To many people in the art world, insurance is a mystery, and is dismissed as ineffective, too complicated, expensive, or just not needed. The cynical view of the insurance industry is that insurance companies will not honour their claims or will try their best to get out of their obligations.
In reality, insurance is an effective and positive tool for cultural institutions, foundations, museums, galleries and private collections. By transferring the risk to a third party, the policyholder protects their financial position and can continue to operate as if there were no loss.
With so many crimes against art heavily reported in the media, including theft, frauds and forgeries, looting and repatriation cases, one might wonder what kind of an impact this has on the fine art insurance industry. In fact these major crimes have little or no impact on the art insurance industry. In many cases, such as that of the Isabella Stewart Gardner Museum (discussed elsewhere in this volume1), there was no art insurance purchased at all for the art that was stolen. Many historical sites or archaeological parks where antiquities are located are properties of national governments, which do not purchase insurance as a matter of practice. Many of the major museums in Europe are not insured because the property belongs to the state. So any loss due to theft, or return of objects due to a restitution claim, becomes an uninsured loss of national patrimony.
Only when public or state-owned museums borrow works from other museums or from private collectors will arrangements be made to purchase insurance to protect the interests of the lenders. The institutions are aware that, without insurance against loss or damage, potential lenders will not be willing to lend the works of art to those institutions. State-owned institutions, such as the British Museum, will make arrangements for an ‘insurance-like’ instrument through a governmental programme. In the United Kingdom the government created the Government Indemnity Scheme to reimburse lenders in the event of a covered loss; in the United States the similar programme is called the Arts and Artifacts Indemnity Program, and in the event of a covered loss the US Congress guarantees the payment to the lender. The loss experience under the US Arts and Artifacts Indemnity Program has been excellent over many years, with next to zero claims payment for losses either at the institution or during transit from one institution to another.
These programmes have been very effective. They are credited with creating ‘best practices’ that museums follow to avoid losses or damage during display and transportation of works of art, regardless of insurance or indemnity. They have become a model for how to minimise losses to fine art during either transportation, storage, installation or display, not only for the insurance industry but for the art industry as a whole.
Art insurance has been a successful line of business for insurance companies. However, as stated in the opening of this chapter, the insurance transaction is still a mystery to most lay people. To demystify the process, art industry participants and professionals need to be better informed about the contractual and legal transaction of insurance, the underwriting and the claims adjustment process, and the obligations of all parties in the transaction.
At the same time, insurance companies need to do more due diligence in the acceptance of risk as a means to avoid the pitfalls that the art industry has created in its lack of transparency. It is also possible that with more rigorous underwriting and claims adjustment processes, the insurance industry could have a positive effect against some of the practices within the art industry, whether insured or not insured, to improve the overall behaviour of some of the bad apples in the marketplace and avoid losses due to bad valuations and consignment fraud (also known as conversion).
The evolution of fine art insurance came from traditional marine insurance, which was first offered at Lloyd’s coffee house in 1688 as a means for ship owners to protect the value of the cargo on their vessels from being scuttled or jettisoned at sea. The merchants paid a ‘premium’ for the value of their cargo, and in the event that the ship went down or some of the merchandise was thrown overboard, received compensation. When the merchants agreed that, in the event that some cargo had to be thrown overboard in order to save the rest of the merchandise, everyone would share in the loss, it was an example of cooperation trumping the individual’s interest, a concept not typical for capitalism.
Art insurance is a unique class of business in that it applies to a rather small share of the insurance marketplace. Although art is a major industry, with art theft alone valued at $6 billion by various organisations, including the FBI and other law enforcement agencies, the premiums that insurance companies receive from art insurance pale in comparison to automobile, homeowners’, business owners’ and other lines of insurance.
