by Jamie K. Baker and Lindsey Shine Lawrence
While it is common knowledge that insurance is needed to protect property, many may not realize that insuring fine art involves unique risks and coverage considerations. Fine art insurance is used by museums, galleries, and notable collectors. It may also be used by anyone interested in protecting the value of unique property. This article addresses some of the reasons why fine art insurance is distinct from a typical homeowner’s policy. Fine art insurance provides protections that may make all the difference when a specialized loss occurs.
A standard homeowner’s insurance policy provides limited coverage for home and contents, plus finite general liability. It typically covers named perils, restricts coverage for fine art under personal property limits, and requires the application of a deductible. Standard homeowner’s policies typically do not protect fine art against certain causes of loss or for the full value of the artwork. Homeowner’s insurance generally restricts coverage for losses away from the home, which creates real problems for fine art that is damaged while on loan or in transit.
The fine art policy (“valuable articles” policy) is an “all risk” property/casualty contract that provides much broader coverage for artwork than the standard homeowner’s policy. Generally, fine art insurance covers losses from theft, breakage, fire, water, and damage to art in transit or on loan without application of a deductible. Fine art policies also include costs of expert restoration that are not included in a standard homeowner’s policy.
Art losses can happen anywhere. A well-known Vegas casino magnate put his elbow through a Picasso while it was hanging in his own office. Homeowner’s policies usually cover artwork only up to personal property limits and for actual cash value. If an artwork is “scheduled” (specifically listed in a rider), there may be a specific maximum amount the homeowner’s carrier will pay in case of loss. In contrast, fine art insurance is generally based on an appraised retail replacement value of the piece; it may even allow for a market value increase up to 150 percent that serves as a built-in cushion in the event of loss.
Unlike a homeowner’s policy, art appraisals are essential to substantiate loss valuation for a fine art policy. Given the fluctuating nature of the art market and skyrocketing values for particular artists and genres, an appraisal at policy inception, and then a renewal appraisal every few years, may significantly impact coverage and recovery on a loss. Updated appraisals ensure appreciation is covered in a rising market, unneeded coverage is not purchased in a falling market, and that owners have reliable valuation evidence in the event of loss. Take the cautionary tale of a Rothko owner who insured the painting for $3 million but failed to update the appraisal. When a water leak ruined the painting ten years later, the painting’s value had jumped to $18 million. Unfortunately, the policy only provided $3 million in coverage pursuant to the outdated appraisal of record.
Claims handling is another key issue setting fine art insurance apart from homeowner’s insurance. Carriers offering fine art coverage often employ adjusters with expertise in handling art losses and who have access to specialized resources for valuation and restoration. Anyone can Google the replacement value of a broken window pane. The same is not true with regard to the value of a damaged Warhol.
There are deluxe “private group” homeowner’s polices that offer coverage similar to fine art policies, although they can be expensive and sometimes difficult to navigate. Valuation difficulties may arise if the homeowner’s carrier does not have knowledgeable adjusters. In such cases, appraisals evidencing recent market values are especially important.
Homeowner’s and fine art coverage varies from company to company and form to form. Shop around for the risks to be covered, make sure to understand the contents of your policy, and remember to keep the appraisal up to date.
Calling All Art Enthusiasts:
An Art Law Study Group has been formed for attorneys interested in discussing art law issues and serves as a legal resource for the Dallas arts community. For more information on the group and upcoming events, contact Andrea Perez at firstname.lastname@example.org.