Compliance and Risk Management In the Art World

March 4, 2024

By Rebecca Goldfarb

The art world serves a purpose to elevate human creativity, but all beauty comes with certain risks. From environmental sustainability to safety considerations, there is a strong need for governance and risk mitigation within the art world. The artistic process can pose dangerous hazards, including exposure to toxic chemicals and injuries when setting up dangerous art installations. Thus, there are many risks present that galleries and museums should mitigate to avoid liability. The biggest risks to be aware of are rooted in safety, environmental controls, copyright authorization, Visual Artists Rights Act (VARA), and proper title ownership. As a result, compliance strategies aimed at mitigating these particular risks in the art world are key. There are a plethora of environmental, social, and governance (ESG), issues to be aware of within the art world. While the art world does not have specific ESG regulations just yet, the fusion of environmental code, real property law, and tort law within the art space raises potential legal issues that are essential to account for when installing new artwork or growing a visual arts organization. Compliance systems and controls within our art space are crucial to maintaining a more safe and sustainable art world, so art can continue to maintain its expressive presence.

Environmental

There are many environmental risks in the art world to be cautious of. Artworks shipped for displays can lead to greenhouse gas emissions. When aiming for sustainable art solutions, it is important to be mindful of the placement of outdoor artwork, especially artwork made with layers of chemical materials.^[1] Layered paintings placed in outdoor spaces, for example, can emit toxic chemicals into rainwater runoff.^[2] Additionally, those who are in charge of shipping and setting up installations made with heavy chemicals, such as formaldehyde, lead, asbestos, preservatives, and others, are at toxic health risks.^[3] Additionally, the construction of artwork with heavy materials, such as glass and metal, may use large amounts of energy that can further global warming.^[4] Thus, today’s artists must find creative solutions for sustainable art practices without disrupting the integrity of their work.

A similar consideration for museums and private collections is the air quality inside galleries and storage facilities. Art with chemical components displayed in enclosed spaces may emit toxins that build up in the area and threaten air quality.^[5] Monitoring air quality levels within buildings will ensure that pollutants from the artwork cannot build up to dangerous levels that harm attendees with respiratory issues.^[6] Setting stable temperatures and humidity levels within gallery spaces will assist in maintaining healthy air quality levels.^[7] Analyzing the topography of loading docks in a building is also critical to keep artwork safe .^[8] The climate and topography of where the artwork will be loaded should not be prone to flooding or storm damage.^[9] If the geographic location of the building is prone to certain natural disasters, the loading dock should be built to the code of the local area to withstand natural threats .^[10] A safe loading area also ensures that the art is loaded away from any part of the land that could give rise to fire or water hazards, a threat to both the workers transferring the art installation into the building and to the artwork itself.^[11]

Museums and galleries have invested in ESG practices to increase sustainability. There are many difficulties posed in creating a sustainable art world. The industry involves travel, large festivals, shipping and transportation, and large installations that may use great loads of energy and electricity.^[12] Obtaining local art pieces is one of the biggest ways to promote sustainable outcomes within the art space.^[13] Investments in local art reduce carbon footprints, minimizes shipping costs, and fuels community involvement by elevating local voices.^[14] Finding more sustainable energy sources to power installations with lights and sounds also promotes this goal. Finally, it is important for curators to consider the medium of artworks on display to minimize damage to the environment over time.^[15] In the future, curators should establish a threshold for dangerous chemicals and determine risk levels before accepting a piece. Such limits may encourage artists to create more sustainable designs.

Safety

Installation carries a special risk of injury to installation workers. Under agency law, employers are typically not liable for the torts of independent contractors, unless the work involved is “inherently dangerous.” Depending on the specifications, a work may be considered inherently dangerous under definition, Restatement (Second) Of Torts § 416.^[16] However, for installations that do not fit into the Common Law’s definition, organizations should have agreements specifically disclaiming the risks involved in installing artworks to shield themselves from potential tort liability. Additionally, organizations should implement additional safety measures like providing proper equipment to promote safety with installations.

Insurance

There is a risk of damage when handling art. While the risks are higher when artwork is in transition, there is still some risk of damage even when art is stationary. From climate control issues to the artwork naturally aging to general damage from patrons, the chance of harm to art is never a zero sum. Thus, it is crucial for anyone shipping a piece of art to have comprehensive property insurance. It is especially important to be mindful of this issue when the artwork is of higher value. Insurance policies should be in force before the artwork enters into transit.^[17] Proper appraisals on artwork l will ensure the most fair insurance values.^[18] While museums and galleries may have this insurance, individuals purchasing expensive pieces for private collections may not be aware of the importance of obtaining proper insurance to protect themselves against damage in transit.^[19] Being mindful of the shipping route helps to develop adequate contingency plans if natural disasters damage the works as they are shipped. .^[20] If an organization has the artwork on a loan, they should negotiate with their insurance company for force majeure protections.^[21] Organizations need to take extra precautions when installing loaned pieces. A good practice includes conducting inspections of the artwork before, during, and after installation to evaluate potential damage.^[22] Securing a loan agreement and following the provisions on exactly how the art should be moved. ^[23]

The five best recommended insurance policies to have include (1) Agreed Value coverage, which will cover up to the full amount that the artwork is worth if it gets damaged; (2) Market Value Appreciation, which will cover the amount that the artwork is worth if sold on the market; (3) All Risk coverage, which will protect the artwork against any possible risk that may damage it; (4) Newly Acquired Objects coverage, providing extra coverage for new pieces that one may collect for up to 90 days; and (5) Title Defense insurance, which will cover not only the artwork’s value if the owner loses it due to lack of good title but also any legal fees for disputing good title.^[24]

