss.
  • Assisting with the selection of an appropriate provider to transport or store your fine art.
  • Negotiating and preparing contracts for the transportation and storage of your fine art, including with any secured lenders.
  • Providing advice about the formation of appropriate legal entities to own or display the fine art, thereby limiting personal legal liability exposure.
  • Advising on tax consequences and strategies related to the fine art.
  • Taking legal action against your insurance company, or other responsible individual or insurance company for a wrongfully denied, delayed, or underpaid insurance claim or for the damage, loss or theft of your fine art.
  • Developing and updating your fine art estate plan to ensure a smooth transfer to the next generation, in coordination with your insurance policy or program.

Although fine art insurance policies are often placed within the US insurance market, it is also common for them to be placed with specialist insurers doing business within the London insurance market, including Lloyd’s of London.  Flaster Greenberg understands the structure and mechanics of” overseas insurers and the strategy needed to ensure the most successful outcome for fine art insureds.  We also work closely with an experienced UK insurance coverage lawyer based in London who is able to provide additional input and assistance regarding claims against the insurers in the London insurance market and assist with in-person negotiation of suitable settlements. 

What is Art Insurance?

Fine art insurance policies offer coverage for highly valued works of art. In the world of insurance, anything that has value beyond its function and intrinsic properties can be considered “Fine Art.”

For example, fine art insurance is available for paintings, sculptures, antique pieces of pottery, rare coins, textiles, manuscripts, pieces of armor, and historical books.

Most fine art insurance policies have a “valuation clause”. This can provide that the insurance policy pays a fixed amount to the policyholder in the event of a covered loss.   

Fine art insurance policies may be sold on a “scheduled basis” or on a “blanket coverage basis”.

  • Scheduled coverage means that each individual piece is insured up to a certain amount.
  • Blanket coverage means that an entire collection is covered with an overall policy limit and no maximum per-item limit.

How Does Art Insurance Compare to Home Insurance?

Many private collectors think that they don’t need an additional fine art insurance policy because they assume that their homeowner’s insurance policy will cover damage to their fine art.

This is a critical error, however, as most homeowner’s insurance policies specify limitations on how much money can be paid out for a single item or category of items after a loss, regardless of the policy’s total value, resulting in far less insurance coverage than may be needed.

You can purchase a “rider”, or additional layer of protection, that offers more protection for a high-value item, despite overall policy limits. Many homeowners purchase riders for things like jewelry, musical instruments, or artwork.

A rider can be purchased to protect a single work of art.  If, however, you have a very highly valuable piece, a collection of pieces, a piece that’s stored outside of your home, or a piece that’s likely to go up in value from the time of purchase, it may be better to buy a separate fine art policy.

What Types of Art Insurance Coverage Are Available?

Fine Art Title Insurance

Artwork title insurance reimburses an insured if another owner makes a claim to the title of a piece of artwork that the insured purchased.

This is an important coverage, which is often purchased as a one-time expense, because of the robust illicit black market for stolen artwork.

Fine Art Property Insurance

Fine art property insurance provides compensation if the piece or pieces of artwork named on the policy are damaged, lost, or stolen. Some art insurance policies insure only against named perils, i.e., a small group of specific perils such as fire or theft.  Other policies insure against all perils unless excluded. This latter coverage is far broader.

It is important to read and understand your insurance policy so that you know exactly is covered.

What Are Some Policy Provisions To Look For When Choosing A Fine Art Insurance Policy?

  1. “All-Risk” Coverage

This provides coverage for all perils, except those that are specifically excluded. These types of policies extend your coverage and allow you to cover damage and theft in almost any situation.

  1. Customizable Coverage Options

This offers you options to extend or limit your coverage.  Broader coverage may provide insurance for pieces on loan. More limited coverage will save on premiums.

  1. Appraisal Protection

An appraisal clause allows the policyholder to demand an appraisal of the loss when there is a disagreement. 

How Does The Claims Process Work In The Event Fine Art Is Damaged, Lost, Or Stolen?

Once a loss has been sustained, a claim must be timely filed with your insurance company.  If the loss is from theft, you must contact the police to report the theft.  Be sure to provide as much information as possible about the stolen items and request a copy of the police report for your insurer. 

Document everything very carefully with photos and videos. 

Your insurance company will do a thorough investigation to determine whether and how much to compensate you for the loss. You will be interviewed by an adjustor and may be required to give a notarized statement as to the facts surrounding the loss. You might be examined under oath, similar to a deposition.  You may also be required to submit a sworn Proof of Loss within a specified number of days established by the policy.  It is critical to read and comply with the policy’s post-loss conditions, such as those set forth in the policy’s Duties in the Event of Loss provision.

