Rising Temperatures, Rising Premiums: Climate Change Litigation and Fine Art Insurance
November 13, 2023
By Kouros Sadeghi-Nejad
As the global climate crisis intensifies, an unlikely industry is bracing for an unpredictable storm of its own: the fine art market. The industry faces considerable threats from extreme weather, especially in disaster-prone regions like California, Florida, and New York, where scorched hills and hurricane-battered coasts cast looming shadows over the preservation and safeguarding of priceless artistic masterpieces. Collectors, artists, and art institutions in states experiencing weather-related disasters aggravated by climate change are finding that fine art insurance is no longer the steadfast refuge it once was as premiums soar and new restrictions make obtaining and renewing adequate insurance coverage on acceptable terms increasingly troublesome. Taking on risks that insurance would typically cover, art investors and lenders are left exposed and vulnerable due to a lack of sufficient protection against the devastating aftermath of climate-induced extreme weather events.
Environmental Perils: From Tropical Storms to Wildfires
The days when art collectors could simply purchase general insurance policies are fading. Most art insurance falls under “all-risk coverage” for physical damage. This means that a policy must respond to a loss unless a specific peril is explicitly excluded; even an unforeseeable calamity — such as an “Act of God” — is covered.
Acts of God are defined as catastrophes beyond the preventative scope of the insured and don’t often see exclusion in art policies. It’s worth noting, however, that while damages from many natural disasters aren’t necessarily excluded from these policies, there can be specific terms and conditions for coverage. Take, for instance, a bronze sculpture standing tall in a coastal estate: while generally covered, its policy might delineate exceptions for salt-air corrosion accelerated by frequent tropical storms. There could also be stipulations concerning the anchoring of the sculpture, requiring it to withstand hurricane-force winds.
Many insurers are revising their coverage terms in response to the increased risk caused by natural disasters. What, for instance, are the implications if the hypothetical bronze sculpture was located on the West Coast where wildfires are rising in intensity and frequency? What happens if the sculpture becomes marred by acid rain or the ash fallout from the wildfires? While the loss is unquestionably “accidental” and “direct,” insurers might deem the slow deterioration from acid rain as a maintenance issue, expecting the owner to take preventative measures such as protective coatings or periodic cleaning. Furthermore, given that a piece of art might concurrently be exposed to various environmental factors, ascertaining what damage could solely be attributed to acid rain would present its own set of challenges. Though the hypotheticals I’ve provided might seem overly stringent by current insurance standards, the rising financial risks of insuring works in disaster-prone areas suggest that art insurance is likely to adopt a more nuanced approach, challenging both insurers and the insured to navigate breadth of coverage and environmental perils.
Forecasting Predicted Rises in Premiums
Of particular concern to the art insurance industry is the fact that the vast majority of valuable art collections are concentrated in major urban centers such as New York, Los Angeles, and Miami, whose location along the coasts makes them intrinsically susceptible to the threats posed by natural disasters.
A startling revelation by the National Association of Insurance Commissioners in 2021 found that in the United States, property litigation in Florida accounts for 76% of property-related insurer litigation. Yet, this data predates the subsequent devastation wrought by Hurricane Ian in 2022. Classified as a Category 5 hurricane, Ian ranks as the third most expensive weather calamity ever recorded, which left insurers grappling with an estimated $63 billion in damages.
According to William Fleischer, president of the New York-based Bernard Fleischer & Sons insurance company, in the face of such unpredictable threats and the accompanying financial aftershocks, insurance companies have started to exclude certain weather-related events as a way of keeping premiums down or to get policies written at all. “You’re seeing a lot more negotiating” with clients, he says, based on what they are or are not willing to pay. Those residing in high-risk areas, keen on full-scale protection for their prized collections, are now contending with premium hikes of up to 25% upon renewal.
Supporting data by Berkley Asset Protection, based in New York, reveals fine art insurance premiums rising by as much as 5-12%.,  With the increasing severity of billion-dollar-plus weather and climate disasters, even if the art market escapes these types of catastrophic losses, the interconnected nature of the insurance industry is why policy premiums are expected to rise, and the breadth of coverage will still change. While cost-cutting measures might tempt some to exclude natural disaster coverage from their insurance, experts caution against such high-stakes chances in our current environment. Those seeking art insurance must have open communication with their insurer regarding up-to-date climate data analysis to regularly assess the risks that environmental threats pose to their collections.
