It’s A Risky Business: Why Insurance Matters In The Art Industry
By Vivian Costandy Michael, Esq.
“Art and insurance” may not roll off the tongue like “art and design” or “art and wine,” but those in the art business should know they are an equally natural pairing. Insurance is a way of managing risk, and no industry, including the art world, is immune from risk.
In recent headlines, the COVID-19 pandemic has brought every industry to its knees in a matter of weeks, and the art industry is no exception: art fairs, exhibitions, and other art events are canceled or postponed throughout the world.
Art theft is another constant and more obvious risk for art dealers, collectors, and gallerists. In November 2019, Dresden’s Grunes Gewolbe museum was the victim of a much-publicized jewel heist robbing with a loss of twenty irreplaceable pieces valued in excess of $1 billion. The stolen pieces included jewelry that belonged to 19th century Bavarian and Saxon royalty. Reportedly these pieces were not insured. Just a few weeks earlier in the UK, Maurizio Cattelan’s sculpture, an 18-karat golden toilet was stolen from Blenheim Palace, where it had been on display for only days. While the piece remains missing, it has made Cattelan a literal poster-boy for insuring artwork.
In addition to art theft and force majeure here are many other art-related risks and liabilities. In each scenario, the right insurance policies may the business loss. It is therefore crucial to understand the robust insurance landscape for protecting artworks and art businesses, in order to reduce loss for an artist, collector, or organization and to maximize insurance coverage when the time comes to make a claim.
Types of insurance coverage for an art business
Title insurance is arguably the most well-known type of coverage in the art business and is a must-have in a valuable art transaction. Other valuable types of coverage can protect business from catastrophic acts of God to small but costly human error. Consider the types of insurance coverage discussed below as a sampling of how insurance can protect art and cultural property and livelihood of parties involved.
All-risk property insurance
These insurance policies typically provide coverage for “all risks” of damage or loss to property, unless specifically excluded. An all-risk property policy covers a piece of art itself and is usually the first policy to turn to for insurance coverage in the event of a fire, flood, theft, loss, or damage in transit. Numerous lawsuits arose following the 2016 Hurricane Sandy due to artwork and gallery spaces damaged by the record-breaking storm. In a series of cases brought by insurance companies against Christie’s Fine Art Storage Services, plaintiffs argued that “the facilities were negligent in failing to raise artworks from the ground floor of the warehouse, leaving them in the direct path of flooding.”
An all-risk insurance may also protect against damage to artwork that is incurred in transit. However, depending on the insurance policy terms and limits and the value of the pieces at issue, it may be more effective to procure specific packing and shipping insurance to protect artwork “nail to nail” – i.e., from the moment the piece is dismounted from the initial location to the moment it is mounted at the final location. Caveat: even when the piece has safely reached its final destination, it is not protected against the worst, as Asher Edelman, owner of the art-financing company Artemus, knows by now: in 2019, French collector Marc Baradel consigned Brancusi’s sculpture “Le Poisson” (ca. 1920-22) with Artemus, which fell and broke minutes after it was mounted onto its pedestal. The collector reportedly had insured the work through two insurance companies and said that “neither honored the agreement after the work was damaged.”
Commercial general liability insurance
Nearly all businesses carry a commercial general liability insurance policy. These policies typically promise to “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” Civil lawsuits run the gamut – from a slip-and-fall at a gallery opening to a claim of negligent misrepresentation in the sale of artwork. Commercial general liability insurance typically covers the costs of defending and settling these claims.
Employment practices liability insurance
Any place of employment is liable to a lawsuit by a current or former employee. When it comes to the art world, the competition is fierce. While commercial general liability insurance can cover most civil actions, those policies typically exclude coverage for professional liability claims, including many employee-employer claims. Employment practices liability insurance covers employers for claims made against them by their current or former employees.
Directors and officers insurance
Foundations, museums, non-profit groups, and any organization with a Board of Directors should consider purchasing Directors & Officers (or “D&O”) insurance. D&O insurance protects the personal assets of individual directors and officers and their families in the event that person is sued in their capacity as a director or officer of the organization. For instance, the Board of Regents of the Oklahoma University museum was sued in a provenance dispute involving a Nazi-looted artwork by Camille Pissarro; the Board and individual were sued under a D&O claim and may have been protected under a D&O policy. Shareholder derivative actions and claims involving breaches of fiduciary duty, corporate governance, unlawful competition, corporate mismanagement, and misuse of corporate funds are the sorts of risks that a typical D&O insurance policy covers.