When in doubt, it is important to hire an attorney or public adjustor to guide you through this process, and help you prepare the right information to document your claim, so that you maximize your recovery.

Why Should Your Art Collection Be Part of Your Estate And Tax Planning?

Your carefully curated fine art collection is an important, and often emotionally charged part of your estate.  If not specifically addressed in your will, or some other arrangement isn’t made, your important fine art falls into the residue of your estate (the remainder of the estate after specific bequests of particular assets, and after debts, fees, and taxes are paid). This can make it very difficult to equally divide it in the manner you would like.

It is important to lay out in your estate plan whether the fine art is an outright gift for the recipient to do with as they please, or part of a wider legacy plan.  A trust can be an invaluable tool for planning what happens to a fine art collection and protecting it from creditors. 

There are many practical considerations to be analyzed, including how the collection is to be stored, insured, and transported during the probate process. There may also be substantial tax implications, including capital gains that may be payable on fine art assets that have appreciated. 

Of course, damage, loss, or theft of improperly insured fine art can result in the loss of this important asset, to the detriment of your estate plans.

Serious collectors should compile a clear inventory in an artwork archive database, and ensure that this inventory dovetails with, and is adequately covered by, their insurance program. 

Further, candid conversations with your heirs regarding your fine art estate plan will lay the foundation for a formal strategy to plan for pieces of your collection to pass to a museum or university, or be sold, in the event your heirs are not interested in keeping them. 

The attorneys in the Flaster Greenberg Art Law group share a passion for fine art, and work together to provide comprehensive representation for our clients.  We offer experienced counsel to US and global clients in Art Law related matters. Please expand the attorney menu below to learn more.

What Are Some Examples of Fine Art Cases Handled By The Attorneys At Flaster Greenberg?

The case of the Runaway Dog. 

This case involved a painting with a mysterious hole in the center.  The art collector claimed not to know how it happened and filed a claim with his insurer.  The insurer hired counsel and filed a subrogation claim against the company that transported the art.   The attorneys at Flaster Greenberg worked to show that the damage was caused by the owner of the painting’s dog, and the claim against the art transportation company was dropped.

The case of the Dumpster Painting. 

This case involved a painting that was shipped from auction in London to an art gallery as part of a larger shipment and allegedly lost in transit.  The attorneys at Flaster Greenberg showed that the art gallery received the painting, but negligently threw it away (thinking there were 2 paintings in the crate instead of 3) by failing to check the shipping crate before discarding it.  The attorneys at Flaster Greenberg were able to have the case against their client dismissed on a motion. 

The case of the Cracked Pumpkin.

A famous pumpkin sculpture was damaged during transportation from a museum in Ohio to California.  The damage was not discovered until the sculpture was removed from its crate in California.  Several insurance carriers were involved in the claim, and it was entirely unclear how the damage had been caused.  The attorneys at Flaster Greenberg successfully moved the case to a more favorable forum, which helped them secure a finding of limited liability.  The case then settled on very favorable terms.

The case of the French Table.

A marble table was severely damaged by a client during collection for transportation to an auction house.  The value of the table was alleged to be $1.5 - $2.0 million.  The attorneys at Flaster Greenberg facilitated work to have the table restored, which resulted in it being sold at auction for an amount in excess of the pre-auction estimates, thereby favorably resolving the case on behalf of the client.

Diamond Cartel Investigation.

The attorneys at Flaster Greenberg assisted their client in favorably responding to grand jury subpoenas related to a Department of Justice investigation into an international diamond cartel.

White House Move.

The attorneys at Flaster Greenberg helped facilitate the transportation of presidential goods from the White House as part of the Presidential transition.

Shattered crystal vase.

Flaster Greenberg assisted a private collector who inadvertently shattered a high value crystal vase that was specifically listed on his insurance policy while sweeping the room in his house where it was on display.  The collector was able to have the vase repaired by a specialist.  The owner’s insurance company initially denied insurance coverage for the claim because of late notice of the loss, and because the owner only asked for the cost of repair and loss in value after the repairs were made.  Flaster Greenberg attorneys were able to resolve the claim favorably without litigation.

Vandalized sculpture on loan to a museum.

Flaster Greenberg assisted the owner of an important sculpture on loan to a museum which displayed it outside.  The sculpture was vandalized by thrown rocks, and the parties disputed who was responsible for the damage.  The museum’s insurer initially did not want to pay for the damage; however, Flaster Greenberg was able to successfully resolve the claim on behalf of the owner. 

Please expand the attorney menu below to learn more.

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