The Essential Guide to Corporate Art Insurance
Artworks are often high-value assets subject to complex risks. For those with a passion for collecting, securing coverage for each object of art is a high priority and an important aspect of maintaining a collection.
Fine art insurance companies offer policies for a wide range of art held in personal collections, museums, galleries and corporate art collections.
These days, some of the most important art collections hang on the walls of corporations, and these assets need protection. As a collector, your objects are irreplaceable, and artwork insurance protects these entities from the unexpected.
The following discussion concerns coverage intended for businesses that own or collect art but are not in the fine arts business. This article should not be relied upon for specifics about insuring fine art. Check with a professional insurance agent or provider specializing in fine art insurance for complete and accurate information.
Types of Insurance for Fine Art Collections
There are two types of insurance for art collections: title and property. Let’s explore the difference between these two.
Title insurance offers coverage against a defective title. This type of art insurance protects collectors from a dispute over the ownership of an artwork or from someone claiming they have rightful ownership of a particular piece.
Title insurance is especially important for artworks of high value. Sometimes, provenance is not enough to guarantee protection from a title dispute. Even works thought to be purchased in good faith can later be revealed to be stolen.
This can happen to anyone, even high-profile individuals. In 2007, film director Steven Spielberg realized that Russian Schoolroom, a Norman Rockwell painting he had acquired years earlier through a dealer, was, in fact, a stolen work from a Missouri gallery. Had Spielberg protected his collection with title insurance, he would have been reimbursed for the full cost of the painting as well as any related legal fees.
By taking out a title cover, art collectors are protected from provenance disputes for any medium of work from any time period.
Property insurance, on the other hand, covers theft or damage.
Some homeowner’s or renter’s policies cover fine art up to the policy limit per item (minus a deductible). However, for high-value pieces, a separate add-on is usually needed for adequate coverage. If you have a significant collection, it is better to seek out an art insurance policy underwritten by a fine art insurance company that understands art valuation and how best to protect these assets.
It is important to note that property insurance policies for fine art are extremely specific about what they cover. Pay special attention to the risks that the policy outlines and make changes accordingly. For example, if you are in Florida, be sure that you are covered for hurricanes or flooding. California collectors will want protection in the event of an earthquake or wildfire.
In short, make careful assessments about the individual specifics of your collection and proceed accordingly.
Commercial Property Insurance vs. Fine Art Insurance
Don’t buy into the myth that art is covered by commercial property insurance. Collectors are often shocked to find that their policy either explicitly excludes works of art, or the coverage is limited to the point of obsolescence.
Under almost all commercial property policies, works of art, collectibles and other objects are considered business personal property (BPP) and do not receive sufficient coverage. BPP is only covered if located in or on a structure described in the Declarations page of your policy forms.
Objects age over time, and art is especially vulnerable. Certain perils that directly affect fragile works of art are often excluded from standard commercial property policies. Some examples of these exclusions are:
- Changes or extremes in temperature
- Dampness or dryness of the atmosphere
- Marring or scratching
- Continuous seepage of water or moisture over 14 days or more
- Natural disasters such as earthquakes or wildfire
Omitting these perils from a policy exposes your collection to serious loss.
Another major problem with commercial property policies is the valuation process. If a work of art is damaged, the losses are calculated based on the current cash value of the damaged property. This means that individual works of art, under commercial property policies, are not valued on their replacement cost. This holds even if policyholders have elected to insure BPP on a replacement cost basis.
Because the value of damaged art is elastic, this can make a commercial policy untenable if costs need to be recouped. Therefore, to adequately protect your valuable corporate collection against losses, proper corporate fine art insurance coverage is a necessity.
Types of Policies for Fine Art Insurance
Insurance for art has two policy types: scheduled or blanket. Let’s explore these art insurance policies to find the best fit for your corporate art collections.
With a scheduled policy, each item in a collection is listed on the policy and insured for a specific amount (this list is updated periodically based on an appraiser’s assessment). This coverage allows for policyholders to receive a predetermined amount for damaged or lost pieces.
For example, if a high-value painting is stolen, you are covered for the full value on and off premises. There is no cap or deductible that would be applied. Scheduled works of art are covered unless specifically excluded in the policy documents.
In essence, scheduled fine art insurance coverage simplifies the claims process. There would be no dispute over the reimbursement amount in the event of a total loss from something like a hurricane. The drawback, however, is that per-item maximums can sometimes be instituted on certain pieces. Also, as you sell or acquire new works, they must be added to the art insurance policy individually.
The other option, a blanket policy, insures the corporate art collection as a whole. This allows the collector to receive coverage up to a certain amount without itemizing each object. With these policies, collectors avoid adding or removing items when deaccessioning or purchasing new work.