AXA Art Insurance Corporation v. Christie’s Fine Art Storage
The threat natural disasters pose to fine art is exemplified by AXA Art Insurance Corporation v. Christie’s Fine Art Storage, No. 652862 (N.Y. Sup. Ct. Aug. 15, 2013). The case concerns the Jacqueline Piatigorsky Revocable Trust, which contracted with Christie’s Fine Art Storage Services to store its extensive art collection, previously belonging to a deceased member of the Rothschild banking family. Christie’s stored the collection in their warehouse in Red Hook, Brooklyn, situated in a waterfront neighborhood. When Hurricane Sandy hit New York on October 29, 2012, the collection suffered extensive damage due to flood waters from the storm surge.
The Piatigorsky Trust sought $1.5 million in damages. The Trust’s insurance provider, AXA Art Insurance Corporation, took issue with Christie’s purported negligence and alleged that the collection sustained damage during the storm because, despite repeated flood warnings by authorities, Christie’s “took virtually no steps to protect the art, failing to even elevate the Collection and other art from the ground floor to higher floors.” In its complaint, AXA claims that Christie’s sent two emails to its clients, with the first email sent pre-hurricane on October 26, 2012 outlining the precautions Christie’s was prepared to take to mitigate any damages and ensure “best-in-class environmental controls,” including elevating first-floor artwork off the ground. In the post-storm email sent on October 30, 2012, Christie’s stated that their “staff has inspected [their] facility” and could “confirm that [the client’s] property is safe and has experienced no damage.”Despite these assurances, AXA’s multifaceted legal complaint alleged four causes of action against Christie’s: (1) gross negligence, (2) negligent misrepresentation, (3) bailment, (4) non-performance. AXA asserted that Christie’s was in breach of the terms of the bailment agreement due to its failure to maintain the collection under a condition that meets the standard of reasonable security. Moreover, AXA alleged that Christie’s failed to perform its contractual obligations by allowing the collection to remain on the ground floor inspection area for over a week, despite representations to the Trust that the collection would be moved into a secure storage unit in no more than one to two days. AXA argued that this delay, coupled with the alleged lack of protective measures taken, led to the collection sustaining damage by ground floor flooding.
Christie’s moved to dismiss AXA’s complaint, pointing to the Act of God clause and claiming that the unforeseeable magnitude of Hurricane Sandy was beyond human foresight or control. Christie’s also argued that the Trust waived subrogation against Christie’s for any loss or damage to the property as part of a Loss Damage Liability Waiver which stipulated that if Christie’s Fine Art Storage Services “is found to be liable for any loss of, or damage to, the Goods, that liability shall not exceed $100,000.” Ultimately, the New York state court exonerated Christie’s from the hefty damages. The court held that Christie’s storage contract provisions acted as a legally binding waiver of subrogation on the property insurer. The waiver was crucial as it indicated the Trust’s acknowledgment of Christie’s limited liability and its own responsibility to obtain insurance against such losses.
In StarNet Insurance Co. v. Christie’s Fine Art Storage Services, Inc., a similar suit was brought against Christie’s in a New York state court by the property insurer for the estate of American artist LeRoy Neiman, whose art collection was damaged by Hurricane Sandy’s floodwaters . Mirroring the AXA case, the New York state court’s final ruling, declared that in their contract with Christie’s Fine Art Storage Services, Neiman, had waived their insurers’ right to sue as a “waiver of subrogation is enforceable in spite of any contract breaches where … the breached provisions are independent from… provisions relating to the allocation of risk between parties” (Starnet Ins. Co. v. Christie’s Fine Art Storage Servs., Inc., Index No. 159899/2013, 9 (N.Y. Sup. Ct. 2016)).
However, due to the increasing frequency and intensity of natural disasters, new legal precedents have emerged regarding liability in insurance disputes. Consequently, insurance policies are adopting more stringent terms, reflecting a heightened expectation for risk mitigation by policyholders. This shift in insurance became evident in XL Specialty Insurance v. Christie’s Fine Art Storage Services, Inc., 137 A.D.3d 563, 565 (N.Y. App. Div. 2016). XL Specialty Insurance Co., as subrogee of Chowaiki & Co., Fine Art Ltd. (XL), paid for damages to Chowaiki’s artwork that was left on the ground floor during Hurricane Sandy and sued Christie’s for subrogation. In 2014, a motion court determined that the subrogation waiver protected Christie’s, just as it had in the AXA and StarNet rulings.