Art insurance therefore lacks the critical mass of customers who require insurance, either by law (for example, motor vehicle insurance) or practice (in the case of homeowners, insurance is often required by the mortgage lenders) thus making statistical predictions and probabilities irrelevant or difficult. As a result, there are no statistical models for art insurance by which premiums can be calculated. Art insurance is still very much an old-fashioned part of the insurance industry, where rates are calculated for individual risks, based on exposures for loss, by specialised underwriters using their best judgment rather than computerised models. The exception is for calculating risks for natural catastrophes such as floods, earthquake sand storms. For those exposures many insurance companies and reinsurance companies, who share the risk with the primary underwriters, subscribe to computerised models to calculate the exposures based on scientific data.
In order to know how to approach the insurance industry to insure fine art objects or collections, one needs to know how the insurance industry in general works. Insurance is an international business, and is tightly controlled through local laws and regulations. Although details vary depending on the jurisdiction, today more than ever the insurance industry is heavily regulated, not only in how insurance companies deal with their customers but also through financial regulations designed to ensure that the companies will be able to pay out in the event of a loss. As a result, in many jurisdictions insurance companies are regarded as financial institutions and are regulated both under insurance rules and laws, and under regulations imposing financial controls and scrutiny.
The major international insurance markets for fine art are still the United Kingdom, and in particular the London marketplace: ‘All roads leads to London.’ In the London market, many of the insurers, whether they are Lloyd’s syndicates or individual insurance companies, tend to share the larger risks, i.e. those with limits that are in the tens of millions of pounds in value. In the event of a loss, these companies share in that loss, based on their participation in the risk.
The United States is a major insurance marketplace because so many collectors and institutions are based there. But unlike the London market, there is little history or appetite for sharing risks among insurance companies, and thus most of the time each company goes it alone.
Regardless of where the risk is placed, when it comes to fine art insurance of significant size the first thing one needs to know is that one cannot go directly to the insurance company to purchase the insurance. One has to find an insurance broker, preferably one who specialises in fine art insurance. The role of the insurance broker is to represent the client’s interest to the insurance company in all matters of the transaction, such as providing all the necessary information to get the quote, to collect the premium on behalf of the insurance company (for which the broker normally receives a percentage of the premium, known as commission), and act as an advocate for the insured if there is a claim.
Insurance brokers represent the insured, not the company, even though they are appointed by the company in order to transact business. Brokers have a fiduciary responsibility to their clients, the insured. The insurance company will work with the chosen brokers, who will bring the insurance application to them and get a quote for the policy for the individual or institution that is seeking the coverage. Although this sounds simple, it will most likely involve initial research on the part of the potential insured to find the right insurance broker with expertise in fine art.
It is important to be aware that there have been publicised cases where insurance brokers were accused of conflicts of interest, such as placing the policy with a company that would pay them the highest commission. Such was the case in 2005 when court action was taken by the then Attorney General of New York, Eliot Spitzer, who took issue with insurance brokers accepting contingency fees from insurance companies beyond their normal commission for individual risks. Instead they were receiving large contingency fees for their overall book of business, thus favouring putting business with the companies that gave them additional financial incentive, rather than what was best for their insured. Although this was not related to fine art insurance, it does have implications for the industry as a whole.
Several large US brokers paid huge penalties and as a result the insurance transaction became more transparent, with brokers having to specify the amount of commission that they receive for placing the risk with various companies, and other written disclosures to the insured.
At the start, the party seeking the insurance cover (ultimately, ‘the insured’) will need to provide details of the item or items to be covered to the insurance broker. The broker may seek additional information. The broker will then contact the underwriter at the insurance company, who will analyse and evaluate the risk. Frequently the underwriter will ask additional questions in order to make a decision whether to accept the risk, and if so what premium to charge.
It is quite likely that the broker will submit the same risk to several insurers with whom they do business in order to secure the best terms and conditions at the best price with the most appropriate company. Once the terms have been specified, the broker will submit the quotes to the insured and make suggestions as to which coverage is best for the insured. Once a choice has been made, the risk is bound and the premium is due within the specified time.
It is important to note that the insurance industry is not a monolith, and every company will have its own terms and conditions, including time frames for paying out on risks. However, there are many common features within a standard or generic fine art policy that have evolved over time to satisfy both insurance law and also the competitive nature of the industry.
