I remember the first time I came across a fine art insurance policy in 2014. Trying to understand it felt like reading a document in Chinese - completely incomprehensible. At the time, I had just started my journey as a registrar. I didn’t have enough experience to predict worse-case scenarios and never had to file an insurance claim (yet).
I have come a long way since those days. Not only did I go through my fair share of insurance claims for damaged and lost artworks (sic!), but I also met great insurance brokers, who took the time to answer my many questions (thank you!).
This guide aims at “paying it forward” to less experienced registrars and art collection managers. It includes clear explanations of insurance concepts and provides concrete examples for better understanding.
Table of Contents
1. Different Types of Fine Art Insurance Policies
Household insurance policies usually only cover objects of everyday use in the house, such as pieces of furniture, kitchen appliances and home-office electronics. Works of art and other collectibles are excluded. Therefore, private collectors, museums, galleries, auction houses and fine art shipping companies are required to take out specialized fine art insurance coverage.
Some countries can offer government insurance to their public museums (more about it in chapter 4 here below). However, the most common type of insurance is the commercial fine art insurance.
This is provided by an insurance company, according to the terms and conditions stipulated in an insurance policy. In exchange of financial protection against loss and damages to their collectibles, clients pay an insurance premium.
Art collections or individual works of art are commonly insured at all-risk, full value, first-risk, or nail to nail. Let’s clarify this.
1.1 All-risk
As the name suggests, an all-risk insurance protects the insured artworks against all risks, excepts for those explicitly listed in the insurance policy. The risks are typically divided into two categories: stay-risks and risks in transit.
Stay-risks include all those potential damages that may happen while the artworks are staying in a fixed location, such as a storage facility, the collector’s residence, or installed in a museum for an exhibition. These risks include theft, vandalism, fire and water damages, amongst others.
Risks in transit include all those potential damages that may happen while the artworks are being transported or handled in any way. For example: damages caused by a forklift accidentally bumping into a crated artwork while being loaded at the airport, misplacement and consequent loss of the artwork in transit, accidental scratches to the artwork’s surface while uncrating or installing.
Museums and art galleries must be able to provide all-risk insurance at least to incoming loans to remain attractive to lenders to temporary exhibitions. On the other hand, in the private sector it is ultimately the collector’s choice and willingness to take (or not take) any risk upon himself to determine the final insurance agreement. I met collectors who decided to insure their collection only during handling and transit, but opted against insuring stay-risks while the collection was in storage. Others included stay-risks in the policy only for their private residence but excluded other locations.
1.2 Full value
An all-risk insurance policy at full value covers every single work of art in your collection up to an agreed value, which usually corresponds to at least the purchase price.
With this type of insurance, the collector must inform the insurance broker in a timely manner of each new purchase, sale, or relocation of the artwork(s), as well as any change in the agreed insurance value. In case of damage, the last insurance value communicated to the insurance broker before the damage occurred is contractually binding. Therefore, keeping detailed inventory records, up-to-date appraisal values and knowing the exact location for each artwork is crucial.
An insurance policy at full value involves the most administrative effort for the collector. However, it’s the most comprehensive coverage in case of total loss.
1.3 First-risk
Lump sum at each location
A first-risk insurance coverage doesn’t take into consideration the individual insurance value of each artwork. Instead, it’s based on agreed insurance lump sums at specified insured location, where the artworks are stored or exhibited. The lump sums state the highest amount that the insurer will pay out in case of total loss due to unrelated accidents occurred at each location.
Example: In your private residence you have three paintings with a total market value of $12 million. You agreed on a first-risk insurance coverage with lump sum in the amount of $10 million for this address. Your house catches fire and the paintings burn down. It’s a total damage.
As agreed in the insurance policy, your insurer will pay out no more than $10 million. If you had insured the paintings at full value and communicated their value to your insurance broker prior to the fire, then the insurer would have paid $12 million.
As you can see from the above example, with a first-risk insurance policy it’s essential to know the current market value of your artworks and set the lump sums in each location accordingly to ensure adequate financial compensation in case of total loss. In other words, the lump sums should reflect the highest potential financial damage that can happen at each address.