Event cancelation insurance
Businesses, especially galleries and art fairs involved in exhibits, performances, tours, and other events with high production costs may consider event cancelation insurance. The current COVID-19 pandemic has put event cancelation insurance front and center for the art industry, with a staggering number of canceled, modified, or postponed events worldwide, including auctions, art fairs, and benefit events, such as The Met Gala (which raised $15 million last year), TEFAF Maastricht which closed down a few days after opening after an exhibitor was tested positive for the coronavirus, and the L.A. Art Book Fair. Throughout February and March 2020, thousands of galleries, theaters, performance spaces, and museums in California, New York, and cities throughout the world were shuttered indefinitely by government order.
Event cancelation insurance can provide coverage for both the costs incurred and the revenue lost on the covered event caused by severe weather, health concerns, acts of terrorism, or even an artist’s personal circumstances. The importance of event cancelation insurance was on display in Hong Kong, where the organizers of Art Basel Hong Kong offered event cancelation insurance to exhibitors for the costs of exhibiting in the fair in the event was canceled due to riots or civil unrest. The organizers eventually decided to cancel the fair altogether due to concerns over the coronavirus outbreak and reportedly filed an insurance claim to seek reimbursement for its costs. This also illustrates the issue of “covered” or “triggering” events in an insurance policy: while the policies that Art Basel Hong Kong offered have not been made public, one may be left to wonder if exhibitors who purchased the insurance were covered for the cancelation triggered by the outbreak, not by the political climate as it was initially feared.
Specialized cyber insurance policies protect against data breaches, ransomware attacks, cyber theft, or other types of attacks, like the attack suffered by the Asian Art Museum in San Francisco in May 2019, where hackers launched a ransomware attack on the museum, paralyzing the museum’s computer system and demanding a ransom in return. The City of San Francisco’s IT experts stepped in to assist the museum, which has since purchased cyber insurance to protect it in the event of a future cyber-attack.
Covered losses can include those stemming from reputational harm and business interruption as well as liabilities and property damage. Cyber insurance is increasingly relevant to galleries, art dealers, museums, and other art organizations because they are a repository of personal and payment information of donors. In 2017, for example, at least nine galleries were targeted in a complex scam in which hackers accessed galleries’ email accounts and sent fraudulent invoices for payments that were intercepted by the hackers. Most recently, the Rijksmuseum Twenthe in Enschede, the Netherlands, filed a lawsuit against art dealer Simon Dickinson after hackers infiltrated a sales deal over email and convinced the Museum to transfer $3.1 million into a Hong Kong bank account. The Museum argued that the dealer was negligent in preventing the fraud, which a London court rejected but allowed the Museum to amend its claims. However, ownership of the painting, John Constable’s “A View of Hampstead Heath: Child’s Hill, Harrow in the Distance” (1824) is still undecided.
Additionally, cyber breaches are disruptive, and they carry many risks of liability, including from the exposure of personal identifying information. Hefty fines and penalties under the General Data Protection Regulation (“GDPR”) could be imposed for breaches of data that include private information about EU citizens. California’s Consumer Privacy Act, which went into effect on January 1, 2020, carries similar penalties and fines, and other states are sure to pass similar legislation soon. Cyber insurance policies can cover the costs needed to recover from cyber threats, including the fees and penalties for breaches of privacy laws.
Understanding “additional insurance” rights and duties
Many policyholders may not know that they are not the only business that may have a right to insurance coverage under their policies. The person or business that works with a broker to purchase a policy and pays a premium to the insurance company is often the “named insured” on that policy, and the beneficiary of the policy. That beneficiary may promise to make some or all of its insurance coverage available to another party – the “additional insured.” Whenever a person or company other than the owner of the artwork itself is going to handle a piece of art, additional insurance becomes important. A common scenario is one in which a moving company is retained to move art from a collector’s home to a storage facility.
Unfortunately, many additional insureds do not seek a copy of the policy they believe they have rights to until a loss occurs. Often this is too late: a decision in 2010 by a New York court in Historical Design, Inc. v. AXA Art highlights the importance of having documentation of additional insured status. In Historical Design, plaintiff Historical Design loaned a sculpture by artist Fabio Novembre entitled “S.O.S. Chaise Longue” to be displayed in Milan, Italy, by Change Performing Arts (“CPA”), a production company. As a condition of the loan, CPA was supposed to obtain “exhibition coverage wall to wall insurance,” i.e., coverage for any loss or damage to the artwork during transit and will on display. When Historical Design brought suit for insurance coverage under CPA’s insurance policy for $120,000 in damage to the sculpture, the court found there was no documentation of Historical Design being an insured on the CPA policy and noted that Historical Design “did not confirm its beneficial designation upon placement of the policy.”