A blanket art insurance policy makes sense depending on a collector’s situation. Take, for example, a corporate art collection that is spread across the country. If the total value in any one building is $5 million, then purchasing a blanket policy for that amount might be practical. It would cover art at all locations where the most that could be damaged in a catastrophe is $5 million.
A blanket policy is easier to manage than a scheduled policy; however, it becomes more time-consuming in the event of damage or theft, as the policyholder must establish the value of the work after the loss.
The Coverage of an Art Collection Insurance Policy
There are several options when deciding on the specifics of your art collection insurance coverage:
This type of policy extends your coverage and includes damage and theft in most situations. However, beware of the term “all,” as there are almost always exclusions. A more accurate term for this type of policy is “open perils” or “special perils,” which delineates that the coverage is not a catch-all.
Insurance for art can vary on an individual basis. The best policies will allow you to customize the language based on your requirements, including extending and limiting coverage in certain areas and saving on your premiums.
Ongoing Appraisal Protection
Artwork can change in value over time. An art insurance policy with an ongoing appraisal clause allows you to recoup the latest value of the piece. In the case of a natural disaster, break-in or theft, policyholders will receive the market value of the item as opposed to what was paid for the piece. This requires getting works appraised every few years to secure an accurate valuation.
What to Insure Against
The most common claims under a fine art insurance policy are theft, robbery or damage from transit. Requisite coverage includes fire, natural disasters, theft and damage from accidents at home or during transit. If you loan your art to museums or galleries for exhibitions and displays, you’ll want a policy that includes both replacement and restoration. Replacement coverage protects you if the art is stolen or destroyed and restoration covers partial damage and repairs.
Loaning your works for display at an institution is a great way to increase the value of a work, but it also exposes the object to increased risk, such as loss or damage. An artwork on the move is more vulnerable than one safely stored away or hanging in a secured space.
At the end of the day, there is no mathematical formula for damaged artworks, so it is important to anticipate problems. For example, a tear in the canvas will affect a painting’s valuation more if it is in the center versus the side. Depending on whether the damage is repairable or not (some extremely old or valuable works retain cultural significance regardless of condition), you will want to be covered in either instance. If you are concerned about damage and subsequent repairs reducing the market value of a piece, look for a policy that reimburses for lost value.
How to Determine the Right Amount of Coverage
Fine art insurance policies vary from collection to collection. Comprehensive coverage depends upon what exactly needs to be insured. Particulars such as where the art is placed can determine the specifics of the policy. If the corporate art collection is in an office, building lobby or storage unit, the coverage will differ. Also consider disasters that may strike and alert your insurer to potential incidents that may need coverage.
As previously mentioned, environmental or atmospheric concerns are dependent upon location and should be considered when deciding on a policy. Security at art located off-premises and at art exhibited off-site also affects the coverage needed.
No matter the circumstances, don’t wait to lessen your risk. Consider the unique aspects of your situation and proceed with insurance for your corporate art accordingly.
Art insurance policies have fewer exclusions than a commercial property policy and cover any damage not explicitly listed as an exclusion.
Common art insurance exclusions include:
- War Risks
- Nuclear Hazard
Nuclear radiation, reaction or contamination – whether controlled or uncontrolled and whether direct or indirect, proximate or remote. (In some instances, the works are covered if the loss results from a fire started by a nuclear hazard.)
- Government Action
Seizure or destruction by government officials.
- Dishonesty committed by you, a company principal or employees
This is important when considering a corporate art insurance, as your employees’ actions may result in losses if there is damage or theft.
- Mysterious disappearance
When an object of art goes missing, it is usually initially logged as a mysterious disappearance. In some cases, where proof of theft is not available, these losses are not covered. Such was the case at a downtown art gallery in Milwaukee, where an original Picasso print was swiped. The gallery did not have surveillance cameras when the print went missing, so unless it turns up and is identified, the loss is not covered.
- Voluntary parting with the property by trick or false pretense
Examples of incidents that fall into this category would be accepting a counterfeit check in exchange for an art object or accidentally giving a work to someone who was not who they said they were (a fraudulent shipping company or scam gallery), resulting in the theft of the piece.
What to Prepare Before Insuring Your Corporate Art Collection
If you are building a corporate art collection, do not leave anything out or cut corners when preparing to insure the artwork.
Make sure you include every detail for the insurer about the specific artworks and any potential risks (flood zone, frequent loans to museums or universities, etc.). Not supplying insurers with a comprehensive overview of your collection can lead to losses down the road.