With this type of insurance, the collector does not need to communicate every new purchase, sale, or relocation of the works to the insurance company. The collector is solely responsible for ensuring that the lump sums provide enough coverage for his collection. Should s/he notice that a lump sum needs correction (e.g. after a high-value purchase), s/he is responsible for informing the insurance company accordingly, unless s/he’s willing to take the risk of financial loss in case of total damage.
It’s common for first-risk insurance policies to also provide coverage up to a certain lump sum at so-called “unknown / unspecified locations”. These may be any place, which is not explicitly listed as insured location, where an artwork is located for any (usually, shorter) period of time. For example, “unknown locations” may include the local framer’s workshop, a restorer’s atelier, or a shipper’s temporary storage.
Example: A collector has several artworks at his private residence for a total market value of $18 million. To be on the safe side, he agreed to a lump sum in the amount of $20 million for his private residence. One day, he buys a painting at auction for $5 million and has it delivered to his residence. Now, the total market value for the artworks at his address is $23 million. He knows that he will soon buy another couple of works for his living room from a nearby gallery, for a total of $6-8 million. Therefore, he sends an email to his insurance company requesting that the lump sum at his residence be increased to $30 million.
What happens if the collector sets the lump sums too high? Let’s say that his/her works of art have a total market value of $18 million and s/he sets a lump sum in the amount of $30 million for this location.
First of all, s/he will pay a higher insurance premium unnecessarily. Then, in case of total loss, the insurance company will not flat out pay $30 million without the blink of an eye (the lump sum only states the highest possible pay out). The collector will need to provide an inventory of the lost artworks and communicate the respective market values, for which s/he wishes to receive compensation. Before paying, the insurance company will perform its own due diligence on the causes surrounding the damage and will also verify the market value of the works. In this context, it may request the collector to provide proof of the market value, such as purchase invoices or recent appraisals.
Overall sum
Next to the lump sums at specified locations, first-risk insurance policies always come with an overall sum as well. What is this?
I have mentioned before that lump sums at individual locations state the highest pay out in case of total loss due to unrelated accidents. Then again, the overall sum sets the insurance limit for the potential total loss of the entire collection following related events. Accordingly, it usually states the total market/insurance value of the entire art collection.
Let's make an example.
Let’s say that your policy states lump sums in the amount of $10 million for Location A and $5 million for Location B. On January 1st a fire burns down Location A. A day later, a thief breaks into Location B and steals all the artworks stored there.
These are two unrelated events. Therefore, the insurer will compensate you for up to $10 million for the loss at Location A and up to $5 million for the theft from Location B.
Now, let’s say that Location A and Location B are close to each other. The fire of January 1st spreads to the neighbourhood and damages the water pipes at Location B. Consequently, the artworks at Location B suffer water damages.
The loss at Location B is strictly related to the accident at Location B. Therefore, the maximal insurance pay-out will not consist of the individual lump sums for each location, but in a financial compensation up to the overall sum.
1.4 Nail-to-nail
Nail-to-nail insurance coverage is particularly important during the lending or consignment of artworks, whether for exhibitions or sales.
This form of insurance begins as soon as the loan item is de-installed at the lender's location. It continues through every stage of handling and transportation to and within the borrower's facility, including crating, shipping and installation, and remains in effect until the item is returned and re-hung at the lender's site.
Nail-to-nail insurance is usually organized and paid by the borrower, particularly if the lender is a private collector. Largest institutional lenders sometimes prefer to keep their loans under their own insurance policy and invoice the borrower accordingly.
The insurance terms, such as duration, insurance value, insured shipping route and standard exclusions are always discussed with the lender in advance and stated in writing in a certificate of insurance (abbr. “COI”).
It’s common practice for the borrower to send a copy of the COI to the lender for review and approval after the execution of the loan agreement and prior to collecting the loan item.
2. Insurance vocabulary
2.1 Insured, insurer(s) and insurance broker
The Insured is the private person or company that owns the works of art for which insurance coverage is needed. The Insured is usually the same person or company as the insurance policyholder.
The Insurer(s) is the person, company or other entity taking on the risk of insuring the Insured’s works of art and paying in case of damage. The name of the Insurer is always mentioned at the end of the insurance policy. In case of high-value art collections, it’s standard practice to have several insurers splitting the risk among themselves. In this case, the insurance policy will state the respective percentages of risk next to the insurer’s name.
