Insurance 101: a guide for dealers: in the post-Sept. 11 art marketplace, re-evaluting your insurance policies makes good business sense - Special Report - Brief Article
Included in the toll of the World Trade Center disaster was art worth an estimated $100 million. Although it pales beside the human tragedy, the loss must nevertheless be acknowledged by no one more so than the insurance industry. This might, therefore, be an appropriate time for gallery owners and publishers to analyze their insurance coverage.
“Our phones are ringing off the hook,” said Laura Condon, senior vice president retail operations manager of Huntington T. Block Insurance Agency Inc. in Washington, D.C. As this firm reportedly writes more fine art insurance policies than any other broker, this is not surprising. Dealers, now alerted to the reality that the unthinkable can really happen, want to know what coverage is available to them.
Policy Standards
In Huntington Block’s “standard” fine arts policy, a gallery is protected in a variety of ways.
First, a dealer’s own inventory is covered. Condon stated that, in the event of a loss, the insurance company will pay whichever is greater–the stated retail price minus 30 percent or the original purchase plus 10 percent. For items that had been sold but not yet delivered at the time of loss, the dealer will be reimbursed for the total sale price. In addition to their works of art, many dealers will also want to cover their reference materials, which can be quite costly to replace. According to Frank Arena, the director of Art Insure, (a division of John G. Lambros Co. Inc.), you want to be sure to keep a running inventory. “Be sure you are not underinsured,” he cautioned. If you notice that the total value of your inventory is regularly exceeding your policy’s maximum, you should contact your broker to have its limit increased. The maintenance of reliable records is also a way to demonstrate to the insurance company exactly which works were lost in a disaster.
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Perhaps more important, according to Condon, is your coverage of works left in your gallery by others. “You need to pay close attention to the consignment agreement … in the event of a catastrophe, that is (your) reputation” on the line. “If you lose your own inventory, that’s not as bad,” she observed. According to Arena, you can expect to be repaid for the stated value of a work left on consignment plus “five to 10 percent for your efforts.”
In general, when works owned by others are lost in your gallery’s disaster, the matter becomes controversial. For example, if Gallery A sends a work to Gallery B to show to a prospective purchaser, it is Gallery B that is responsible for it. According to Condon, “the dealer whose hands were on it at the time of loss should handle it.” If there are gaps in his or her coverage, however, it might revert to Gallery A’s responsibility.
Framer & Publisher Peculiarities
Framers, as professionals who perpetually keep other people’s property on site, represent a specific category. They are what are known as “bailees.” In the eyes of the insurance industry, this groups them with other companies in similar situations, like dry cleaners. Thus, a combination dealer/framer will actually need both fine art and bailee coverage.
Interestingly, publishers might also require a bailee policy, depending upon the ownership rights of works kept on site. Furthermore, publishers will also need “personal injury and advertising liability” coverage to deal with copyright infringement. Thus, a standard fine art policy might not be sufficient or appropriate for either framers or publishers. Condon offers comfort, though, when she noted that Block has “forms ready for just about every aspect of the art world.”
Art in Transit
Considering how complicated art insurance can be, you should not always count upon your works being appropriately covered by someone else’s policy while they are off site. When your own pieces travel, they need to be covered by your own policy–perhaps more so than when they are under your own roof. According to Arena, art transit is responsible for most of the claims made, and he typically advises clients to obtain “$500,000 per transit” coverage. Although this might seem excessive, he said it is always best to obtain your own shipping insurance, at whatever level you choose. He warned that purchasing coverage through a shipper is “very expensive–two to four times as much” as what art insurers charge.
As well, there may be certain exclusions in someone else’s transit policy that you would find unacceptable. According to Arena, poor packing causes 50 percent of transit claims, and the insurance industry has consequently targeted improper packing practices. For example, “there may be a restrictive clause when it comes to packing [so that] they can deny coverage. Do not allow an inexperienced person to pack,” he cautioned. If your assistant wraps a pre-Columbian artifact in one layer of bubble wrap and throws it loose into a box, that negligence can result in non-payment of a claim.
These would be the main features of a typical fine art policy. However, to complement this coverage, a dealer also needs a general liability policy. This would be a factor, if “someone puts up a display rack at a show and it injures someone” said Arena. Of more timely significance, if “you are put out of the gallery, it will provide for loss of income for up to 12 months.” He said that he had clients within three or four blocks of the World Trade Center site, and “the National Guard told them that if they approached their street, they would be shot.”