This blog discusses general principles and is not intended to provide legal advice or create an attorney-client relationship. Insurance policies vary by carrier and by state, so be sure to review policy wording closely.
For private collectors, the likelihood that a work of art will be damaged or stolen may seem too remote to justify the purchase of a fine art insurance policy. But leaving valuable artworks or other collectibles to be covered along with other movable property under a homeowners or renters policy is very risky and can lead to big and unredeemable losses. Obtaining insurance allows collectors to protect their investments, particularly for higher-value works.
- Private art collections can be insured under either scheduled or blanket fine art insurance policies. Under a scheduled policy, each work is listed individually and insured for a predetermined amount (which must be updated periodically); a blanket policy insures the collection as a whole up to a certain limit.
- Blanket policies can present more difficulties in the event of damage or theft, because the value of the work would have to be established after the loss. The insured then has the burden of proof to establish the value of each work and deductibles may apply. With a scheduled policy, the insurer accepts the listed values and agrees to pay that amount in the event of a covered loss.
- If you do not already have them, start by obtaining accurate appraisals or updating existing appraisals. Appraisers, who must have up-to-date certifications, should be provided with complete documentation on all the works to ensure an accurate assessment of value. Collectors with wide-ranging collections may need more than one appraiser to ensure that the collection is valued by experts working within their areas of expertise. (Bear in mind that appraisers are not authenticators. Nor do they verify that the collector has title to a work. If a collector wants information about these issues, he or she should consult an appropriate expert.)
- Katja Zigerlig, VP of Art, Wine + Collectibles Advisory at Berkley One, cautions that appraisals are a critical first step to obtaining insurance. “You know the balance in your checking account, so why wouldn’t you know the value of the art on your walls and the wine in your cellar? Appraisals are therefore the financial equivalent of knowing the value of your passion investments, and can empower you to make important decisions.”
What Is Covered?
- Fine art insurance policies usually cover theft and physical damage, except where a specific exclusion applies.
- Pay special attention to the policy’s covered “perils” (the causes of the loss that are covered) and exclusions. A common exclusion is damage resulting from general wear and tear.
- Also, be clear regarding whether a policy covers full replacement value in the event of a total loss, restoration in the event of damage, and lost value in the event that a repair or restoration reduces a work’s value. According to Zigerlig, “insuring your collection for its replacement value is one of the most important ways to protect your investment in time, energy and financial resources.” Replacement value insurance would typically provide limits that are 10% above fair market value to allow for the payment of commissions on purchasing replacement artwork.
- Fine art policies generally do not cover title or authenticity issues although some carriers provide limited defense funds for a Holocaust-related title claim.
Loans and Transport
- It is generally understood that a disproportionate number of losses occurs during loans and transportation.
- Zigerlig observes, “In my art insurance career, over 50% of art claims are a result of accidental breakage, and the majority of those are caused when a valuable art object is being transported or moved. The occasional art theft actually gets a disproportionate amount of visibility, given the small likelihood of this occurring. I wish there would be more media visibility for reminders to use professional packers and shippers, and pack valuable items thoroughly.”
- Fine art insurance policies may not provide full coverage during transportation or while a work is on loan.
- A loan agreement should set out which party is responsible for the cost of insurance for the work while it is on loan or being transported between locations.
- If a collector is planning to move or loan a work, it is important to identify the scope and limits of insurance coverage to confirm that the work will be insured at all times, as said in the industry – wall to wall coverage.
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Maintaining the documentation needed for fine art insurance can yield other advantages as well. The more information a collector has about the works in their collection, the more effectively they can manage their assets and preserve the flexibility to loan, donate, or resell their works.
Eden Burgess and Olga Symeonoglou are attorneys in the DC office of Cultural Heritage Partners. Please contact us if we can help with your art, antiquities, or collectibles.
A 2009 fire that destroyed the home of the late D.C. art collector Peggy Cooper Cafritz – including many underinsured works – illustrates the risks of not updating insurance appraisals. https://www.nytimes.com/2015/01/15/garden/peggy-cooper-cafritz-everything-in-a-big-way.html?_r=0