An insurance policy is a legal contract between the company and the insured, also known as first-party coverage.
The policy outlines the terms and conditions of the cover, including the property insured, the limits of insurance, the terms and conditions of what constitute a covered loss, the basis of valuation, and other obligations of the company and of the insured. For the most part, policy wordings have been tested over time through legal precedents, but policy wording can be altered or ‘manuscripted’ to fit the specific needs of an individual insured.
Although fine art policy wording can be similar for different types of ownership, there are special conditions, mostly related to the basis of valuation, for private collectors, fine art dealers and galleries, museums and cultural institutions, auction houses and other institutions that collect, buy or sell art.
There are also different conditions imposed by the insurance companies. Some insurance companies will require the insured to provide a signed application affirming that everything that they have stated is true. Some companies will accept the application even if the broker completes the application to the best of their abilities without the insured’s signature. This latter approach is unfortunate, because situations of fraud could be avoided by a signed application by the insured. However, the competitive nature of the fine art insurance industry, and the need to turn around quotes in record time, has taken its toll in encouraging this practice, thus making it harder to prove insurance fraud.
One of the fundamental principles of first-party coverage is that one can only insure an ‘insurable interest’ in the property. In addition to straight or ordinary complete ownership, an insurable interest can comprise a legal, contractual or fiduciary interest in the property. For example, a gallery owner can insure an art work that he or she owns outright as inventory, but also works of art that are owned by others but have been placed on consignment for sale by the owner, where the owner has instructed the gallery owner to place insurance on the items. A museum can insure the works in the permanent collection as well as fine art owned by others that they have taken on loan, for either short-term or long-term duration, as long as the owner of the works has instructed them to insure the works.
Without the proper insurable interest, an insurance company can deny the claim even if they issued the policy.
In addition to the insurable interest, determining the cause of loss is the most important part of the claims process. Most fine art policies provide cover for all risk of physical loss or damage, subject to the specified exclusions as set out in the contract. Typical exclusions include wear and tear, inherent vice, mechanical breakdown, insects, vermin, and nuclear or biological contamination.
Insurance companies have traditionally maintained that the definition of ‘all risk’ only relates to a physical loss or damage. However, in the past few years, a lot of pressure has been put on insurance companies to interpret consignment fraud as theft (which is covered). Relevant case studies are discussed below.
Another form of art insurance relates to the legal liability of a bailee, a person or company that has temporary possession but not ownership of an art work, typically during transportation. This type of insurable interest is often covered by fine art transportation companies under their warehouseman insurance coverage. These companies are legally liable in the event of a loss occurring when the art work is under their care, custody or control. But their liability is limited by the waybill or bill of lading, frequently at a specified amount as little as 60 cents per pound of weight in the United States. So if a Picasso is valued at $10 million and is stolen from a truck, and it weighs ten pounds, the shipper will be liable for six dollars. In the event of gross negligence, the packer and shipper can be sued for a lot more.
Fine art can be insured at the permanent location where the art is usually located, in transit, and at any other location. The rationale for this is that fine art is not fixed property, but rather something that moves from place to place, for example as part of a museum’s travelling exhibition, during the movement of the art from the gallery to an individual’s home, or the transportation of the art work from a storage location to conservation studios. The terminology for this type of coverage is ‘wall to wall’ in the United States, or in the UK ‘nail to nail’.
This is a key element, as it determines how the insurance company will pay for a loss once it is accepted that it was a covered loss under the terms of the policy.
Proper valuation of the art at the time of the placement of the insurance will make the claims adjustment process (i.e. the payout) much smoother. Unfortunately, in most insurance claims cases, the valuation clause is one of the most contested issues of the claim. There is plenty of blame on all sides of the transaction.
Valuing fine art is at best subjective, and complicated by the notion that art is unique and irreplaceable and that therefore it is impossible to really provide a monetary value to it. How do you put a value on the Mona Lisa or on the Winged Victory of Samothrace or paintings by great Renaissance masters? And in the case of contemporary art, a new work might have cost a certain amount, yet within a short time it might appreciate into the stratosphere.