Example:
The Insured has a collection with a total insurance value of $200 million. There are three insurers named on the insurance policy, as follows: Insurer A – 50%, Insurer B – 30%, Insurer C – 20%. In case of total loss of the collection, the Insurers will pay out up to $200 million to the Insured, as follows: Insurer A - $100 million (50%), Insured B - $60 million (30%), Insured C - $40 million (20%).
The Insurance Broker is the middleperson between the Insured and Insurer(s). S/he is the Insured’s contact person for any questions regarding the insurance policy and in case of loss or damage. The Insured will never be in direct contact with the Insurer(s). Every question or insurance claim reaches the Insurer(s) through the Insurance Broker.
To summarize, we can say that an insurance policy is a contract between the Insured and Insurer(s), coordinated by the Insurance Broker. The names of the Insured and Insurance Broker are always stated on the first page of the insurance policy, while Insurers are usually named on the last page.
2.2 Additional insured and loss payee
From time to time, you may come across an insurance policy naming an Additional Insured next to the policyholder, or a lender requesting a third-party be named as Loss Payee on the certificate of insurance.
This happens when third parties have a liability, or a financial interest connected to the insured artwork(s). For example, when artworks are given to a bank as a collateral.
Specifically, the Additional Insured is the person or company that will receive liability protection in case the insured artwork causes a liability issue. The Additional Insured is not included in the insurance policy a-priori, but can be added upon request of the policyholder.
On the other hand, the Loss Payee is the person or company that will receive financial compensation from the insurance company if the insured artwork suffers loss or damage.
Example: A collector owns a sculpture with water components. When activated, the sculpture sprinkles water on the surrounding floor. The collector has agreed to lend the sculpture to a museum for exhibition purposes.
The sculpture shall be insured under the museum’s insurance policy for the duration of the loan period. The lender receives a COI for review. The collector is named as the lender on the COI. However, he fears that the museum will hold him responsible, if any visitor slips on the wet floor and gets injured. Therefore, he asks to be named not only as the lender and owner of the artwork, but also as additional insured on the COI (should this not be possible for any reason, the collector could ask to be included in the weaver of subrogation).
Moreover, the insurance policyholder is the museum. Unless the insurance policy foresees anything different, in case of damage, insurance companies pay out any insurance proceeds only to the policyholder. To ensure that the insurance company will compensate him directly in case of damage, the collector also requests to be named as loss payee on the COI.
If the artwork was pledged to a bank, then the bank would have needed to approve the loan to the museum. Moreover, it would have requested to be named at least as loss payee on the COI (and most likely as additional insured, too).
2.3 Agreed value
The agreed value, sometimes referred to as stated value, is the insurance value of an artwork or collection, as agreed in writing between the insurance company and the insurance policyholder. The agreed value is binding in case of damage.
Agreed values come into play in insurance policies at full value, but also in loan agreements and other contracts.
2.4 Standard exclusions
Even all-risk insurance policies have standard exclusions, which can vary slightly from broker to broker.
Usually, damages caused by the following occurrences are excluded from the insurance coverage: strike and unrest, war and war-like events, terrorism, nuclear energy, radioactivity, chemical, biochemical, or electromagnetic weapons, confiscation, destruction, or damage by or on the instructions of a government or authority, normal wear and tear, cyber-attacks, and insurance fraud.
Upon request, insurance brokers should be able to provide coverage against strike and unrest, terrorism, and cyber-attacks, at least to some extent.
2.5 Deductible
A deductible is the personal contribution of the policyholder to the costs arising from the damage or loss of an artwork. Fine art insurance policies usually don’t have a deductible, but make sure to double-check your own policy. In case of loans, deductibles should be mentioned on the COI.
Example:
An insurance policy has a deductible of $1’000. This means that the insurance company will only cover the costs in excess of $1’000 for damages caused by insured events. Any costs below this threshold must be borne by the policyholder.
An insured artwork is damaged, and the restoration costs amount to $1’500. The deductible is $1’000, so the insurance company will only reimburse the policyholder $500.
2.6 Weaver of subrogation
After the insurer settles a claim for loss or damage, he verifies if he can proceed against the person or entity that caused the damage in the first place to recover at least part of the financial compensation paid out to the policyholder.
If the policyholder accidentally caused the damage, having the insurer suddenly knock at the door to request reimbursement of the settled claim will not be fun.