The risks in the art industry are diverse and costly, and insurance coverage is not a silver bullet against loss or liability. What it is, is a business decision which may translate in reduced legal and other fees over the course of transactions. The nuts and bolts mitigating risks are better discussed with an insurance broker and with an insurance lawyer with expertise in the industry to identify the appropriate coverages, limits, and terms.
- Scotti Hill, Fine Art Storage Services v. Insurance Companies: A Cautionary Tale, Center for Art Law (July 16, 2016). Here. ↑
- Starnet Ins. Co. v Christie’s Fine Art Stor. Servs., Inc., 260 N.Y.S.2d (Sup. Ct. Jan. 21, 2016) and AXA Art Ins. Corp. v Christie’s Fine Art Stor. Servs., Inc., 2016 N.Y.S.2d (Sup. Ct. Jan. 21, 2016). ↑
- Baradel v. Edelman, No. 653717 (Sup. Ct. N.Y. filed Jun. 25 2019). ↑
- Taylor Dafoe, A Brancusi Sculpture Fell Off a Pedestal in the Office of an Art-Financing Company. Now Its Owner Is Suing for $22.5 Million, ArtNet News (August 7, 2019). ↑
- Meyer v. The Board of Regents of the University of Oklahoma et al., No. 1:13-cv-03128-CM (S.D.N.Y. filed May 9, 2013); transferred No. 5:15-cv-00403-HE (W.D. Okla. March 01, 2016). Complaint available here. ↑
- Anna Brady, Here are the art fairs and auction houses that have been canceled or closed (so far) due to coronavirus, The Art Newspaper (March 13, 2020). Here. ↑
- Fiona Sinclair Scott, The Met Gala has been postponed, CNN Style (March 17, 2020). Here. ↑
- Justin Kamp, The TEFAF Maastricht fair closed early after an exhibitor tested positive for the coronavirus, Artsy (March 11, 2020). Here. ↑
- Jessica Gelt, L.A. Art Book Fair at MOCA canceled over coronavirus fears, Los Angeles Times (March 11, 2020). Here. ↑
- Hannah McGivern and Nancy Kenney, Here Are the Museums That Have Closed (so far) Due to Coronavirus, The Art Newspaper (March 14, 2020). Here. ↑
- Ysabelle Cheung, ‘You Want to Pull Your Hair Out’: Artists and Gallerists Respond to the Long-Awaited Cancellation of Art Basel Hong Kong, ArtNet News (February 7, 2020). Here. ↑
- Tim Schneider, The Gray Market: Why the Coronavirus Canceled Art Basel Hong Kong When the Protests Couldn’t (and Other Insights), ArtNet News (Feb. 10, 2020). Here. ↑
- Taylor Dafoe, A Hacker Posing as a Venerable British Art Dealer Swindled a Dutch Museum Out of $3.1 Million, artnet News (Jan. 30, 2020). Here. ↑
- EU General Data Protection Regulation (Regulation (EU) 2016/679). ↑
- The California Consumer Privacy Act of 2018, Cal. Civ. Code §§ 1798.100-1798.199. ↑
- Historical Design, Inc. v. AXA Art, 2010 NY Slip Op 50363(U), 907 N.Y.S.2d 437 (Sup. Ct. N.Y. Cty. 2010). ↑
- Daniel Grant, Art Thefts Highlight Complex Insurance Issues, ArtNews, (Nov. 3, 2009). Here.
- Scotti Hill, Fine Art Storage Services v. Insurance Companies: A Cautionary Tale, Center for Art Law (July 16, 2016). Here.
- Alicja Grzadkowska, Museum thieves today target more than million-dollar art, Insurance Business America (May 28, 2019). Here.
- Bethan Moorcraft, Small museums ‘anxious’ about their D&O exposures, Insurance Business America (Aug. 8, 2019). Here.
About the Author: Vivian Costandy Michael is an insurance recovery attorney in the New York City office of Anderson Kill P.C. Vivian exclusively represents policyholders. She can be reached at firstname.lastname@example.org.