Although the answer to these questions is not simple, art is a commodity that operates within a marketplace. Some records of sales between willing sellers and willing buyers are available through public auction prices. Reliable details of private sales are much harder to get at, but there is an entire industry of fine art appraisers who study and compare works of art against one another, and with the assistance of dealers can come up with monetary equivalents of similar works of art.
Nevertheless, it is a subjective field and there will inevitably be differences of opinion even between appraisers with very respectable expertise and reputation. It is therefore not a surprise that insurance companies, in settling claims, will have one set of experts coming up with a value of a lost or damaged work of art, but the experts hired by the insured will support a much higher payout.
A frequent problem is that in many cases the insurance companies do not perform adequate due diligence in reviewing the reputation, educational qualifications and expertise of the owner’s or broker’s appraiser before accepting a risk. That process only takes place when there is a contentious claim. The consequence is that the insurance company is making itself vulnerable to overpaying based on faulty valuation, in the event of even a legitimate claim. For the most part, even insurance companies that specialise in fine art do not have enough staff with expertise to identify poor appraisals, except when it is blatantly obvious.
Even insurance companies that have fine art experts on staff, whose job is to help their customers obtain proper valuations for the works of art, and to get them updated on a regular basis so that they keep pace with the art market, cannot do so on each and every appraisal provided, so they will choose a dollar figure that they can live with and that requires no documentation. Depending on the size of the insurance company and the amount of fine art that they insure, that figure can be as low as $10,000 or as high as six figures for providing appraisals for the company’s review.
Reviewing valuations and appraisals is a very useful exercise for the insured, but it is also good practice for the insurance company. Having an updated current valuation can simplify the claim when there is a loss, and will alleviate some of the conflicts – particularly in areas of fine art where the values are fluctuating upwards, such as contemporary art.
In other cases, insurance companies will accept what is known as ‘current market value’, in effect kicking the valuation issue down the road. And yet in still others, some companies will agree to the insured’s art adviser or curator setting the values. All of these options are open to questions of conflict of interest, or general disagreement as to what the true value of the work is at the time of loss. And, in the case of a partial rather than a total loss, an even bigger headache.
One of the most obvious ways to defraud an insurance company is through fraudulent appraisals, by overvaluing the works or even providing valuations for works that are fakes.
However, unlike cases where individuals sue their dealers for inflated values, or the Internal Revenue Service to contest faulty appraisals in tax donations, there are few examples of cases in the public domain in the United States involving insurance companies suing on the basis of fraudulent or faulty appraisals. In one such case, going back now at least two decades, a judge ruled that a post-loss misrepresentation to the relevant insurance companies justified a denial of coverage. The case involved an individual whose insurance was cancelled by two insurance companies for his objets d’art. Subsequently he sought and received coverage from a third company but did not disclose on his application the earlier cancellations. A year later his home was burgled and he submitted a claim to his insurance company. He also submitted a signed statement saying that he had never made application to any other insurance company other than his current insurer, a statement which was false. In addition, the appraisals that he presented to the insurance company turned out to have been made by two people that the insured knew, and who themselves were involved in fraudulently preparing false appraisals for individuals who were seeking insurance.
The insurance company denied coverage because of the material representations that the insured made during his examination under oath. The case was tried before a jury, which decided to accept the insurer’s position of misrepresentation, so did not have to deal with the issue of the false appraisals.
It is difficult to find cases in the public domain of suits against insurance companies relying on fraudulent appraisals. In consulting with a very highly regarded appraiser, there were no cases that he could recollect whereby the insurance company sued an appraiser for a faulty appraisal. In such cases, most likely the parties either settled out of court, or the insurance company considered that the cost of challenging an appraisal in court was not, compared to the payment that they had to make to the insured, worthwhile.
This author’s personal experience, however, includes seeing many appraisals that overvalued works, but I cannot say that they were done expressly in order to defraud the insurance companies in the event of a damage claim.