A weaver of subrogation (or weaver of recourse) in the insurance policy prevents the insurer to proceed against the policyholder, his employees, service providers and other listed individuals or companies after the settlement of a claim.
The best fine art insurance policies have the following persons or entities included in the weaver of subrogation: the policyholder itself, museum management boards and boards of directors (if applicable), employees of the policyholder, fine art shipping companies, art handlers and other external persons entrusted with the insured events or in connection with the museum or gallery operations, lenders of insured artworks.
2.7 COI and addendum
COI is the abbreviation of Certificate of Insurance. Every time the policyholder communicates a new agreed insurance value to the insurance broker, the latter will confirm it by issuing an insurance confirmation.
This usually takes the form of an addendum to the insurance policy (for coverage at full value), if the beneficiary is the policyholder, or a COI, if the beneficiary is a third party (e.g. lender).
Example:
A museum communicates its insurance broker that a new artwork with insurance value of $2 million is entering its collection. It also informs the broker that a sculpture with value of $5 million will be coming on loan for a certain period of time.
The insurance broker will issue a new addendum to the museum’s insurance policy at full value, confirming the coverage of the new artwork in the collection, as well as a COI, which the museum can forward to the lender.
3. How to take out fine art insurance
3.1 Get an estimate
Different fine art insurance companies offer different insurance premiums. Therefore, the first step is requesting an estimate from at least two independent insurance brokers, who can provide coverage in your country.
To send you a customized estimate the insurance broker will need the following information for each artwork:
The insurance value
A general description of the artwork, including the material (e.g. drawing on paper, oil painting on canvas, glass sculpture – at this stage there’s no need to provide artist’s names and artwork titles, if you don’t want to)
A description of the location type with the exact address (fine art storage, private residence, company’s office, commercial art gallery, etc.)
For private residences and offices: basic details about the security measures in place (e.g. anti-intrusion alarm, concierge service)
Any special wish for the insurance policy (e.g. several loans for exhibition purposes every year to be insured under your own policy, or: insurance for shipping only, no insurance coverage in storage)
The more an insurance broker knows about the movements of your collection and your wishes, the more he’ll be able to customize the insurance coverage. So please do share more information, if you feel comfortable with it.
In my experience, unless you ask otherwise, brokers tend to provide estimates for coverage against all risks at full value only. This is the most comprehensive, but also the most expensive option. If you’re interested in taking out first-risk insurance or other types of coverage, make sure to tell them so from the beginning.
In the past I met insurance brokers who categorically refused to provide an estimate without knowing the name of the collector. This is a HUGE red flag for me and a reason to exclude such insurance broker from my list of trusted partners. Of course, your chosen insurance broker will need to know the name of the collector and insurance policyholder at some point to confirm the insurance coverage. However, this information is not necessary to provide an estimate for the insurance premium.
3.2 Can a fine art insurance broker refuse to insure a collection?
Yes! Your preferred insurance broker may refuse to insure an art collection for several reasons, such as having had a bad experience with the collector in the past or having received too little information about the collection to be insured.
The insurance broker may also opt for not insuring your collection if he believes the risk to be too elevated. This may be the case when high-value artworks are in a private residence and the collector refuses to install an anti-intrusion alarm system; or when extremely fragile sculptures are exhibited in a public space without adequate protection against accidents, vandalism or theft.
Another reason for a broker not being able to insure a collection is the so-called insurance capacity. This can happen at popular fine art storage facilities. Actually, there are numerous insurance brokers in the world, but they all tend to work with a limited number of insurers. At large storage facilities the total insurance value can easily reach ten figures and more. Only a few insurers are willing to carry this risk. Therefore, one or several insurers may refuse to take on more risk for that location.
Your broker will do his best to look for an alternative insurer, but in rare occasions it can happen that none is available, thus being unable to offer insurance coverage for that specific location.
In this situation, your only option is to move your collection to another location, where your preferred insurance company has more capacity, or choose a different broker.
The selection of your fine art insurance broker is a personal choice. My preferred brokers have a clear, easy-to-understand insurance policy, great customer service and fair insurance premiums. If the wording of the insurance policy is difficult to understand and lets no room for customization, the insurance broker takes ages to reply to the simplest email and is badly reachable on the phone, you can only expect a difficult collaboration in the future.