The main documents required by an art insurance company demonstrate ownership and value. You must provide proof of ownership in the form of provenance, which confirms that the artwork is yours and shows the historical ownership of the work.
Be sure to keep any documents that can help verify the provenance of your artwork and submit them to an insurer. Good provenance enhances the value of an object and should contain information about the medium, dimension, date and title. One of the best forms of provenance is a signed certificate of authenticity from the artist. If you are buying directly from an artist or through a dealer or gallerist, obtaining this signed certificate should be a high priority.
Other forms of provenance include a sales receipt or Bill of Sale, an exhibition sticker, previous appraisal reports, or any other documentation that details the history of the work’s ownership. As a general rule, never bid on a work of art without first verifying its provenance. Once an artwork is yours, be sure to secure any relevant documentation, as this can be as important as the art object itself!
Fine art insurance policies cover objects on an agreed-upon value basis. When you purchase art collection insurance for your corporate art, you submit a list of the individual works to the insurer and designate the value of each item. The values will have been agreed upon by both sides at the start of the policy period.
Certain external factors can impact the value of a work, such as the death of an artist or a rise in popularity. In addition, validation of an artist from top museums or galleries that acquire their work can significantly impact the value of their entire oeuvre. With markets constantly in flux and a range of external factors at play, it is important to stay on top of the changing valuations of your corporate art collection.
A recent appraisal of the artwork will be necessary to substantiate an object’s current value. It is recommended that you regularly appraise the items in your collection. In the event of loss, theft or damage, the loss owed to you is based on the previously stated value. Artwork insurance companies will not pay more than the most recent value submitted for the policy.
When evaluating your collection for an artwork insurance policy, be sure to submit accurate values to the insurer. It is always a good idea to have your corporate art collection examined by a reputable appraiser. If you are scheduling an appraisal for an insurance policy, make sure the appraiser gives the latest market value of an individual piece or the collection as a whole.
The two most common ways an art appraiser determines a work’s value and authenticity are through fair market value and replacement value. These terms are defined as:
- Fair Market Value
This is a hypothetical number that takes into consideration demand for an artist or genre and the price that similar works are being sold for. In essence, it indicates what someone might be willing to pay or sell any one artwork for.
- Replacement Value
This is the number that is usually used by an insurance company. A replacement value is the amount of money it would cost to replace the lost or damaged item with a similar work. This value is usually higher than the fair market value.
An accurate appraisal is essential for any serious collector. When looking for an appraiser, it is important that they have the appropriate education and experience along with an understanding of the art market.
It is best to find an appraiser with a strong background in art (either museum or gallery experience) and to avoid someone who buys and sells art themselves, as conflicts of interest can inevitably arise. In some instances, if the insurer and the collector cannot agree upon a valuation, a third party approved by both sides will be called upon to carry out the appraisal.
Evaluating a complex collection is an art in and of itself. Learn more about how to authenticate and appraise fine art here.
The Cost of Fine Art Insurance
Calculating the value of a corporate art collection and, in turn, the cost of an art insurance policy is complicated. The amount you will pay will depend upon several factors, including:
- The appraised value of the artwork or collection you want to insure
As mentioned above, there are many factors that go into assessing the market value of a collection. Depending on the most recent appraisal estimate, the cost of your art insurance premium could rise or fall.
- How often art is moved or loaned
If you are often loaning works from your collection to museums, universities or other institutions, it is important to have door-to-door coverage. This means that your artwork is covered from the moment it leaves its regular resting place until it is safely returned. Loaning an artwork exposes it to increased risk, which can also increase the cost of your art insurance premiums.
- Where the works are located or displayed
If your art is displayed in a public setting, it is exposed to more risk than, for example, if it were kept on a wall at your home. Corporate art collections, which are often in public areas of a building or on the walls of an office, may require increased protection from risk.
- The conditions under which your art is stored
If an artwork is kept in a fine art storage warehouse or in a safe at your office, the cost of your art insurance policy may vary.
- Security Systems
Obviously, high-security systems mitigate risk and will lower the cost of any art insurance policy.
- The artwork’s condition
Artworks in mint condition are often more costly to insure, as they are appraised higher and, in most cases, are more in-demand than damaged works.
In any case, it isn’t easy to guess exactly how much it might cost to insure an art collection. The variety of factors that determine the valuation and the many available customization options leave a range so large it would be silly to attempt to guess. The best route is to speak with a fine art insurance representative that can evaluate costs on a collection-by-collection basis.
No matter the value or depth of your collection, it is important to protect these art entities with an insurance policy that reflects their every intricacy.
Putting a policy in place designed specifically for your corporate art collection not only helps to mitigate risk but gives you peace of mind.
Don’t wait until it’s too late!
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