One of the most blatant schemes to defraud insurance companies in fine art insurance was frequently seen in the 1980s and 1990s. The scheme essentially occurred when insurance companies were presented with requests to insure works of art by very well-known artists, such as Raphael, Rembrandt, Van Gogh, or some other equally famous non-living artist. The submission came with a large packet of information, including indistinct photocopies of the works, and a long treatise on the importance of the artists, which appeared to be a plagiarised article from an art encyclopaedia. In addition the submission for insurance included a very long scientific analysis of the authenticity of the works from a laboratory that no one had ever heard of. To top it all off, the broker did not know the insured, who had been referred to the broker by yet another third party. The request of the limit of insurance was usually in the tens if not hundreds of millions of dollars, and the appraisal to document the value was provided by an expert or museum curator who upon close examination turned out to be either non-existent or deceased.
The purpose of these schemes was to get an insurance policy for the art, then approach a bank and, using the insurance contract as proof that the works existed and had a real financial value, to get a loan using the art work as collateral. Once the loan was secured, the individual then defaulted on the loan, leaving the bank high and dry. The irony of it all is that if any bank were deceived into participating in this scheme, it would still be unable to go after the insurance policy since the insurance cover was only for direct physical damage and not for the bank’s loss of their money. The bank would be left with a painting – if it existed at all – and if it turned out to be a fake, a worthless painting.
Most insurance underwriters did not fall for this scheme because the perpetrators of the fraud requested very high insurance limits that require the underwriter to forward the account to a supervisor for review. In my years of insurance underwriting I am not aware of any underwriter who fell into the scheme’s trap, and yet the criminals are forever hopeful.
Today, however, insuring works of art that are used as collateral has become a legitimate business model for many individuals who want to use some of the ‘equity’ in the works by securing the art against a loan. This is no longer the shady world that it was before, and many legitimate banks and major collectors are participating in this kind of transaction, which bears absolutely no resemblance in intent or in any other way to the collateral transactions described above.
Purchasing insurance with the intent to defraud the insurance companies by claiming that the works were stolen can result in serious consequences.
In 1999 a Beverly Hills ophthalmologist named Nathan Daniel Cooperman was convicted of 18 counts, including conspiracy and wire fraud, in connection with his claim that two of his paintings valued at $17.5 million were stolen from him. He received a payout from his insurance company, even though there was no evidence of a break-in to his home and detectives were suspicious of the case. It took nearly five years until an ex-girlfriend of Cooperman’s accomplice, who had stashed the works in a warehouse in another state, confessed and reported him to authorities. Cooperman was convicted and spent time in jail for his crime.
In another more recent case, a man in Saint Paul, Minnesota was sentenced for filing a false insurance claim for $250,000. In this instance, in 2007 the individual insured several items, and within a short period of time reported that the works had been stolen from a moving van. Within a few months the insurance company paid the amount requested and settled the claim. Three years later, six of the items, that the individual claimed had been stolen, appeared on an internet auction website, offering the works for sale. The works appeared on a stolen art registry, which caught the eyes of the insurer. When the authorities were notified they searched the home and found all the works that were supposedly ‘stolen’. As it turns out, the individual had defrauded another insurance company earlier on with similar claims of nonexistent robberies.
One of the most common misconceptions about art insurance is that an insurance policy will cover a loss-of-value claim regardless of the cause of loss. For example, if someone insures a painting for an agreed amount, based on a credible appraisal, and then the painting is proved to be a fake, there would be coverage under the policy. After all, the insured paid a premium on the painting’s value and therefore the insurance policy should be liable to pay?
That is absolutely not the case. As stated earlier, fine art insurance policy covers losses due to physical damage, not financial losses.
In most instances when such losses are presented, insurance companies prefer to resolve these cases without going to court. Litigation is expensive and also insurance companies tend to believe that juries are likely to sympathise with the claimant rather than the supposed deep-pocketed insurance companies. The possibility of having a bad precedent for future cases also looms large. It is therefore difficult to find cases involving a claim against an insurance company that has denied a claim for a work of art that turns out to be a forgery. However, one instance is Flaum v. Great Northern Insurance Company.