3.3 Calculation of the insurance premium
Question: My friend and I have both our own art collections with the same total insurance values. We work with the same insurance broker. Yet we pay different annual premiums. Why?
Your insurance broker will consider several factors when calculating the premium. These include the individual or total insurance value (depending on the required coverage), the types of artworks in the collection, their location, their transport destination (for loans), and the risks the collection faces.
The premium for paintings, carpets and metal sculptures is cheaper than that for porcelain, glass, or terracotta sculptures, because the chance of damage is lower.
Similarly, insuring a painting on loan for a direct shipment by truck from New York to Washington will be cheaper, than insuring the same painting from New York to London. Actually, the latter shipment requires more time and handling, thus increasing the risk of damage. If the painting had to be shipped to a warzone, the premium would be even higher (or the insurance company may refuse to provide coverage).
You get the idea.
In response to the above question, the two friends are most likely paying different insurance premiums because the individual items in their collection are exposed to different risks. The first collection may consist in large part of paintings, located in a secured, climatized fine art storage facility. The second collection may include several glass sculptures, located in the collector’s house, without any security systems and with toddlers running amok around the place. Guess who is paying the higher insurance premium?
The best way of reducing the premium is minimizing the risk for the insurer(s). Sometimes, this translates into introducing climate control, security measures (e.g. alarm, CCTV, locked display cases), better packing during shipments, or monitoring access to the exhibition room. Other times, it means taking some of the risk upon yourself (e.g. by excluding some risks from the insurance policy or adding a deductible).
4. The role of insurance for fine art loans
Every temporary loan to galleries and museums begins with a written request in the form of a letter. If the lender agrees to the loan, the borrower's registrar will soon prepare a written agreement.
If this is your first loan, please don’t be intimidated and remember that loan agreements are negotiable. If you’re not comfortable with or don’t understand any clause in the contract, ask the borrower. As a registrar, I guarantee you that 90% of the time, lenders get back to me with questions or wishing to negotiate some of the terms. We’re used to it, and we’ll try our best to find a good solution for everyone. Should you be completely unhappy with the borrower’s loan agreement, you can also suggest using your own template.
The most common questions and negotiations surround insurance coverage and liability for the duration of the loan.
It’s standard practice for borrowers to organize and pay for nail-to-nail insurance coverage. However, it’s also not unusual for lenders to prefer to keep their works on loan under their own policy and have their broker invoice the borrower accordingly. This is true particularly when the lender feels that his insurance policy is more comprehensive than the borrower’s one.
4.1 Full liability, limited liability, government liability
Liability specifies the financial extent for which the borrower is responsible in case the loan item suffers a total or partial damage. For this reason, it’s strictly connected to insurance coverage and should always be clearly stated in the loan agreement.
Full liability
Full liability is every registrar’s worst nightmare. Being fully liable for a loan item means that the borrower is responsible for financially compensating the lender up to the agreed insurance value, no matter how the damage happened or what proceeds the insurance company will pay for the damage. In simple words: come what may, the borrower must pay.
In the worst-case scenario, the loan item suffers a total loss due to causes not covered in the insurance policy and the borrower must pay to the lender the entire agreed value.
Example 1:
A sculpture on loan for an exhibition has an agreed insurance value of $50 million and the museum (borrower) has accepted full liability for it. The museum’s insurance policy excludes terrorism from the insurance coverage. Over the course of the exhibition, terrorists attack the museum and destroy the sculpture. The insurance company won’t pay for this loss. Under the full liability’s commitment, the museum must now disburse $50 million to compensate the lender.
Example 2:
A visitor accidentally damages a painting on loan in a museum. The insurance company pays $2 million to the lender as compensation for the depreciation value. The lender doesn’t agree with the compensation and requests a compensation in the amount of $5 million. If the museum had agreed to full liability, it may need to disburse the additional $3 million out of his own pocket.
Occasionally, lenders request borrowers to be liable for damages up to the market value of the loan item at the time of the damage. This request is as problematic as the full liability’s requirement.
The issue here is that insurance companies can only insure loans up to an explicitly agreed value, as stated in the loan agreement. If the market value of the loan increases shortly before the damage, the borrower will be contractually required to pay the difference.