In 2016, after an appeal by XL, the First Department reversed the prior decision.The determination of the court was that the defendant’s waiver of subrogation clause and limitation of liability clause were unenforceable against the plaintiff. The court questioned whether the defendant acted reasonably in their failure to mitigate risk by not relocating Chowaiki’s artwork to a safer location during the hurricane. Ultimately, the court found that the waiver of subrogation in the agreement was unenforceable because it “purported to exempt defendant from all liability” and was against Uniform Commercial Code (UCC) laws explaining:
“UCC 7-204(a) provides that a warehouse is liable for damages for loss of or injury to the goods caused by its failure to exercise care with regard to the goods that a reasonably careful person would exercise under similar circumstances and is not liable for damages that could not have been avoided by the exercise of that care. UCC 7-204(b) provides that “[d]amages may be limited by a term in the warehouse receipt or storage agreement limiting the amount of liability in case of loss or damage beyond which the warehouse is not liable.” However, such limitations on liability are limited by UCC 7-202(c), which provides that such terms must not “impair its…duty of care under Section 7-204. Any contrary provision is ineffective.”
The Need for Risk Mitigation
In response to the significant financial and material losses that natural disasters cause, the insurance industry is likely to lean towards heavier restrictions that continue to shift risk mitigation responsibility to policyholders residing in disaster-prone regions. To take proactive measures to protect their works, some policyholders are turning to services such as the Winston Art Group, a premier independent art appraiser, to catalog their works in case of emergency. A comprehensive off-site inventory — complete with photos, invoices, appraisal notices, artist names, and creation years — can ensure that a collection’s provenance is protected. Others are turning towards storage facilities situated outside high-risk zones. Those who want to keep their collections closer to home may look into storage facilities that prioritize equipping themselves with state-of-the-art climate controls to ensure optimal preservation.
Now, more than ever, discussions surrounding infrastructure enhancements, alternate storage solutions, and even relocation of collections must be taken into consideration. For additional risk assessment, policyholders should consider working with third-party catastrophe teams to assess high-risk zones or delve into their art broker’s vast repository of risk management tools to formulate a disaster plan. In doing so, art insurance policyholders can proactively address concerns anticipating potential threats before they result in irreparable damage.
About the Author:
Kouros is a recent graduate from New York University’s College of Arts and Science with a BA in Art History and Political Science. Through his studies, Kouros has developed a keen interest in the intersection of law, politics, culture, and the arts. His current research interests focus on international art market regulations, fine art insurance, and copyright protection. Kouros is deeply committed to advancing legal education and advocacy for artists and art professionals so that those within the art world are adequately equipped and empowered to make well-informed decisions in an ever-evolving global landscape.
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Daniel Grant, Climate change has made insuring art more expensive, Art Newspaper, April 22, 2023. ↑
Grace England, The Art World & Climate Change, The Fine Art Group, 2022. ↑
Emilie Trice, When the Levee Breaks — Art Insurance & Eco-Disasters, Artwork Archive, April 14, 2021. ↑
Grant, supra note 2. ↑
Amy O’Connor, NAIC Data: Florida Property Lawsuits Total 76% of Insurer Litigation in U.S., Insurance Journal, April 14, 2021. ↑
Reyes, Max, Ian Losses to Set Florida Record, Cost Insurers $63 Billion, Bloomberg, Sept. 30, 2022. ↑
Grant, supra note 3. ↑
Tim Johnson, Can Your Fine Art Risks Weather the Storm?, Browne Jacobson LLP, Aug. 31, 2023. ↑
Tobias Carrol, Insuring Art Is Getting More Expensive Because of Climate Change, InsideHook, April 24, 2022. ↑
Karen K.Ho, Experts Say Climate Change Will Make Art Insurance More Expensive, ARTnews, Nov. 30, 2022. ↑
England, supra note 2. ↑
Brian Lincicome, Going…Going…Gone! Famed Auction House Avoids Liability for Sandy Damage, Feb. 23, 2016. ↑
Lincicome, supra note 2. ↑
Paul Sullivan, Climate Change Adds Wrinkle to Art Collectors’ Concerns, The New York Times, Nov. 29, 2019. ↑
Mary Pontillo, Climate Change Brings Evolving Challenges to Fine Art, Risk Strategies, Feb. 6, 2023. ↑