Title

When obtaining new pieces of artwork for a space, it is important to be mindful of provenance and proper title. Thus, it is crucial to conduct an investigation to ensure that the artwork being purchased is legitimate. There are many protective measures that curators can take if they learn that a third party holds proper title in the artwork, such as securing a certificate of proper title and title insurance, which will provide security in cases of disputed title.^[25] While appraisals are common at point of purchase, many dealers do not investigate proper legal title of artworks, leaving the responsibility on the gallery or museum .^[26] One method to investigate title is to conduct clearance searches on art loss registries.^[27] Ultimate owners should research time periods historically known for high art theft and should be wary of bringing in artwork from contentious time periods.^[28]

It may be tempting for a museum to fight a title claim, but the likelihood of winning is low if the title is truly defective. Fighting title claims is also an expensive endeavor so ultimate owners should do due diligence before obtaining a work to minimize costs.^[29] Improper title has ramifications other than dollar amounts. For example, it is not uncommon for the donors of an artwork to file a claim against the museum if it is repatriated because their gift and tax deduction becomes invalid if the museum does not defend against the valid title.^[30] This contingency serves as a detractant for potential donors wishing to avoid legal and financial difficulties.^[31] Thus museums should be mindful of proper title when obtaining works of art.^[32] Many museums have adopted the use of provenance analysis, which is the process of tracing the artwork’s path from the present back to when it was originally created, to verify proper artwork title.^[33] This process is lengthy and requires research from artistic historical records, archival and auction records, and collector history to make a thorough determination on the artwork’s authenticity .^[34] Another avenue for verifying title is utilizing academic researchers to provide art business owners with the correct resources to research title.^[35] Verified title offers stronger protection for the value, authenticity, and integrity of an artwork. Proper provenance research improves valuation of artwork, ensures proper title, and protects ultimate owners from legal difficulty.^[36]

Being mindful of VARA

While maintaining environmental compliance with artwork, it is important to be mindful that any risk management implications are not in violation of the Visual Artists Rights Act, or VARA.^[37] The Act provides protection for artworks of stature or public notoriety.^[38] To be protected by the Act, an artist must own the copyright behind the work, meaning that the work wasn’t created as a Work Made for Hire.^[39] When de-installing artworks, extra precautions must be mitigated while disassembling to ensure that the artwork isn’t altered substantially in such a way as to jeopardize the integrity of the piece. Such substantial adjustment may amount to a VARA violation . If the nature of the artwork requires a de-installation that may place the artwork at a high risk of being damaged, the optimal solution is to include a provision in the installation agreement to shield the organization from possible VARA liability in the event of damage or substantial alteration.^[40] Obtaining a Moral Rights Waiver for de-installations is the best way for organizations to protect themselves from this liability.

About the Author

Rebecca Goldfarb is a second year law student at Case Western Reserve University School of Law in Cleveland, OH. Her primary legal interests are intellectual property and corporate transactions, with a focus on working in creative spaces. She spent her 1L summer working at Volunteer Lawyers for the Arts of Massachusetts, completing pro bono projects for a variety of local artists, including drafting and reviewing agreements for art gallery installations. She has developed an interest in the compliance field, with plans to complete a graduate certificate in Compliance & Risk Management at her law school as well. With the rise of ESG and other compliance controls businesses are taking, here is a link to an article that further addresses art’s role in ESG.

Sources:

1. Blair Leake Wunderlich, Museum and Gallery Construction: Managing Fine Art Risk (Risk Strategies, 2023), https://www.risk-strategies.com/blog/fine-art-museum-gallery-construction-risks ↑
2. Id. ↑
3. Hazardous Materials in Museum Collections (2023), https://mgnsw.org.au/sector/resources/online-resources/risk-management/hazardous-materials-museum-collections/ ↑
4. Adam Hencz, Sustainability in the Art World: Fighting the Environmental Crisis (Artland Magazine, 2017), https://magazine.artland.com/sustainability-art-world/ ↑
5. Wunderlich, supra. ↑
6. Id. ↑
7. Id. ↑
8. Id. ↑
9. Id. ↑
10. Id. ↑
11. Id. ↑
12. Hencz, supra. ↑
13. Id. ↑
14. Id. ↑
15. Wunderlich, Id. ↑
16. See Restatement (Second) Of Torts § 416 (1965). ↑
17. Kurt Thoennessen, Fine Art Risk Management and Insurance Planning Guide (IRMI, 2019), https://www.irmi.com/articles/expert-commentary/fine-art-risk-management-and-insurance-planning-guide ↑
18. Id. ↑
19. Id. ↑
20. Id. ↑
21. Id. ↑
22. Id. ↑
23. Id. ↑
24. Id. ↑
25. Lawrence M. Shindell, Provenance and Title Risks in the Art Industry: Mitigating These Risks in Museum Management and Curatorship, 31 MUSEUM MANAGEMENT AND CURATORSHIP, 406-411 (2016) (discussing the importance of proper title searches in the art spaces). ↑
26. Id. ↑
27. Id. ↑
28. Id. ↑
29. Id. ↑
30. Id. ↑
31. Id. ↑
32. Id. ↑
33. Id. ↑
34. Id. ↑
35. Id. ↑
36. Id. ↑
37. 17 U.S.C. § 106A. ↑
38. 17 U.S.C. § 106A 3(B). ↑
39. 17 U.S.C. § 106A (b). ↑
40. Terence R. Boga, Public Art Displays Carry Legal Risks (American City and County, 2005), https://www.americancityandcounty.com/2005/02/01/public-art-displays-carry-legal-risks/ ↑