Question:
Let’s assume that the borrower accepted full liability for a loan item with agreed insurance value of $10 million. The borrower informs the lender that the loan item has suffered a total loss. The lender immediately replies that a new appraisal carried out the previous day estimates the current value of the item at $15 million (new market value). He didn’t have the time to inform the museum before the damage happened, but the new value is well-documented.
What happens now? Is the borrower required to compensate the lender up to $15 million, under the full liability arrangement? Or is the agreed insurance value of $10 million still binding?
Answer:
This is one of many open questions surrounding full liability for loans. What if the lender had sold the work for $15 million the day before the loss and the borrower had not yet been informed? What if the lender had informed the museum, but the information had reached the registrar’s office outside of the regular working hour and couldn’t be processed yet?
In theory, in such situations the insurance value agreed in writing by both parties is binding. However, should the lender bring the case to court, it can’t be excluded that the court will make the borrower liable up to the market value.
Limited liability
This is the best-case scenario. As the name implies, limited liability contractually restricts the borrower’s responsibility to the proceeds paid by the insurance company for insured damages.
In other words, the borrower is not liable for uninsured damages and is not obligated to pay the lender anything beyond the compensation provided by the insurance company.
Let’s analyse the previous examples in the case of limited liability.
Example 1:
A sculpture on loan with agreed insurance value of $50 million suffers a total loss following a terrorist attack. Terrorism was excluded from the insurance coverage, therefore the insurance company won’t pay. Because the borrower’s liability was limited to the proceeds paid by the insurance company, the lender can’t request financial compensation from the borrower.
Example 2:
A lender receives $2 million from the borrower’s insurance company to compensate the depreciation value after a partial damage to his loan. Unhappy, he insists that the borrower pays him additional $3 million. Under the limited liability arrangement, the borrower is not obligated to pay.
Government liability
Certain countries, such as Great Britain, Germany and The Netherlands amongst others, offer comprehensive government insurance schemes for loans coming to their public cultural institutions from abroad for exhibition purposes. This type of insurance is called "government insurance” or “government liability” (in German: gesetzliche Haftung).
It’s funded through taxes and as such is fully coordinated and controlled by the country’s government. For the eligible borrowing institutions, insuring their loans under such a scheme is considerably cheaper than using commercial insurance.
Opinions and experiences with government insurance differ greatly from country to country. Overall, people seem to agree that government insurance schemes can be very comprehensive, but difficult to navigate, as coverage can sometimes vary from region to region within the same country (hello Germany!). Fortunately, I never had to file a claim to government insurance, though I heard it can be difficult due to the lack of specialized employees with experience in the art world.
4.2 DIC insurance
DIC stands for “difference in conditions”. This is a complimentary insurance policy that the collector can arrange for his artworks, while these are covered by a primary insurance policy held by a third party.
The DIC insurance will cover those damages which are included in the collector’s insurance policy, but excluded from the third party’s insurance coverage.
Example:
A collector lends a painting to a museum and accepts to have it insured under the museum’s insurance policy. To be on the safe side he takes out a DIC insurance with his own broker for the time of the loan. The museum’s insurance policy excludes terrorism, while this is included in the collector’s policy.
If the painting gets damaged during a terrorism attack, the museum’s insurance company won’t pay. However, the collector will receive compensation from his own insurance. Had he not taken out a DIC insurance coverage, he would not be able to file a claim to his own insurance company in this case.
4.3 Insurance for travelling exhibitions
When an exhibition travels from venue to venue, the respective institutions are usually responsible for organizing nail-to-nail insurance coverage for their exhibition leg.
Let’s say that an exhibition is planned to go on display to the Kunsthaus Zurich (venue #1), then Kunstmuseum Berlin (venue #2) and finally Victoria & Albert Museum in London (venue #3). The Kunsthaus Zurich is going to arrange insurance coverage from the lender’s address to Zurich; the Kunstmuseum Berlin will insure the loans from Zurich to Berlin; and the Victoria & Albert Museum will cover the loan from Berlin to London, and back to the lender’s addresses.
Question:
Where and when does the insurance and liability of venue #1 end? On which date shall the insurance and liability of venue #2 start to avoid overlapping?
In my opinion, the best way of proceeding is having the insurance and liability of venue #1 end on the date of the outgoing condition report, which the conservators will perform at venue #1 at the end of the exhibition. Insurance brokers are familiar with this way of doing and will issue COIs accordingly.