In 1976 Mr and Mrs Flaum purchased a Renoir painting for $50,000 at an auction at Sotheby Parke-Bernet. They insured the painting with Great Northern Insurance, which is an affiliate of the Chubb Group of Insurance Companies. Over time the value of the painting increased, based on updated appraisals. In 2008 the Flaums decided to sell the Renoir through Christie’s auction house. According to the Flaums, Christie’s, after consulting with a Renoir expert, rejected the painting because it was a forgery, though that was never stated as such in writing.
After the rejection from Christie’s, the Flaums put in a claim for the ‘loss’ of the value with the insurance company for $525,000, which was the appraised value of the painting at the time of the ‘loss’.
The insurance company denied the claims on the ground that they had ‘not sustained a physical loss’ as per the terms and conditions of the insurance policy. The Flaums then sued the insurance company for breach of contract for refusing to pay the loss of value to the Renoir.
The insurance company moved for a summary judgment to dismiss the complaint. They asserted that the plaintiffs did not sustain a physical loss to the painting, arguing that the painting is in the same condition that it was when they purchased it.
This is probably the most challenging issue for insurance companies. As the art market continues to grow, more and more collectors are consigning their works to dealers for sale. The dealers typically have their own insurance policies in place to protect the works of others from physical loss or damage while in their care, custody or control. However, these policies do not protect the consigner (i.e. the person sending the art work for sale to the dealer) in the event that the dealer sells the works to a customer and does not give over the proceeds to the seller. The dealer’s policy will typically have an exclusion for intentional acts, or for employee dishonesty, either of which could apply.
Owners who were defrauded by their dealers, and have not found remedy from the dealer or from the dealer’s insurance policy, have claimed that this should be covered under their policy as ‘theft’ and should be covered under their own fine art policies.
Insurance companies and their adjusters argue that this is not theft, and that a contractual dispute with one’s dealer should not be covered under the fine art policy, thus denying such claims. In most cases the insurance companies prefer to settle these claims out of court and base their decision on the facts of the individual case at hand.
Perhaps not wanting to go to court, and preferring to settle instead, was an explanation for the events of a case which is in the public domain. Chubb customers, Henry and Anne Marie Frigon, purchased art over several years through R.H. Love Galleries. This gallery, as it turned out, was in financial difficulty. It sold works of consigners, but did not pass the proceeds to the owners and instead used the money to continue to stay in business. In the case of works owned by Mr and Mrs Frigon, the gallery sold works of art contrary to their consignment agreement at prices lower than the agreed consigned amount.
Eventually the gallery’s representatives admitted that they had sold the paintings but maintained that they were not in a position to reimburse the Frigons. At that point the Frigons put in a claim under their fine art all-risk insurance policy. After investigation the insurer, Pacific Indemnity Company, a part of the Chubb Group of Insurance Companies, decided to deny the claim. The Frigons brought suit against the company. The insurance company claimed that this was not a physical damage loss or a theft, but a business dispute with the gallery.
Unfortunately for the insurance industry, the judge sided with the Frigons and awarded judgment to them. At the time, there were numerous newspaper stories predicting that fine art insurance will be changed forever. In reality the case did not change the industry, but what it did do is make insurance companies more aware that denial of a claim could result in a precedent that is not to their liking, hence encouraging settlement rather than litigation.
Another case of dealers defrauding owners occurred in the early 2000s when the dealer Michel Cohen defrauded several individuals while brokering sale of paintings. On 6 May 2003 a press release issued by the United States Attorney Southern District of New York related that in December of 2000, Cohen arranged to broker the sale of a Picasso painting which he took on consignment from the Richard Gray Gallery, and to show it to a prospective buyer.
Instead, without the consent or knowledge of the gallery, Cohen arranged to sell the painting to another individual, and did not forward the proceeds of the sale to the gallery. In addition, Cohen sold part interests in the same painting to other customers, neither paying the original owners back nor delivering the paintings to the new ‘owners’.