Therefore, the COI for venue #1 will confirm insurance coverage from the beginning of the loan period until the date of the outgoing condition report. The COI for venue #2 will confirm coverage from the date of the outgoing condition report at venue #1 until their own outgoing condition report, performed at venue #2 at the end of their exhibition.
Question:
Why not having insurance and liability of venue #2 start upon releasing the loan items to its appointed shipper?
This is not wrong. Some institutions prefer it this way too. The problem I see with this solution is that the outgoing condition report is always prepared while dismantling and packing, a few days before the loans are collected and delivered to the next venue. If a loan item is declared to be in good condition on the outgoing condition report at venue #1, but arrives damaged at venue #2, it can be difficult to prove whether the damage happened before releasing the item to the shipping company (i.e. while under the responsibility of venue #1), or in transit (i.e. while under the liability of venue #2).
Additionally, what if an accident happens while loading the loan item on the shipper’s truck? Is venue #1 liable for damages because it happened at its site and its art handlers were helping the drivers with loading, or is venue #2 liable because they appointed the shipper?
I believe that transferring risks and liabilities to the next venue on the date of the outgoing condition report provides a clear, documented cut-date, and therefore leaves less room for doubts and discussions.
5. How to file an insurance claim for damaged artworks
In the art industry we distinguish between partial damage and total loss. A work of art, which suffered a partial damage, can be restored or repaired. Depending on the severity of the damage, the owner may expect it to lose part of its market value. When the damage to the artwork is beyond repair, we talk of a total loss.
How should you proceed when an artwork is damaged?
Step 1: Document the damage
First of all, document the damage and try to find out as much as possible about the circumstances that led to it. Take images of the damaged artwork, its packing material, and the room where the accident happened. If there were third parties involved, such as art handlers or shippers, ask them questions to better understand the facts.
Make note of when and where the damage occurred, and when it was discovered. If the damage happened in transit, requesting a copy of the shipping documentation could also be a good idea.
Finally, ensure to have the latest insurance value and the last condition report at hand.
If the damage is minor and doesn’t present a risk of worsening in the coming days (e.g. a small dent in a canvas), please feel free to reach out to a restorer to request an estimate for repairing. Do not begin any restoration without consulting your insurance broker first!
If the damage is acute, do not relocate the artwork and do not dispose of any damaged piece or packing material without consulting your insurance broker first.
Step 2: Assess your expectations
If you can, take a minute to assess the damage and your expectations. What do you expect from your insurance broker? Is it a total loss for which you seek to receive full compensation for the insurance value? Or do you expect the insurance company to cover the restoration fee and eventual depreciation?
Step 3: Contact your insurance broker
Sometimes, it makes sense to contact your broker immediately upon discovery of the damage and give him a quick heads-up. He may have some advice for your right there and then. Personally, I prefer to gather all the facts and have a clear picture of the circumstances first, and then submit the claim to the insurance company.
Your broker will require all the pieces of information you collected about the damage (see step 1). Be prepared to answer additional questions. Depending on the situation and insurance policy, your broker may also require further documentation, such as an expertise by a conservator, an estimate of the restoration costs or a professional appraisal of the market value.
Question:
What happens with the damaged artwork after the insurance claim is settled?
In the case of minor damages, the situation is clear: in agreement with the insurance company, the artwork is restored and then goes back to its owner.
In case of total loss due to an insured risk, the insurance company will pay the full insurance value to the owner of the work. Once the payment is executed, title to the artwork is officially transferred to the insurance company. At this point, the work will need to be delivered to the insurance company’s storage (the insurance should pay for this transport).
Question:
What if the artwork was lost and found again?
Let’s say a museum files a claim for an artwork, which mysteriously disappeared. From an insurance’s perspective, this equals a total loss.
If the insurance company settles the claim by paying the full insurance value, the ownership to the artwork gets transferred to the insurer(s). Should the artwork be found again, the museum is not the rightful owner anymore and it must inform his insurance company.
The insurance company may offer the museum at its own discretion to re-purchase the work (either for the same value it paid out in settling the claim or at the current market value).