When the complaint was filed, Cohen fled to Brazil, was arrested, but while awaiting trial managed to escape. As of today he is still at liberty, at an unknown location.
Following the revelations of Cohen’s activities the original owners, who were left with neither their painting nor payment, presented several insurance companies with claims of theft. There is no written record to confirm how the companies dealt with the situation, but anecdotally some companies settled with owners and paid their claims, while others denied it as a financial loss under a contractual agreement.
The Michel Cohen story was not the last of such cases. We can fast forward to the infamous case of New York’s Salander galleries. The Salander gallery, previously known as the Salander O’Reilly gallery, was a major gallery that was in business for many years with an excellent reputation. It represented many living and non-living artists and published scholarly catalogues for their major exhibitions. In the mid-2000s the gallery changed course and started to deal in medieval and renaissance works, and rented a huge mansion in addition to the gallery on East 79th Street (a very pricey neighbourhood in Manhattan, New York City).
With costs mounting, including large loans with some of the works used as collateral, the gallery started to unravel. It was declared bankrupt and the doors were closed, with many collectors left to deal with bankruptcy courts to prove their ownership in the works, and stand in line as creditors.
In 2011, the owner of the gallery, Larry Salander, pleaded guilty to stealing over $100 million from customers and from his investors. He also confessed to selling art that he did not own, including fractional shares to various entities. Mr Salander is currently serving a prison term in New York State.
As in the Cohen case, insurance companies were presented with insurance claims for theft by the Salander gallery. Most of these cases were not litigated and were settled out of court. However, one case that was litigated involved the Philadelphia Museum of Art’s consigning to the Salander gallery two paintings. Salander sold the paintings but never informed the Philadelphia Museum of Art of the sale. The museum only learned about it after the bankruptcy of the gallery.
The museum then turned to its insurers, AXA Art, and submitted a claim. AXA declined the claim because there was no physical damage loss, and the case was brought to trial. The case was dismissed, although the ruling was not specific to the question of whether the sale of the paintings by Salander constituted theft and should be covered under the policy. Had the court delivered such a judgment it could have been a significant and negative impact on the fine art insurance industry.
Another case involved the major collectors Sam and Helen Zell bringing a claim against the Chubb Group of Insurance Companies regarding the theft of three of their paintings by their long-term private dealer David Tunkl. That situation had a different outcome. According to information in the public domain, Chubb decided to accept the Zells’ claim of theft since the dealer confessed to Mr and Mrs Zell that he had sold the three works without their authority, that he spent the proceeds from the sale, and was unable to repay them. Chubb reimbursed the Zells for their loss and then promptly sued the dealer, seeking to recover their loss plus attorneys’ fees and interest.
As stated at the beginning of this section, consignment fraud is one of the most challenging areas for insurance companies to grapple with and, to date, no insurance company has actually inserted an exclusion for conversion in their policies. Rather, the insurance industry is dealing with this problem in its own way, by resolving each case on its individual merits. The lesson from this is that even though the issue of conversion of works of art is significant to owners, it is less significant to insurance companies whose results are still so favourable that it is not hurting their overall loss ratios.
Although art theft and art crime is a major contributor to crime statistics collected by various law enforcement agencies, the fine art insurance industry, through its selection process of risk, has thus far managed to avoid allowing art crime to make a dent in its profitability. We therefore cannot expect the industry to change policy wordings to incorporate a more stringent approach to the art trade which would deter crimes such as conversion.
As we move more and more into the internet world, with art sales done through websites, there will be new challenges for insurance companies in dealing with art fraud; but unless the companies actually have to pay out on claims, the wording and the practices of the industry as they stand today are unlikely to change.
Dorit Straus, formerly the Worldwide Fine Art Insurance Manager at the Chubb Group of Insurance Companies, is now an independent insurance consultant. She serves on the boards of AXA Art Americas Corporation and the International Foundation of Art Research and lectures for the Association for Research into Crimes against Art.