Question:
Assuming a collector changes the terms of his insurance policy on December 31, 2023. A painting in his collection is damaged in transit on December 30 and the collector files a claim to his insurance broker on January 2, 2024. Under which insurance terms is the broker going to consider an eventual compensation for the damage?
The date of the damage is binding, not the date the insurance broker is informed. Therefore, the broker will consider the case according to the insurance terms that were valid until December 31.
6. Last words of advice from an experienced registrar
Over the past ten years I didn’t gain experience as a registrar by doing everything right all the time. Actually, I met many stones in my path and learned a lot from my own mistakes. In terms of insurance, here a couple of tips I would recommend to anyone.
Tip #1: full liability in disguise
I once read a loan contract with the following sentence: “The borrower’s liability is limited to the agreed value for all damages”. This is a full liability in disguise.
Guess what happened? The loan contract referred to a kinetic sculpture from the 1960s/1970s. The display requirements at the borrower’s premises respected the highest standards and the sculpture was operated according to the instructions provided by the artist’s estate and the lender. Nevertheless, close to the end of the exhibition, the motor inside the sculpture stopped working due to age / use / wear and tear.
The insurance company said this was an uninsured damage, as per the standard exclusions in the borrower’s policy. The lender cited the loan agreement, which made the borrower liable “for all damages”. The borrower had to pay (thankfully, the repairing cost just a couple of hundred dollars).
I learned the lesson: always, ALWAYS verify that the borrower’s liability in the loan agreement is limited to the proceeds paid by the insurance company for covered risks.
Tip #2: Don't insure artworks, if you have no control over them
If you have no control over an artwork and its movements, do not insure it under your policy. I came across this scenario once or twice when arranging return shipments at the end of an exhibition.
Example:
You’re supposed to return a loan item to Sevilla, Spain after an exhibition. Loan contract and COI were issued accordingly. At the last minute, the lender kindly asks you to ship the work to Madrid, where it will go on display at a local charity organization. The latter informs you that it will coordinate the shipment and cover transportation costs. However, it asks if it would be possible to keep the work under your insurance policy up to arrival in Madrid. The lender would welcome this solution.
Since the insurance fee to Spain was already budgeted in the exhibition costs, the transport would take place within the insured loan period and the lender is a regular at your institution, you may be tempted to agree.
Don’t. This is trouble in the making.
Should anything happen in transit or upon off-loading in Madrid, filing an insurance claim will be more difficult due to the many parties involved. In such a situation, you usually have no decision-making power over the choice of the shipping company (what if they send a standard carrier or an inexperienced shipper to collect the loan item?) and no control over the offloading at destination.
Do they have a proper loading dock? Do they have experienced art handlers on-site to help off-loading, if needed? Do they need to crane the loan item into the building?
You can’t control all these factors and you probably have no time to verify them. Therefore, why taking the risk on your insurance policy?
Insurance premiums can be a significant financial burden, particularly for non-profit organizations and other institutions with small budgets. If you wish to support them financially, offer to contribute to the transportation costs, but don’t insure their loans under your policy.
Tip #3: don't panic too soon
It happens quite often. The conservator calls you and informs you with half-desperate voice that the loan item in the exhibition has a new scratch. Or the shipper sends you the picture of a huge crack in the sculpture that he just delivered and unpacked at the collector’s house.
Don’t panic. Not yet.
Check the images and the notes in the last condition report, installation views of the exhibition, or the photos you received from the seller upon buying the sculpture.
You may find out that the scratch was already there before the exhibition opened (and the conservator had missed it during the incoming condition check), or that the crack in the sculpture was intentionally made by the artist.
Tip #4: the domino-effect
You know that horrible feeling when you discover that several works of art were damaged in a single, mundane, completely avoidable accident?
It happened to me once, almost 10 years ago. At an art fair, a very heavy stone panel was installed on a wall. Then, a glass sculpture on a pedestal was placed right in front of it. You can see where I’m heading… the gallery sales team wanted it this way and I didn’t know better. Overnight, the screws holding the stone panel collapsed, the panel crashed on the floor and smashed the glass sculpture. The panel was partially damaged, the sculpture was a total loss. Two birds with one stone.
Remember: having a comprehensive insurance policy does nothing to minimize the actual risk of damage. Critically evaluating an art display from a conservation and safety perspective, and taking appropriate preventive actions, can significantly help minimize the risks.